Corporate Evolution and Strategic Management

MBA PT- Vth Semester

Case Analysis Playa Dorada Tennis Club: Expansion Strategy

Submitted to: Dr. J. K. Mitra

Faculty of Management Studies University of Delhi.

Submitted By: Group 1 Amit Batra Anjanee Kumar Srivastava Mukul Grover Pankaj Garbyal Ruma Saxena Sunil Manohar Singh Syed Sarfarazul Haque Vikas Arora

S-5 S-10 S-36 S-40 S-57 S-71 S-76 S-81

Table of Contents
Q-1) What is the dilemma? ..................................................................................................................... 2 Q-2) What are the options? .................................................................................................................... 4 Short term options: ............................................................................................................................. 4 Long term options: .............................................................................................................................. 4 Q-3) How many tennis courts needed? .................................................................................................. 5 Case 1 Expand with more clay courts, leaving hard courts as it is. ................................................. 8 Case 2 No Expansion, change pricing mix and offerability to increase capacity utilization. ........ 8 Case 3 Convert all 5 Hard Courts to Clay courts. ............................................................................. 8 Q 4) What shall Douglas Hall Do? ........................................................................................................... 9 Q 5) What are the implications of Tennis in PD Resort?........................................................................ 9

Q-1) What is the dilemma?

Solution: Douglas Hall, the tennis director of Playa Dorada Tennis club faced a growing but seasonal demand for tennis courts. In his first two weeks on the job, Hall had to handle two issues: court capacity and pricing structure and he need to represent his findings and propose a strategy for the year to PD Inc. Management. But several corporate divisions had different interests in the outcome of strategy of PD Tennis. The corporate divisions who had interest in the outcome of the strategy are as follows: Resort Operation Division Marketing and Sales Division Finance Division Development Division PC Inc. Corporate Management

Resort Operations division They are interested in a profitable operation- specially a low investment base and an easy operation to manage. However, PD tennis operations had not been profitable to date. Marketing & Sales division They wanted to continue to promote the PD tennis services and encourage Hall to build additional courts. They wanted more i.e. to provide a free Wii tennis lounge for students (18 and under) and build a $100,000 pro shop and a clubhouse; and hire well-known tennis players. Finance Division They are interested in cash flow and then return on investment which was not easily attainable since there was no room for the additional courts at the existing south side location and building as new tennis club house and a pro shop-in addition to new tennis courts which would increase the fixed cost.

Development division They wanted the courts to blend into the environment and the rest of the exotic resort buildings that meant alternative solutions such as adding high powered lights to a number of courts so that tennis could continue after dusk, or setting a cost effective tent to house the new sites service staff that could be a challenge. PD Inc. Corporate Management division They believed that expansion strategy would be critical to other resort operations. E.g. the resort golf director could foresee a similar problem with his course capacity. In resolving the tennis capacity issue, management hoped to develop a methodology that could be applied to the capacity planning decisions.

Q-2) What are the options?

Solution: There are two types of options possible in this case Short run options Long term options

Short term options:

a. Overhead lights can be installed to ensure that customers can play early morning hours and late night hours. b. Games that are similar to tennis such as squash etc. can be facilitated by opening squash courts as it requires less space and tennis lovers would love to play squash. c. Focus on its internal operations. d. Provide coaching facilities for kids which will attract a large number of customers who want to make their kid active and sporty.

Long term options:

a. Vertical expansion: Making a multi-storey complex at current available space which has multiple courts on multiple floors. This will increase the capacity as well as caters to the restriction of limited space and larger availability of courts during off peak period will boost revenue generation. b. Horizontal expansion: Building of 4 new tennis courts at the existing facility which may a tricky decision. It may be a profitable for a short run but sustainability and operational efficiency and the optimum price fixation will still be an issue. c. Opening a new entertainment centre in which various facilities will be available. It will divert the traffic and frees up the tennis courts and will also act as a sorce of revenue to the PD resort. d. Modifying the price strategy as per the seasonal cycle. Reduce prices or more discount packages during low demand. e. Depending on the demand of the customers, additional hard courts which were set up earlier can be converted into clay courts.

Q-3) How many tennis courts needed?

Solution:

Shop Revenues Court fees Annual members Lessons Total revenue Less cost of sale Gross margin Expenses Supervisory Clerical Labor Benefits Taxes Supplies Repairs and maintenance Utilities Miscellaneous expenses Rent Total expenses Contribution 28,000 36,000 12,000 7,600 8,400 7,000 400 6,000 14,000 12,000 131,400 $28,600 $395,200 0 0 0 395,200 235,200 160,000

Courts 0 $436,000 40,000 40,000 516,000 0 516,000

Total $395,200 436,000 40,000 40,000 911,200 235,200 676,000

152,000 36,000 40,000 7,600 16,000 3,000 13,200 8,000 14,400 48,000 338,200 $177,800

180,000 72,000 52,000 15,200 24,400 10,000 13,600 14,000 28,400 60,000 469,600 $206,400

The contribution from all 18 courts combined has been only $ 177800, which is quite insignificant considering the returns from even one sale in real estate business of Playa

Dorada, hence it is quite clear that revenue from courts shall not be a consideration while arriving at decision to have more courts or not.

Let us see the capacity utilization of courts throughout the year. Number of Days 31 28 31 30 31 30 31 31 30 31 30 31 Days Missed Bad Weather 3 3 2 1 2 2 3 3 2 2 3 3 Daily Hours (a) 8-5 8-5 8-6 8-7 8-7 8-7 8-7 8-7 8-7 9-7 9-5 9-5 Total Hours Available for Play (per Court) 252 225 290 319 255 255 255 255 224 290 243 252

Month

January February March April May* June* July* August* September* October November December

Month

Total

Court

Hours

Used at PD Tennis Nov-05 Dec-05 Jan-06 Feb-06 Mar-06 Apr-06 May-06 Jun-06 Jul-06 889 1,797 938 1,506 2,824 2,885 1,196 1,459 1,090

Aug-06 Sep-06 Oct-06 Nov-06 Dec-06 Jan-07

840 457 629 2,416 3,409 2,825

Below are the overall capacity utilization figures:

2004 18.4 % 2005 25.9 % 2006 34.8 % 2007 47.3 %

Therefore although the utilization has been increasing, still the overall capacity utilization currently is below 50 %, but since the demand varies as per season as well as time of day may be reflective of a very high utilization rate per existing schedules.

Looking at below key figures Nov-05 Dec-05 Jan-06 889 1,797 938

Nov-06 Dec-06 Jan-07

2,416 3,409 2,825

The overall demand for above 3 months has increased from 3624 hrs to 8650 hrs. which is around 140 % increase in demand.

Case 1 Expand with more clay courts, leaving hard courts as it is.
Assumptions Linear demand increase as per projections. Stable Economic conditions. Tennis as essential vehicle for real estate business.

Number of courts to be added:

Peak Demand 140 % Capacity utilization 50 % Excess Demand 40 % Number of additional courts needed = 18 *.40 = 7.2 Courts.

Therefore 7 -8 more courts will be needed.

Case 2 No Expansion, change pricing mix and offerability to increase capacity utilization.
Assumptions Uncertainty in Demand as seasonal industry. Economic conditions may change. Only 50 % capacity utilized. The first sector to be affected by economic cycle is real estate hence any investment shall be always conservative. There is a scope to manipulate demand.

Case 3 Convert all 5 Hard Courts to Clay courts.

Assumptions Only a single segment of youth who prefer hard courts will be affected and it is not the target clientele of real estate sales.

Will cater to most variations in demands, since by calculation 7 more courts will be needed. Increase in conversions and maintenance assumed to be of insignificant costs compared to long terms returns from real estate.

Q 4) What shall Douglas Hall Do?

Group 1 will go for Case 2, that is no expansion and adjust the pricing and offerability to suit the needs of consumers as well as organization.

Q 5) What are the implications of Tennis in PD Resort?

The following are major implications of changing pricing mix and offerability to increase capacity utilization of the tennis court.

Attracts new buyers Improved court facilities, recreation centers, the supporting operation infrastructure and facilities will add value to home buyer customers. As given in the case the customer sees it as second home where they can spend leisure time during vacation and enjoy recreation facilities.

Good investment Finance Division are interested in ROI and cash flow which can be attained easily.

Complement resort business The improved pricing structure, preference for double play over singles and increased capacity due to new expansion result in better utilization of court facilities which will complement resort occupancy. It will make win-win situation for both resort business and court operations.