CASE STUDY - Price policy - Title:

AVARI RAMADA HOTELMentor: Student:Prof. D-r. Kiril Savovski

Isidora JovanovskaSkopje, May - 2013CASE STUDY: AVARI RAMADA HOTEL

1. Introduction

The Avari Lahore hotel basic characteristics: 5 star Hotel Affiliated with the Ramada Renaissance Hotel chain Located at the Shahrah-e-Quaid-i-Azam road Managed by Hilton group (1978 - September 1987)

Avari took over the management in October 1987 and renamed Avari Lahore Ramada Renaissance Hotel

In the vicinity of:

Provincial Assembly

Pakistan Arts Council

Commercial and Shopping zonesProblem Statement Average room rate of Avari Hotel had fallen below its main competitor, Pearl Hotel. The assistant sales and marketing manager wants to re-evaluate the current pricing policy of Avari. He wants to find out which is the best among the following alternatives: Increase the Price of all rooms by 10 percent. Increase all rates other than LBS (luxury business services) and V(volume)LBS rates. Introduce another type of rate which bridged the vast differential between the group rate and the least expensive individual rate.SWOT Analysis

Strengths: Strategically Located

Good Quality Service

Weaknesses: Rooms less spacious as compared to Pearl. Brand image has not been formed in the minds of potential customers.Opportunities: Formation of a tax free industrial zone in Chunnian Flights from Europe and United States were expected to start by the end of 1989Threats: Competition from Pearl New entrants with good international image: Sheraton Hotel The Holiday InnAnalysis Company(through images):

Competition 1. Main Rival Pearl Continental Hotel spacious rooms and lawns

2. Tax free zone in Chunnian Hotel Sheraton and Hotel Inn CustomersSegmented customer base into: Business Walk-ins Tour Groups Others Climate1. High level of industrialisation2. Flights from USA and Europe expected to be started3. Increase demand for hotel rooms in Lahore Collaboration1. Avari affiliated with Ramada Renaissance Hotel Chain2. Quantity discounts to customers who held company accounts3. Contracts with multinational and foreign enterprises/firms4. New Client companies offered contracts5. Tour Organisers offered whole sale rates6. Agreement with IATA7. Contracts with international airlines 10 rooms per yr. Discount offered 55 %MARKET SEGMENTATION Four Broad Categories

Business Clients: LBS Luxury Business Service

VLBS Volume Luxury Business Service

Walk-in : FITs-Frequent Individual Travelers

Tour Groups OthersTARGET MARKET

POSITIONINGProduct Levels Core Benefit Sleep Basic Product Attached bathrooms Equipped with modern appliances Expected Product Eating places A coffee shop A snacks bar A regular restaurant Augmented Product Punjab Terrace Club Kohrshed Mahal Function Rooms Executive Business Centre2. Analyze

PRICEPricing objectives:

Profit Maximization Market share leadershipSetting the price: (Pricing method) Going rate pricing: Avari Ramada operates in an oligopolistic market & prices its rooms on the basis of competition and demand. It revises and adjusts its prices, twice a year according to the inflation rate. Room rates & Pricing PoliciesIndividual rate

.Key pricing strategy concepts: Adapting the price: Differentiated pricing Numerous types of rates are kept in place. Policy of not turning away any guest that comes to the hotel. Price discrimination occurs (Company sells a product or service at two or more prices that do not reflect a proportional difference in costs). Third degree price discrimination: Seller charges different amounts to different classes of buyers. Customer segment pricing: Different customer groups pay different prices for the same product or service. Contract Rate: An enterprise or firm could enterinto a contract with the hotel,and thereby negotiate room prices according to the number of room nights thatit was willing to provide the hotel within a given year. Usually, only the multinational and foreign companies entered this category with good repute, size & past records. It would register for either an LBS (luxury business service) VLBS (volume luxury business service) rate.

Garbage rates:

It refers to a category of miscellaneous rates that forms a low percentage of the hotels total revenue.

Key pricing strategy concept:

Promotional pricing: Special customer pricing Sellers offer special prices exclusively to certain customers.Suites:All the suites haddifferent rates: Rs 3300 forthe junior suite, Rs 5500 for the executive suite, Rs 7150 for the presidential suite. Bridal Suite was complementary if the wedding or reception was held at the hotel, otherwise it was charged at its normal price of a double room at the rack rate. Floral decorations could also be provided with an additional payment of Rs 500. For an extra person in any suite, the charge was Rs 180.Key pricing strategy concept:

Optional product pricing: It will attempt to increase the amount customer spends, once they start to buy. Optional 'extras' increase the overall price of the product or service. Complementary bridal suite: Sales promotion incentivePROMOTION

Discount pricing Primary promotional tool to increase the hotels occupancy rate.Summer package It happens only in lean season (May to September). Single rooms are available at Rs 930 and double rooms at Rs 1050. For every nine guests in a group, two rooms are given for free. Breakfast is complimentary and 10 percent discounts on every meal consumed by hotel guests is given. Purpose: Raise occupancy levels during lean months.Other promotional activities:Relationship marketing: To enhance goodwill & build long term relationships. Free bed tea to the LBS & VLBS guests. Inviting LBS & VLBS account holders to hotel for free meals. Upgrading: Offered LBS account holder Junior Suite at the same rate of the LBS double or single room. Promotional literature (Direct Marketing): Promotional literature such as leaflets and newsletters were sent to list of clients to keep them informed about the monthly activities at the hotel.3. Conclusion and solutionsCurrent Situation Every year, the target for the average room rate was increased by 10 percent. In 1988, the target for the average room rate was Rs 1200 per month and it would be Rs 1320 per month in 1989. For 1988, the targeted average occupancy rate was 82 %. In 1989, this target would increase to 85 % Variable costs were 15 percent of the room revenues alone. Average Room Rate (Rs)

Occupancy Rates (%)

Option 1

Option 2

Analysis ARR for option 1 Rs 1100 and option 2 in Rs 1070. But LBS and VLBS are major source of income. Hence not advisable to increase price. With tax free zone, there will be high demand for LBS and VLBS contracts.Recommendations Summer Package: The difference in the average room rates of Avari and Pearl is as high as Rs 114 in September 1988, with Avari being on the higher side. During lean season, a small decrease in rate will increase occupancy significantly. By bundling food and room rates, we can encourage more guests to have their food in Avari, thereby increasing the revenue significantly. Customer Loyalty Program: Increasing the loyalty amongst the most profitable group (LBS and VLBS) by providing them further discounts on room rents, small mementos, free pickup and complimentary food Hire chefs specializing in different cuisines International Standards for training of staff