Hotel Class Upgrade Fails to Increase ROE & GOP - Essay Sample

Introduction

The decision to change the hotel classification resulted from the competitors’ actions and desire to increase the hotel's revenue. The hotel's classification changed to an upscale hotel from an economy hotel, thereby giving customers quality services. With the improvement of services, I expected to increase in Return on Equity (ROE) and Gross Operating Profit (GOP) as there would be more generation of revenue. However, the decision did not meet the expectations as the change in the class of the hotel led to managers spending $28,650 on marketing alone and $45,500 for renovations this resulted in constraining of the available resources thereby the company could not add more facilities leading to a decrease in ROE in 2019. The money should have been allocated for the improvement of customer goods and services. Due to this, the company's market share was reduced to 54% in 2019 from 68% in 2018.

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Introduction of Conservative Pricing Strategy

The RM decision on conservative pricing strategy aimed at increasing the ROE and GOP of the hotel as it would result in a competitive advantage in the market. The objective was met as more rooms were sold out (rooms sold out 4330), but the revenue collection was contrary to the expectations. The decision did not meet the expectation as the profitability index of the hotel declined since the revenue left by the customers was far below the hotel's rating. The efficiency level decreased to 90.52% from 95.4%, especially in October; this resulted in a drop in the hotel's rank, which was 8% lower than the normal.

The Sole Focus on Hotel Rooms Occupancy

The decision to focus on the room’s occupancy was arrived at because of the reduced hotel occupancy levels. The hotel occupancy level was initially at 78% in 2017 and significantly dropped to 54% in 2019. A focus on the occupancy would have resulted in more guests booking the rooms, thereby increasing the GOP and the ROE of the hotel. However, the decision did not meet its objective; the revenue from room occupancy declined to an index of 0.95. the rooms sold were 4330, which is about 0.09 of the entire market share. The Key Performance Indicator (KPI), which is the revenue, showed a decline in the 2019 financial year to $19,978 due to the focus on room occupancy, leaving out other important aspects of the hotel business as a customer satisfaction.

Question 2

There process of generating the expected GOP of 40.5% and ROE of 5.5%, various measures should be adopted. In the 2020 financial year, I would cut the revenue channeled to the advertisement in the first two months so that there would be more funds directed to customer satisfaction through the improvement of services. The first two months are essential as improved customer services would result in the retention of customers and getting new ones in the financial year. The poor customer's services in the year 2019 led to decline in the hotel occupancy rate to a record low of 54% since 2017. There is an increased customer satisfaction results in improved revenue for the company as there would be enticement of more customers to come to the hotel because of the improved services.

Question 3

I would rechannel the substantial funds invested in advertisements toward the improvement of customer services. The change in the hotel's class to the economy hotel requires improved customer services in case the customers receive poor services. They won't come again, and they would create a poor image for the hotel. Therefore, by improving customer services, the customers would be more satisfied. They would refer more customers, resulting in increased market penetration, which currently stands at 94.2. The attainments of the objectives of having a GOP of 40.5% and ROE of 5.5%. There is a high possibility that when customers are satisfied, their chances of coming again doubles. The satisfied customers would be the source of advertisement for the company. Through the improvement of customer services, the total rooms sold would increase from the current value of 4330.