November 17, 2010
Amber Inn & Suites, Inc.
Strategic issues and Problem Identification
The Amber Inns & Suites, Inc. is a 250 property hotel chain, struggling with net operating lost since 2002, with fiscal year 2005 projected to be its fifth consecutive unprofitable year. The company has projected lodging revenue of $422.6 million and a net loss of $15.7 million for fiscal 2005. Joseph James, the company’s new president and chief executive officer, wants an hour presentation that describes initiatives, expenditures, and outcomes for the past two fiscal years, and a planned initiatives and budgetary needs for fiscal 2006. Mr. James goal for the company is to achieve profitability within two years. To this end, the V.P. of Sales and Marketing and the V.P. of Advertising has to corroborate on resource allocation in their respective budgets. The company would use growth in Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) as a corporate performance measure and a basis for determining senior management executive incentive compensation. It should be noted that EBITDA often disguises the financing effects of operations and allows allot of leeway in what is reported. This analysis looks at marketing strategies that best justify potential budgetary objectives that could lead to profitability.
The U.S. hotel industry recorded revenue of $113.7 billion and grossed $16.7 billion in pretax profit in 2004. As of December 31, 2004, there were 4.4 million hotel rooms in the United States. Approximately two-thirds of all U.S. hotel rooms were affiliated with a brand; the remaining one-third was independently owned and not brand-affiliated. Although companies such as Cendant Corporation, Marriott International, Inc., Hilton Hotels Corporation, Inter-Continental Hotel Group, and Choice Hotels International, Inc leads the industry in having the most hotel rooms in the United States, the hotel industry is highly fragmented, with no one company dominating the market. Though difficult to compare, hotel industry do have wide range of offerings and recognizable areas of distinctive competencies that allow for differentiated offerings.
Generally, the industry can be divided into two main markets, full service hotels, and economic hotels. The full service hotels offer rooms and services that include restaurants for meals, bars and sometimes gymnasiums or spas. They range from luxury to low cost hotels differentiated not only by the facilities but in service levels that are offered. Economy hotels only offer a limited service, providing a room and few additional services such as a dinks machine and ice machine. They are generally lower in price compared to the full service hotels. The market is also divided into leisure travelers who are less price-sensitive and business travelers. The leisure market shows enormous rooms for growth as leisure travelers are only loyal to hotels that meet their respective needs. The September 11th event caused declined in profitability across the industry; while other organization within the industry eventually bounced back and reported profitable operations following improved economic conditions, Amber Inns & Suites remain unprofitable.
Organization Analysis and Positioning
The corporate service mission of Amber Inn & Suites, Inc. is to provide principally business travelers with clean and comfortable guest accommodations in convenient locations at reasonable prices. The company is positioned as a limited service hotel between economy hotels and full-service hotels. This positioning in the middle allows it to place its offerings in indirect competition with both full service hotels such as Holiday inn and Ramada inn, and economy hotels such as Red Roof and Motel 6. This positioning gives Amber Inn & Suites a strong competitive advantage through differentiation of offering that can be seen as premium by some consumers...