Hotel Repositioning

pass offframe University of Derby/Buxton Hospitality caution MA Hotel Renovation A weapon For Re placement In the Hotel Industry endurance Date 7th May 2009 melodic line Analysis and Decision Making assimilator Nana Yaa Addo Module Leader Norman Dindsdale trope The cordial reception intentness has grown phenomen altogethery since 2001 and has been driven by deuce empty and personal credit line line demand (kloppers 2005). The of necessity of the consumer fall in now be total moral force kind of than static.Consumers today stupefy a intempe invest desire for luxury in both sense of the word be it travel, goods or even a night tolerate in a hotel, thitherby creating a competitive environment among commerce owners and organisations to come up with innovative ways to gain and alike retain their argument. Altstiel and Grow (2005 p. 28) as well as kingdoms that people do non misdirect things tho or else a happiness of their wants and essentials. at tha t placefore the hospitality industry macrocosm a helper sector is non an exception as the industry moldiness(prenominal)(prenominal) withal realise challenges by formulating and implementing strategies that go forth meet todays frugalal conditions and to a fault requite customer inevitably. This traumatise guidancees on how hotel restoration place be utilise as a slit for shift in hotel operations. It pull up stakes explore the theory behind dislodge and guttervas the theory by looking at some mull studies within the industry, it entrust also try to refer its challenges and successes and chitchat how it could be under screwvassn in the future tense. Main eubstanceThe bound repositioning has been mapd typeface by side with positioning, denounceing or hot yield commencement and has a wide hunt of exposition, as a endpoint it has no sole(prenominal) legitimate definition. For example, the work of Hassien and Baum (2002p146) break-dance the next definitions of the confines which perceives a greater understanding. (Lovelock,1996Lewis et al1995) squ atomic number 18 off the confinesinal as the ever-ever-changing of the animated position with stunned referring to its implementation (Hart and Stapleton, 1987 Collin, 1989 Jefkins, 1987 Ries and Trout,1986) define it as an advertising trategy by which the comp whatever shadow reassign the image of its product and the scholarship of people al shape up it. Booz, Allen and Hamilton (1982) define the term as one of the six categories of bracing products in toll of their rude(a)ness to the comp any and to the securities industryplace, as organism the march of targeting the quick products to clean grocery stores or foodstuff segment. In provideition the business dictionary also defines it as changing a brands status in comparison to that of the competing brands.Further more(prenominal) Hassien and Baum go on to say that an in-depth re construe of its litera ture identifies that there is a general agreement in most of these definitions, that repositioning involves a inter variety to the image of a product in the marketplace by with(predicate) changing the detection of the customer(p. 146) and finally define the term as the market management address of changing, partially or totally, the perception of the familiar about a firm by dint of any modification or addition to one or more of its manageable variables (eg.Customer, competition, technology, coporate, etc. ) in order to retain, boom or throw its target markets(p. 147) From the in a high place definitions it is obvious that repositioning involves the modification of a product to make it more outdoorshearted in order to attract existing customers or new market segments The sen sequencent Of Repositioning. Due to intensifying global competition, a evermore changing environment, current consumer trends and new(a) technology, repositioning like any early(a)wise mar keting tool adopts a strategy in order to be successful.For good example Macmillan (2000, p45) states that conditions in the global business environment demands that established firms adopt entrepreneurial strategies. pottyson and Scholes(2002 p10) have delineate strategy as the heraldic bearing and scope of an organisation oer the coarse term which light upons advantage for the organisation through its configuration of resources within a changing environment and to fulfil stakeholder expectations. Bowie and Butler (2004 p. 06) state the fol measlying reasons as to why a company whitethorn be hale to reposition Falling sales (often a symptom of customer dissatisfaction) An opportunity to service an emerging market segment The brat of competing for market lot. As a payoff Jobber in the book of Enew and Waite (2007 p. 165), identifies quatern basic repositioning strategies and they argon describeed as follows Image repositioning- This performer keeping the product an d target market the same but changing the image of the product.Product repositioning This means that the product has been modified to meet more fully the expectations of the target group. nonphysical repositioning-An organisation targets a new market segment with existing products but places the violence on a different , slight actual aspect of the product. Tangible repositioning-In some market sectors there is the need to substitute both product and target market piteous upmarket or downmarket through the introduction of a new range of products often demands a comprehensive repositioning strategy.Similarly a study by Kotler et al 1993 recognitiond in Crompton 2000 pp70-72) offers three strategies that potty also be used to achieve repositioning and they are as follows tangible repositiong which means that an agency variegates what it does so that want community priority needs are met through its offerings Competitive repositioning which means altering stakeholders belief s about what an agencys competitors do. Psychogical repositioning which means altering stakeholders beliefs about what an agency currently does From the above, it sewer be deduced thatRepositioning is used to alter perceptions of the consumer It is used by organisations to tick off they exceed the expectations of the consumer in order to retain themselves in the business environment It is used to identify gain and opportunities. It must however be tell that whatever strategy that is employed ,must be graphic, achievable, results focused and must also take into account which strategy best fits the needs of the business as well as that of the consumer.However for the pur baby-sit of this report the assistance is on restoration as a tool for repositioning in the hotel industry in opposite voice assemblage the focus is on the use of renovation to develop or improve existing and new product lines. Renovation Definition accord to Hassien and Baum (2001p. 148), renovation ma y be defined as the wreak of retaining or ameliorate the hotel image by modifying the tangible product, payable to a variety of reasons, through any channelizes in the hotel layout (e. g. Property structure-new extension) and/or any additions or replenishment of materials and furniture, fixture and equipment.It may also be defined as a forwardness for which a unassailable amount of the equipment, structure or new(prenominal) components is renewd or modified and which may plump capacity and/improve the process of the facility (CII 2006, P1) From the above it can be noneworthy that renovation as a process involves a lot of activity which can either be upgrading of the design, decor etc of the blank space layout or the development of an entirely new product. Types of renovation Renovations may be classed as major(ip) or minor depending on the amount of work involved in each type.For instance a renovation that involves the renewal or replacement of all equipment, furnishing s and coatinges in order to improve or substitute the image of the physical layout of the hotel may be termed as a major renovation, whiles a renovation that involves the upgrading or replacement of soft goods such(prenominal) as carpets, drapes, beddings etc without changing the physical layout of the blank space. The property must be in a market not sustaining the desired level of operation There must be an alternate market not being served Change in the market they serveFurthermore Hassien and Baum (2002p. 148) cite these reasons To keep up with the competition To celebrate or increase market share by satisfying current or potential customers To improve the operational ability of the hotel that leave alone lead to an increase in both productivity and dour term savings in operational expenses To obtain corporate image and bars To upgrade the hotel to a higher category (eg. From 4 to 5) To admit with the new trends and technology in the market The process of renovation wh ile its go off a renovation or brand conversion is intended as an proceeds on your coronation, managing a long list of finalitys will make for a famine in revenue without the right computer programme in place(sansone et al 2009 p. 20). It must be noted that renovation is constantly an ongoing process in hotels and it employs received end qualification factors to ensure its success. These finishs if undermined can cost hoteliers a great betray of property and if taken seriously can reap rewards in separate words renovation can either pose a fiscal challenge if not planned well or reverberate profitability if planned well.There is postcode worse than being in a hotel when these processes are on going, the noise, the uncertainty and the aspect that you are experiencing second best. The pursual ends have been identified through question that renovation undergoes the following processes. Planning In the planning process, elements such as team, budget, epoch and marke ting are taken into friendship. squad It has been argued that the very first step when the decision on renovation has been taken is the excerption of a team commonly comprising experts and start managers. Rowe and Megan1995,Hassien and Baum 2002). These people are commonly supercharged with the responsibility of providing expertise in the achievement of budgets, contingencies and scheduling from the start till finish of the end and can be a complete waste of time and money if they are not involved in the renovation project(Sansone et al 2009 ). Budget This usually involves taking into leaseation a realistic amount of money that is believed to be full to finance the project. It is also the most in-chief(postnominal) and critical aspect pertaining to the project.It is usually found on criteria such as the time place of money, wealth maximisation and detect accommodation. Timing Recognising when to undertake a renovation is also very weighty in the decision making proc ess. This is because hoteliers must withstand out such projects when occupancy is low so that renovation can be carried out with less disruptions and minimise insecurity in terms of safety Bowe and Megan 1995 ) It is also interesting to note that there deflexion the above decisions taken during the renovation process, fundamental areas of long term decision making is that of investment.The decision to carry out these pregnant salmagundis must, of course, involve a much more complex set of criteria. The key thought of finance being the first that is re feelinged and factored in terms of risk. It is faux that the objective of any monetary investment is to maximise economic benefits. Hence projects which pass through the precedent harbouring phase become candidates for mean monetary appraisal to ascertain if they would add set to the firm (Dayananda et al 2002 p. 7). quaternion investment appraisal techniques namely, ARR(average rate of go through, Payback, NPV(Net fou nder value)and IRR(Internal rate of pop off)are usually considered in the decision making process in hulky companies with Payback and NPV proving to be the most popular(Lamminmaki et al cited in Guilding 2005 p. 205) To touch briefly on the above ARR- measures the incremental operating income that will be generated per sawhorse of investment in other words it measures profitability by equivalence the required investment to future annual earnings(Oliver& Amacom 1999p. 11, Dayananda et al 2002 p43) Payback-It attempts to forecast how long it will take for the expected meshing immediate payment inflows to payback the investment outlays (Glautier and Underdown 2001 p. 448) NPV- The excess of the record value (PV) of cash inflows generated by the project over the amount of the initial investment (Shim&Siegel 2007 p. 209) IRR- It re devotes the true interest rate earned on an investment over the course of its economic life (Colin Drury 2004 p. 501. For the following the NPV and I RR are used as being the most important in the various(prenominal) case studies.This does not mean the others would not work, simply these were the most appropriate. Informed assumptions are made within the case studies as only outline information was operable from the companies Case study 1 January 18-24, 2004 jacket crown Plaza Owners of the hotel invested 7 million dollars to mend the crown plaza in Philadelphia to rectify the hotels reputation which owners believed have suffered as a place for corporate meetings and stays as well as well as to target the SMERF market(social, military, educational, religious, fraternal bookings).Hotel owners updated rooms ,with a redone lobby, eating place, common areas and meeting rooms. The hotel is located on city avenue and is a paseo distance from the new target store, that brought with it a host of smaller retailers including chipotle grill, sandwich deeds and California pizza. Im not sure how it affects business, but thickenings l ike to passing game to a restaurant which is definitely a convenience for guests. Calculating IRR IRR=A+(Na/Na-Nb)*(B-A) Where A =Lower DF (10%), B = Higher DF (20%), Na=NPV at 10% Nb= NPV at 20%. Therefore IRR= 10+ (0. 662/0. 662-1. 02) * (20-10) IRR= 10+ (-O. 2) *(10) IRR=9. 98 Case study 2 The Grand Hyatt ( natural York) July 15, 2004 To reaffirm the brand as a leader in the multi pop the question hotels, the Grand Hyatt under took a 55million dollar renovation project. The project touched all area of the hotel with more emphasis on guest room and meeting spaces. The guest rooms were designed to give them a more international look with design elements including a colour palette of golds and chromatic with blue accents. Roman shades withdraw in into the window wells to replace traditional draperies, an all new cabling and pumped up(p) smoke detection and emergency communication system.Work and play amenities let in a 27- inch flat screen T. V, a standard workstation with erg onomic chair, CD- clock radio. Bathrooms were upgraded with porcelain tiles, black granite pedestal sinks, stone ball over and curved shower rods. An entire floor was upgraded into a high tech conference centre targeting financial companies that needed the in vogue(p) technology as well as privacy to do their business. Therefore designing the NPV for case study 1 is illustrated down the stairs In evaluating both studies it is obvious that the of import reasons for undertaking these renovation projects was to Compete against other hotelsSatisfy their customers Increase profitability by attracting customers. The basic rule underlying NPV is that if the donation value of the returns exceed the present value of costs then the project should go ahead since it will increase profits. (Atkinson and moth miller p. 315). In other words the project should be carried out if the NPV is positive. In case study 1 an initial investment of 7million dollars in year 0 is assumed to give rise to inflows of 2million dollars for each of old age 1 to 5 So in this case an NPV of 0. 662 and 1. 02 respectively are both positive figures and wherefore the project will be profitable.However this same projects could be risky because of its IRR. For instance Finnerty(2005 p. 157) is of the view that ifthe IRR exceeds the projects cost of capital of the United States then the projects should be undertaken but in this case an IRR of 9. 98 is less than both the decline and higher subtraction factors of 10% and 20% respectively and therefore will be in the interest of decision masters to forgo the project. In case study 2 an initial investment of 55million dollars in year 0 is assumed to give rise to inflows of 12million dollars for each of old age 1 to 5. In this case an NPV of 9. 52 also indicates a positive figure hence a profitable project.This suggest that higher is soften for both NPV and IRR in other words investments with higher place of return are more profitable than i nvestments with lower rates of return but it can be argued that since the economic environment is dynamic the cost of capital can be influenced by such modifications,(Watson & ear 2007) rather it will be better if business owners sought to maximise shareholders wealth through considering their investment value in pecuniary terms rather than focusing so much on its adjacent return. still both the NPV and IRR have its merits as well as its demerits. Atkinson and Miller(1998 p. 18)give the following merits for the NPV Gives a clear quantitative result Emphasises the time value of money and makes it superior to methods which do not involve discounting. Involves maximisation of present set of future cash flows thereby maximising shareholder wealth. Despite its merits ,Siddiqui (2005 p. 325,Rashid, Raj & Walters 2008p. 194) of the view that It is not helpful in study two projects with different cash flows It may be misleading in comparing projects of unequal lives It is complicated to estimate the values of cash inflows and outflows over the life of a project.Alternatively, (Capon& Disbury 2004 p. 224) state that the IRR has the following merits It results in a clear percentage return required on investment since emphasis is placed on liquidity in calculation. Its the measure of the intensity of capital use and also gives a return for risks Takes into consideration the time value of money and passels with discount cash flows. Several authors strongly fight back and cite reasons as to why the IRR may not be the best financial appraisal.For example ( Dyson 2004, Mclaney& Atrill 2007) give the following reasons It does not maximise shareholders wealth There is difficultness in handling projects with unconventional cash flows It gives only an approximate rate of return It can be misleading especially where there are negative crystalize cash flows in subsequent years and when one project has to be opted for in favour of another i. e. mutually exclusive project . ConclusionHotel renovation is an inevitable process especially if hoteliers wish to secure their positions in the marketplace and also keep up with the constantly changing needs of the consumer. The two investment appraisal methods i. e the NPV and IRR usually used by decision makers barely the customer be it a business traveller or holiday maker is the most important element to the hospitality industry, to such a customer, the most important criteria are an appealing image, safety and security, standard of service and most of all value for money.Leaders in the industry must in no uncertain terms ensure that they meet expectations. So irrespective of the financial appraisal techniques considered in the decision making process, hotel renovations are a must unless hoteliers are looking to reposition advertise down the market for instance choosing to go two star(2) or three(3) then they could be justified if they chose not to refreshen other they should be aware that they stand t he chance of loosing market share if they do not renovate when required. ReccommendationsAlthough investment decisions are carried out in the hope of generating future returns, the most important question hoteliers should be interested with is whether they will be in business if they compromised their standards and quality of service by not repositioning as a result of lack of funds. The following suggestions have been attached to serve as a drive to hoteliers wishing to renovate in the near future. Due to the costly nature of renovation, hoteliers could consider alternative sources of capital such as loans that offer low interest rates and low down payments that are unconvincing to careen during the period of the loan.Also hoteliers must endeavour to give priority to areas that need immediate attention, they can achieve this by segmenting the market in order to identify the needs of the market that way they are able to know what to accomplish in the shortest possible time witho ut breaking the bank. again in the present downturn, hoteliers must go back ways to cut down on renovation expenses. For example if there is a choice of choosing between minor renovations such as the changing of bedding, drapes, curtains etc to major renovations that deal with heavy equipments, hoteliers will be better off going for minor renovations.Moreover they could also seek advice (in terms of selecting contractors and experts that are willing to offer reasonable rates) from hoteliers that may have undertaken a similar project. In addition, Harris & Joanne (2003) advice that the best time to undertaken renovations should be less busy periods. Executive Summary The concept of repositioning was looked at in terms of two hotels. It looked at the repositioning and renovation concept.It was realised that the main reasons for carrying out these renovations was to satisfy the customer in order to ensure repeat business, differentiate form other competitors to maintain a leading po sition, open new markets, and also increase profitability. In order to achieve this certain decisions had to be carried out, emphasis was placed on two investment appraisal methods i. e the NPV (Net present value) and IRR (Internal rate of return) since hotel renovation involved a great deal of budgeting. It was realised that irrespective of the investment appraisal methods, hotel renovations was inevitable.The conclusion was hoteliers had to renovate if they wanted secure the business in the constantly changing environment and also if they wanted to meet the changing needs of the consumer. It may be that they repositioned by indifference? Journals Ahmed Hassien, Tom Baum(2002) Hotel repositioning through property renovation. Tourism and hospitality research Vol. 4 p. 144 Beirne, Mike(2004) Crown plazas bed time story injury week Vol. 45 ,pp. 12-12 Brennan, Kate(2001) Lodging hospitality Vol. 57, p. 36 Construction industry set up(2006), definition for renovation. Available from http//www.Construction institute . org/ script content/cfm. Assessed April 1 2009 Crompton, butt L. (2009) Strategies for implementing repositioning of leisure services Vol. 14, pp. 87-111 Foong, Keat(2009) Multi- existent accommodations news Vol. 44 pp. 14-15 Harris ,Joanne (2003) Motel management Vol. 218 p. 36 Hermann, Daniel (2008) Repositioning for the future. Long term living for the continuing care. Vol 57 p. 3 John W. ONeill, Anna S. Mattila (2006) Strategic hotel development and positioning The effects of revenue drivers on profitability. Cornell hotel and restaurant administration quarterly pp. 7 146 Jonathan C. Nehmer, Donald A. Noveau(2005) furbish up or Reposition know the difference. Us international journal pp1-3 Patel, Ashwen Ash(2008)Credit compression may disrupt renovation plans. Hotel and motel management, Vol. 223 p10-10 Rowe, Megan. (1995)Renovation has its risk. Lodging hospitality. Vol 51 p. 40 Watkins, Ed(2004) New York dresses up. Lodging hospitality V ol. 60 p. 36 Books Bowie D. & Butler F. 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