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Diagnosis and Analysis of the Problem

Key Problems and Symptoms There are two aspects to the challenge faced by Allegre: 1. The overall performance of the group. 2. The performance of individual properties within the group. Palma Cay is the newest to join and by far the biggest property with 1000 room capacity double the size of the next big one within the Group. The case in point states the hotel is new, a flagship hotel and that they are entering peak season with the economy yet to get into full swing. The challenge with any 'large' hotel (1,000 rooms) is filling it up i.e. Occupancy%. Hotel bookings are down across the board. Forecasters predict a 20% to 30% decline in hotel occupancy. "I know this hotel made a lot of sense in 2007, when Alegre broke ground," she said. "And I think it still makes sense. The economy's got to come back to full strength sometime. But our bookings for the high season are looking terrible. I'll be lucky to fill half our 1,000 rooms." The Alegre Hotel doesnt have any common identity as of now. Even otherwise, the new property with a huge capacity needs to be promoted among the intermediaries as well as among the potential customers. Being a new hotel - teething problems are bound to happen. Now the question is 'Which Promotional Strategy' should Fernando pursue to push the brand and in turn get the brand up there? Both Fernando Ruiz, the COO of Alegre Hotels and Beatriz Soto who runs Palma Cay are worried about poor market response to its brand new, flagship property. Beatriz has a proposal to get the hotel on tract which entails a financial outlay of $700,000 from the corporate office. Fernando, on the other hand is mulling over a common, corporate level promotional campaign. The issue is which one of the options Alegre Hotels should pursue? By Beatrice asking him for less than a million dollar may be a challenge however it creates an opportunity as well. Specifically Palma Cay has its own strength in terms of location, amenities, and the beautiful design that a lot of tourist and the local will really appreciate. The slow start at Palma Cay was symptomatic of a much broader problem, requiring a bigger solution. The problem is how to increase bookings and establishing the "loyalty" of the customers with unlimited fund resources. The question is Do people know the name " Palma Cay" Do the travel agents know the existence of Palma Cay?

The downside is that guests might be loyal to one hotel yet completely unaware of the larger Alegre family. The company has no way to stimulate demand across its portfolio; it doesnt even have a loyalty rewards program, now standard practice in the industry.

Unplanned budget and barely having a marketing budget at the corporate level is also one of the major issues and hitches in approving the $700,000 to Beatriz as confessed by Fernando. This is how Alegre work. All hotel managers are responsible for their own P&L and that includes promotional spending of any kind. Apparently Alegre Hotels properties have nothing in common mostly. Each property has its own customer base, brand image, business model and market strategy which is dependent on individual Hotel. However, the thing which is lacking here is the strategy to capitalize on existing customer base of different properties. Having a centralized marketing campaign will help only to associate individual properties with the name of Alegre Hotels but would they help much to increase the occupancy rate across the board if each property has different rates, class and cater for needs of customers with different budgets? The executive committee would probably agree to invest in a local price promotion to boost the hotel's fortunes; but should: the company instead spend that money on a broader, more daring initiative? it take this as an opportunity to launch its first-ever promotional campaign, directed at consumers a branded price promotion paid for with corporate resources and contributions from all the individual hotels?

Individual hotel promotional strategy utilized in an expanding economy may not necessarily work in a contracting GLOBAL economy. Hotel managers and directors are big proponents of decentralized operations due to pre-2008 wins. Word is spreading of hotel requests for extra promotional funds and a potential corporate campaign. Consumers do not recognize brand differentiation. Therefore, along with the budget problems Palma Cay or Alegre Hotel at large is facing issues like lack of policies about information sharing at the staff level and having trained personnel to manage and cope up with strategic issues at hand.

Derivation of Alternative Solutions


According to the point of view of Fernando who is the COO of "The Alegre", Palma Cay is the most important unit that represents the whole Alegre's concept and must earn high profits for the hotel chain. The hotel chain comprises of all kinds of segment hotels from economical to luxurious, targeting the whole customer base based on demographics which includes young and old; corporate to individual; families of different sizes & gender with all the possible facilities for the targeted segments. But still the result is not satisfactory. For this Fernando must have to look about the strategies that they are using to communicate with the targeted customer base.

For luring the customer, Fernando should provide new packages to the customers. For example, advertising about vacation locations to family customers through electronic/social/print media; provide corporate centers to corporate clients for holding the business meetings. But during all such activities he has to make sure that the name and image of their brand is only associated with quality service. He must take care of the branding and operations of his hotel. Some part of the operations should be under his supervision. This can initiate the optimal use of funds & create a better scope for the hotel in upcoming time. This whole concept means that some part of the operations should be centralized. The Hotel authority may also provide for the coordination in between the management and employees so that the employees can better provide the service to customers those are initially promised by the management ("Service Triangle Concept"). This could result in positive "Word of Mouth" by those customers who enjoyed the services of the Hotel to the potential new customers of the Hotel. This positive publicity could turn the fortunes for the Alegre as it did in the case of Mayo Clinic & Southwest Airlines. Hence, it makes the Alegre Hotel chain a supreme competitor and maybe market leader in the coming time. However, given the size of the chain, providing individual hotels with additional budgets could create problems when more hotels start asking. The market is changing. A dynamic shift has taken place resulting in a change from a push to a pull environment (strategies), with customers in control. To embrace this customer-rules reality, Alegre needs to step into the customers shoes to better understand all aspects of their complex lives; a holiday for everyone. This requires an understanding of: The average daily rate and revenue per available room, Encompasses things like consumer emotional and rational need and, attitudes, current and long term value, life stage, and lifestyle How these all blend/ connect together to create an impact on the customers perceptions, intentions, choice/ actions.

At this time, Alegre hotels should invest into a Centralized reservation system as well as a centralized CRM system. An intelligent CRM system would go a long way to analyze its customers traveling patterns and spending styles. This will provide the objective basis for sales campaigns of Alegre hotels based on calculated actual numbers suiting to each properties separate needs. Alegre Hotels may pursue a global corporate promotional campaign/strategy while allowing the local properties to manage local campaigns suiting to their target audience.

The current strategy of local campaigns does not allow it to control its strength of presence across geographies, appealing to different customers preferences in terms of: Prices (economy to luxury) Locations (cities to exotic locations) Types of holidays (adventurous sports to leisure) Demographics (old to youth)

Family friendly beach properties, boutique urban hotels, in-land golf retreats and casinos all cater to different clients. It may be possible to create a variety of sub-brands, which would allow for more effective communication to specific audiences. There is scope for cross-selling and up-selling since the current strategy involving individual campaign does not allow for sharing of customer data base and knowledge about the customers and the customers do not connect one property with the other property of Alegre. Corporate promotional campaigns under single umbrella brand, that is, Alegre will help connect different properties to one single brand for the target audience who use different hotels on different occasions. This shall increase brand re-call and band loyalty. Individual hotels/ properties must maintain up-dated databases of target audience, current clients and potential clients. This information must be shared and made accessible by being centralized for all properties/ ventures under the Allegre umbrella. This may help in creating well targeted strategies for specific clients increasing foot-fall. Global strategy is, however, a double edged sword since a bad experience in a hotel stops clients from using the other properties while better experience reinforces good image of the brand called Alegre. The unified rewards program across all the hotels creates loyalty enticing the guests to go for Alegre in the subsequent stays. Individual local promotional campaigns not only give autonomy to the managers but also inculcate a sense of responsibility and accountability for managing their own P&L. Fernando should go ahead with corporate branding and promotional campaign to leverage the strengths of its properties. Beatrice asking Fernando for less than a million dollar may be a challenge; however, it creates an opportunity as well. Fernando could tackle his strategy by using Palma Cay as a Cash Cow (with the hype and buzz) and then incorporate a genuine plan to pull the other hotels into the equation once Palma Cay is successful as a result. Fernando at the same time must not 'give in' entirely to Beatrice's request otherwise this could be an issue for him moving forward i.e. ask 'whatever' and consider it done. He must carefully consider the terms of her proposal and modify it in line with his and have an 'over arching' fundamental over it to reflect the Promotional Strategy from a long-term perspective.

Beatriz has previously demonstrated a capacity to gather insights into local markets, and create as well as utilize opportunities. Fernando would do well to encourage her into applying those skills again in her latest assignment. Another motivating responsibility might be to create contexts for her to share her skills and knowledge with managers of other properties. This could help them in discovering opportunities in local markets. Other managers too would have knowledge and abilities that, if shared, would strengthen the group. Into this new problem-solving forum, corporate headquarters could introduce their ideas about the potential opportunities provided by group-wide branding and initiatives. This again respects the autonomy of managers, while demonstrating the openness to influence that corporate headquarters should demonstrate. Good ideas are not the prerogative, or exclusive property, of positions of power. With the application of good brainstorming and analytic techniques, the problem solving forum could come up with several possible solutions that might work. It may then be possible to inexpensively test several solutions in smaller contexts, learning from results, before scaling up to a group-wide initiative. The company's most valuable competitive advantage is its decentralized form of business. Problems did not come from this but from the economy side. Company should explore other options and prioritize solutions based on the problems at hand. Like when your back pack is too heavy to carry out then you should leave some unwanted things. Company can sell/divest some unprofitable or get into a tie up with similar kind of hotel group. Where retrenchment is not a possibility and you have to go with promotion then first of all unify all the hotels under one umbrella (single identity rather than scattered one). Personalize promotion would also be good but with only high-end customer with large contacts. The promotional strategy of the group needs to fit in the long term business strategy and philosophy. The idea of unified campaign though very good, cost effective, and may prove profitable in the short-run. It would be very difficult to come out as a single offer for all the hotels of the groups wide range of solutions to wide range of customer needs. Again, this may adversely impact long-term strategy and philosophy of Alegre. It may be noteworthy to mention that Alregre has gained third position in the Latin American market by pursuing its strategy of making each hotel a profit center with localization of its internationally reputed service becoming a common factor. Again, if it is not well-established the failure of one hotel of the group may impact profitability of the entire group considering the fact that not all category of the hotels or all the hotels of same category fail to perform simultaneously. It should capitalize on: Providing you a local cultural experience, while maintaining standard service quality.

Palma Cay should focus on the promotional activities, such as the following: Build relationship or establish connectivity with the travel agents. This requires team building with travel agents like for example include Palma Cay as provider of hotel accommodation to the tourist either international or local. Local and international sectors or group of association who have usually conducted conventions and seminars, introduce Palma Cay by means of other promotional ideas like low price hotel accommodation. Lobby with the government or other private sectors to host historical event(s) and festivals that would encourage/motivate tourist or guest outside local vicinity to visit the city where Palma Cay is located. Enhancing the climate of mutual trust that exists between Corporate Headquarters and managers at individual properties. In such a context, it becomes easier to create ownership of the challenges that Allegre faces. An ideal situation would be that the problems of Allegre are considered as the problems of everyone in Allegre. So, "how can we work together to understand our challenges, and seek solutions that benefit everyone?"

Customer loyalty would just be an effect of satisfaction. How can the company establish brand loyalty from customers where in fact the customers do not know the product? How it works according to their needs, wants and even perception? When the customers are satisfied and able to meet the expected quality service plus the added price factor, then there is no reason for them not to go back. A traditional "one size fits all" marketing approach would be a disaster, a complete reversal of what has made the group a success. Releasing funds for every individual hotel facing slowdown, is not a solution here. Communicate the current state of the global economy and its impact on business and long-term implications as a whole to all stakeholders (CEO, directors, and managers). This will begin the dialogue to emphasize the present economic environment, which will lead to a plan for the future and relinquish past results. Developing and implementing promotional strategies that are based on current budgets with built-in incentives for performance may be one of the alternative solutions.