An Aid in Selecting the Brand, Size and Other Strategic Choices for a Hotel

Abstract

The “go/no-go” decision for a candidate property, i.e., whether or not to actually acquire the site, choose the brand (flag), build and operate the hotel, requires the explicit consideration of the interconnectedness of the many myriad elements affecting the property's potential profits. The many facility design decisions (number and mix of rooms, capacity for F&B operations etc.) as well as other strategic choices (e.g., size of marketing program, level of service aimed for) must recognize the site's competitive features and interactions with the above. Also, the particular design and operational features for a given property will affect its different revenue streams, fixed and variable costs, efficiency and profits. The authors consider developers contemplating acquiring a given site, choosing a brand, building and operating a new hotel. They offer a normative approach for this type of decision which arrives endogenously at possibly attractive options for the brand, design and strategic choices for the site. The final decision as to which option to actually use, if any, should be based on subjecting the above identified scenarios, as well as others, to traditional feasibility analyses where judgment and expert opinion are applied. The authors' implementable approach integrates a “best practices” benchmarking methodology with regression analysis to yield a mathematical programming optimization model. A key advantage of this approach lies in its contrast to conventional approaches for site selection which often ignore the more detailed design and strategic choices. The approach deals explicitly with the complex interfaces between marketing and operations management as the endogenous site and competitive environmental factors interact with the endogenous brand and facility design choices. By identifying attractive options to be further explored (that might otherwise be overlooked), several types of errors are avoided: i) an incorrect “go/no go” decision could be recommended for the site in question; ii) even if the right decision to proceed is made, the forecasted level of annualized profits could be in error, leading to an incorrect priority for the activity; iii) the incorrect brand and facility design choices could be made for the site. Other key advantages of the suggested approach are that 1) various substitution possibilities (between more or less capital, labor, materials etc.) are considered; 2) not only is the best brand and configuration identified, but also a ranking of other brands is available if the “best” brand is not available; 3) the “best practices” at other specific sites (which serve as the basis for the recommendations) are identified, thereby enabling management (possibly through site visits) to isolate the actual cultures, processes and procedures to be transported and emulated at the candidate site. This paper illustrates the approach for two different sites.

Benchmarking in Tourism Destination, Keeping in Mind the Sustainable Paradigm

“…Corporate travel management have been analysed in (Bell and Morey, 1995), while the hotel sector has been analysed in several works, see for example (Morey and Dittman, 1997), (Anderson et al, 2000) and (Wober, 2000). An overview of DEA applied to tourism and hospitality industries can be found in (Wober, 2002).…”

Settling for Less: The Institutionalization of the Hotel Feasibility Study

“…Although ubiquitous in the hotel development process, and generally performed and provided by professional consultancies that specialize in this area, feasibility studies are rarely accurate at predicting the performance of prospective hotels (Beals, 1989;Morey & Dittman, 1997;Rushmore, 2011;Tarras, 1990). Practitioners and academics blame this on various weaknesses including outdated structures, inaccurate data, and methodological limitations Damito, Schmidgall, & Singh, 2009;Rushmore, 1996;Singh and Schmidgall, 2010;Singh, Schmidgall, & Damitio, 2011).…”

“…Although numerous improvements have been repeatedly recommended, including new methodologies and better data collection techniques, most have yet to be adopted (Damito et al, 2009;Overstreet, 1989;Rushmore, 2001;Singh & Schmidgall, 2010;Walker, 1978). This is problematic because ineffective feasibility analyses are often to blame for the poor brand and design choices (Morey & Dittman, 1997), overbuilding (Overstreet, 1989), and failed real estate projects (Sorenson, 1990), which have regularly plagued the industry. Singh et al (2011) recently noted that "despite recommendations by scholars, industry professionals, and lenders to make hotel feasibility studies more effective, the essential form of the studies has remained unchanged for a long time" (p.75).…”

Using data envelopment analysis to evaluate environmentally conscious tourism management

“…In 1986 DEA has been first applied to the hospitality industry (see [Banker and Morey, 1986]), specifically to the restaurant section. Corporate travel management have been analysed in [Bell and Morey, 1995], while the hotel sector has been analysed in several works, see for example [Morey and Dittman, 1997] and [Anderson et al, 2000]. However, the relative performance of municipalities tourism management had never been analysed beforehand.…”