Home Stay (HS)
Home Stay PLC (HS) operates 600 budget hotels and holds a 60% share of the rapidly expanding budget hotel market.
Recent secondary research on the hotel industry found:
- Luxury hotel guests tend to be brand loyal.
- 80% of budget hotel guests respond positively to price reductions.
- The budget hotel market is experiencing rapid growth.
- Comprehensive data and insights are available for all hotel chains.
The directors of HS aim to boost the occupancy rate of their hotels from the current 65% to 80% by the end of 2024. Each hotel has a capacity of 400 rooms, with business travelers making up only 15% of total bookings.
HS is considering two strategies:
Option 1: Offering price discounts on 100 rooms in each hotel
This strategy would set prices 10% lower than those of the main competitor, Motel Inns (MI), and include a price match guarantee, ensuring HS matches any lower price offered by MI for similar rooms.
Option 2: Upgrading 100 standard rooms in each hotel
The upgraded rooms, named HS+, would feature enhanced IT facilities, updated décor, a coffee machine, and an improved shower.
HS+ rooms would be priced 20 USD more per night than standard rooms. The estimated cost for upgrades is 1500 USD per room, with completion expected within two years. The HS+ rooms would cater to both business travelers and customers willing to pay a premium for an upgraded experience.
Define the term market segment.
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A market segment is a sub-group/portion of a whole market
1 mark -
Where consumers share similar/common characteristics
1 mark
Explain one advantage and one disadvantage for HP of using secondary market research.
Application Advantage
- Get detailed stats on rival budget hotel chains.
- 80 % of budget hotel guests are price sensitive.
Application Disadvantage
- Some of data is not relevant e.g. data about 5-star hotels.
- Hotel market is rapidly growing so may be out of date very quickly.
Award
Award
In order to access the 3rd and 4th marks both answers must make use of the stimulus / be contextualised.
Mark as
Construct a Boston Consulting Group (BCG) matrix for HP, identifying the correct segments for HP’s standard rooms and its HP+ upgraded rooms if Option 2 is chosen.
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Correctly labeled diagram with:
2 marks - Market Growth Rate on y-axis
- Relative Market Share on x-axis
- Four quadrants labeled: Stars, Question Marks/Problem Child, Cash Cows, Dogs
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HP standard rooms correctly placed in Stars quadrant
1 mark -
HP+ upgraded rooms correctly placed in Question Marks/Problem Child quadrant
1 mark
Discuss whether HP should choose Option 1 or Option 2.
Option 1 Analysis
Advantages:
- Quick and simple to implement with only promotional costs needed
- Can utilize multiple advertising channels (TV, press, social media, direct mail)
- Likely to increase demand due to price-sensitive budget hotel customers
- Potential to improve occupancy rates above 65% quickly
Disadvantages:
- Success depends on competitor (Kampfort) reaction
- Risk of price war if Kampfort matches or undercuts prices
- Occupancy rates must rise >10% to maintain revenue
- May only minimally increase market share if competitor matches prices
Option 2 Analysis
Advantages:
- Appeals to business guests (15% of target market)
- Attracts non-price sensitive customers (20% of market)
- Higher revenue potential ($960,000 per night at 80% occupancy)
- Differentiates from competitors through premium offering
Disadvantages:
- High implementation costs ($90 million total)
- Revenue loss during 2-year upgrade period
- Risk of brand cannibalization between room types
- May not achieve 80% occupancy target
Application to Context
- Analysis uses specific figures from stimulus
- References competitor situation
- Considers target market segments
- Links to occupancy rate objectives
Balance
- Evaluates both advantages and disadvantages
- Considers short-term vs long-term impacts
- Examines financial and market implications
- Analyzes competitive responses
Justified Conclusion
- Recommendation must be based on previous analysis
- Should consider both options' alignment with objectives
- Must address key decision factors (cost, time, risk, market impact)
- Should provide clear reasoning for final choice
