Case Recap Amber Inn & Suites is a 250 property hotel chain located in 10 western and Rocky Mountain States (Kerin & Peterson, 2010). The company was founded in 1979 and they operate 200 Amber Inn properties and 50 Amber Inn & Suites properties (Kerin & Peterson, 2010). They have 30,000 total rooms with an average of 120 rooms per property (Kerin & Peterson, 2010). The company has had five consecutive unprofitable years and the company wants to be profitable within two years.
This case will provide a summary an analysis of Amber Inn’s options and an examination of their strengths, weaknesses, opportunities and threats. Problem Identification Over the past five years, revenues for Amber Inn have been increasing but so have their costs and this had led to five years of losing money. In 2005, they are expected to have revenues of over $422 million but are expected to report a loss of $15. 7 million (Kerin & Peterson, 2010). While Amber Inn & Suites are struggling to make a profit, other companies in their industry are experiencing growth.
In recent years, the company has closed seven properties and management would like the company to be profitable within two years. In order to meet the challenge set forth by company management, Amber Inn needs to examine their positioning, target market, advertising, marketing and promotions to set a plan for the fiscal year 2006. Case Analysis Amber Inn & Suites is a 250 property hotel chain located in 10 western and Rocky Mountain states. The hotel industry is a $113. 7 billion industry and as a whole recorded $16. 7 billion in pretax profit in 2004. It is a very profitable business.
In the United States, there are 4. 4 million hotel rooms with 10 companies controlling 54% of the available hotel rooms (Kerin & Peterson, 2010). Amber Inn & Suites is a limited-service hotel chain as they those types of hotels do not offer restaurants, lounges, and banquet rooms (Kerin & Peterson, 2010). There are 1. 4 million limited service hotel rooms available in the United States. With 30,000 hotel rooms, Amber Inn & Suites represents 2% of the limited service hotel industry. They focus on the business traveler, with almost 80% of their customers traveling on business (Kerin & Peterson, 2010).
The corporate service mission of Amber Inn & Suites is to provide principally business travelers with clean and comfortable guest accommodations in convenient locations at reasonable prices (Kerin & Peterson, 2010). Amber Inn & Suites have located their properties on major highways, close to suburban industrial, office complexes, airports and larger regional shopping centers (Kerin & Peterson, 2010). The location of the properties is a huge benefit to the company. They have chosen to not be located in urban areas and downtown.
They are looking to make the commute for business travelers as easy as possible to their meeting location. In a recent customer survey, 47. 5% of Amber Inn’s customers chose the hotel because of its location to the following day’s activities (Kerin & Peterson, 2010). Being close to meeting areas is a major strength of Amber Inn & Suites. Midscale hotels without food and beverage had an average daily rate (ADR) of $73 and economy hotels had an ADR of $50 in 2005. Amber Inn properties had an ADR of $55 and Amber Inn & Suites properties had an ADR of $66 in 2005 (Kerin & Peterson, 2010).
Midscale properties had a revenue per room available (RevPAR) of $48 in 2005 and economy hotels had a RevPAR of $27 in 2005. Amber Inn had a RevPAR of $36 and Amber Inn and Suites had a RevPAR of $47 in 2005. Amber Inn’s company is well positioned with their competition as their pricing and revenue per room is in line with their competitors. The Amber Inn property actually has revenue of nine dollars more than their competition. Even though their revenues are in line with their competition, Amber Inn is not making a profit.
Either revenues need to increase or costs need to decrease over the next two years in order for Amber Inn to become profitable. Amber Inn & Suites had an occupancy rate of 67. 1% and between both properties an ADR of $57. 52 (Kerin & Peterson, 2010). The company offered a free night stay promotion in 2005 and this cause a decrease in the ADR. Company costs are also increasing due to higher labor and utility costs (Kerin & Peterson, 2010). As modern technology continues to get improve and become more efficient, companies need to adapt to the newest technologies.
Even though Amber Inn offers cable television and free local phone calls, they do not offer Wi-Fi services. Being positioned as a business traveler’s hotel, they need to offer internet service for their customers. This presents an opportunity for the company to create an additional revenue stream as well as offering a great service for the business traveler. Competitors such as Holiday Inn offer free high speed internet to all their customers (Holiday Inn amenities). In order to continue growing their customer base, Amber Inn needs to offer this service as it helps business customers stay connected while on the road.
In 2004, the current advertising strategy is targeted at 28% leisure/vacation traveler and 72% business traveler with all advertisements focused on the western and Rocky Mountain states with Amber Inn properties (Kerin & Peterson, 2010). During 2005, they focused on increasing occupancy rate, attracting first-time guests and increasing the length of stay per visit (Kerin & Peterson, 2010). The company also expanded the reach of their advertising to Midwestern states, implementing a “frontier” strategy which put a focus on brand awareness and acceptance.
In 2005, they focused more on the leisure traveler, making up roughly 35% of the advertising budget (Kerin & Peterson, 2010). . There are many strengths, weaknesses, opportunities and threats for the company. First and foremost, a strength of the company is their location as it provides the business traveler easy access to the following day’s activities. Another strength is that the average customer stayed at an Amber Inn property 11 times during the last 12 months. They have a strong customer loyalty as 73% of their customers in 2005 are repeat customers.
The company also has done some market research and they enables them to fully understand their customer and the customers wants and needs. They have an increasing advertising budget and their revenues are rising for the third consecutive year. They offer free soda products as well as a free continental breakfast each morning. The company also has some weaknesses, and a major weakness is the fact they have been unprofitable for the fifth consecutive year. Their expenses continue to rise and that is cutting into their revenues. Another weakness of the company is the lack of Wi-Fi services in the guest rooms.
A third weakness of the company is their positioning and target market. Their service mission talks only about the business traveler and recently they have been increasing their advertising money directed toward the leisure traveler. Their ADR is decreasing based on a promotion that offered a free night stay and that has hurt company profits. The hotel industry presents some great opportunities for Amber Inn & Suites. It is a $113. 7 billion industry; consumers spend a lot of money each year on hotels and lodging. Another opportunity is their 6. 2% revenue growth has outpaced other companies in their segment.
They also have room rates that are comparable to their competition. Recent consumer trends also present an opportunity for the company as 50% of all people travel for business purposes. There is also an opportunity to increase their occupancy rate as it was only at 67% in 2005. Wi-Fi services also present and opportunity for the company as it may create an additional revenue stream and better overall service for their customers There also some external threats facing Amber Inn & Suites. The first is the rising labor and utility costs, these rising costs are hurting the profitability of the company.
Another threat is the competition of the industry, there are almost 4. 4 million hotel rooms in the United States, and the customer has many options when are deciding on their hotel. Holiday is a close competitor of Amber Inn & Suites, the currently offer free Wi-Fi services in every room and that poses a serious threat to the business traveler. Identifying the Root Problem Components Amber Inn & Suites is not a profitable company and management wants to be profitable within the next two years. The root issue facing the company deals with their service mission.
They mention that there mission is to offer high quality service at an affordable price for the business traveler, there is no mention of the leisure/vacation traveler. There are some internal issues in deciding where to spend their marketing dollars, the money spent on the leisure traveler is increasing to 35% in 2005. The company needs to either change their service statement to include the leisure traveler or they need to focus on what has made them a successful company, the business traveler. Evaluation of Alternatives The company has two alternatives and each comes with advantages and disadvantages.
The first alternative is to change the strategy of the company to focus on the leisure and business traveler. As the advertising money shifts toward the leisure traveler, the company is moving in that direction. The first advantage of this strategy is that it would open up their business to the other 50% of the market. They would have more customers to choose from and an opportunity to increase their occupancy rates by reaching this untapped market. A major disadvantage of this strategy is the cost and time it will take to shift the company from a business hotel to a family and vacation hotel.
It will take millions of dollars to reposition the hotel as a family oriented place. The company will also detract from their business traveler. The business traveler does not want to be around kids and families, they want their stay to be quiet and uneventful. Adding the family component will reduce the number of business customers. The location of the hotels is also designed for the business traveler as it is close to meetings. The hotels are not located in tourist areas, such as downtown. They may need to build new properties in order to reach the vacation traveler
The other alternative is to focus solely on the business traveler in an attempt to get back to the roots and service mission of the company. Over the past three years, the company has been slowly moving toward the leisure traveler. Joseph James, the senior VP of Lodging Operations said, “Amber Inn & Suites built its business and reputation on providing a clean, comfortable and convenient place for business travelers. The family business, in particular, detracts from this business concept” (Kerin & Peterson, 2010). The company is positioned as a business traveler’s hotel and the family aspect will detract from that business.
They have received many complaints from their current customers on the increasing numbers of families at the properties (Kerin & Peterson, 2010). In order to grow the business and become profitable again, the company may need to get back to its roots and focus solely on the business traveler. Recommendation The first recommendation for Amber Inn & Suites is to focus solely on the business traveler. They need to establish a market-penetration strategy to increase the market share within the limited serviced category of hotel. Company profits have been slumping the past five years and they need to get back to their roots.
The company’s business concept is focused on the business traveler. They are positioned in locations that meet the needs of their business customer the family business will hurt the experience for the business traveler. In order to make the company profitable in the next two years, the company needs to distance its self from the family business and go back to catering to the needs of the business client. In order to continue to grow the business and cater to the needs of the business traveler, the company needs to have Wi-Fi services available in each guest room.
In the 24/7 business environment, offering the newest and most current technologies is a must for the company. They will allow the business traveler to stay connected to their home office as well as families back home. Competitors like Holiday Inn already offer this service in their hotels. Wi-Fi also presents a revenue stream for the company. If they charge a nominal fee of $5 per day, or $14. 99 for the length of the stay, they are creating added revenue for the company. This helps the company meet the needs of the business customer while also increasing the revenue per customer.
The business traveler represents 80% of their business and the focus of their advertising efforts needs to be directed toward the business customer. In 2005, 65% of media expenditures were spent on targeting the business traveler, this number needs to increase to at least 90%. The repeat customers for Amber Inn & Suites are very high, they need to use their advertising to attract new business customers. Business customers present the greatest opportunity for growth. The “frontier” strategy should be continue to create a strong brand awareness and acceptance of the Amber Inn brand.
Brand awareness takes time to accomplish and this strategy needs to be continued to create the awareness and reach new potential customers. Another reason to attract the business traveler is less price sensitive compared to the leisure traveler. Kelly Elizabeth, senior vice-president of sales and marketing at Amber Inn & Suites said, “a dollar or so increase in our room rate is probably equivalent to a 5 to 10 percent increase in occupancy rates in terms of profitability at no out-of-pocket cost to us” (Kerin & Peterson, 2010). Costs are expected to increase by 2% next year.
By targeting the business customer, it will also allow the company to increase their room rates to match increasing cost of doing business. Room rates are currently in line with the competition, the company needs to raise room rates by 7% in the first year. 65% of all business travelers at Amber Inn & Suites had their company pay for the room and this is price increase will be unnoticed by them as well and the business customer is unlikely to notice the small increase as they are not as sensitive to price. The company needs to find a way to increase revenues and raising room rates is a great start.
The company needs to find ways to increase revenue and a promotion from last year that needs to be scrapped is the free night stay promotion. This promotion led to a decrease in the ADR. In lieu of this promotion, it is recommended that the company create a rewards system for their travelers. Since their company has a lot of repeat business, the rewards system is likely to create more repeat business and brand loyalty. Creating an Amber Inn & Suites rewards card will give their customers added value. The goal of the rewards card is to get customers to stay at Amber Inn Hotels as much as possible.
This will hopefully increase the customer frequency. Amber Inn has a strong customer list with a lot of repeat business and an effort needs to be made to increase brand awareness among new customers. The company is strong in the western and Rocky Mountain states but they need to have a presence in other areas of the country. It is recommended that the number of national sales reps increase to 15 while the number of local reps decreases to 50. By adding four more national sales reps, the company will be able to market themselves toward untapped regions of the country.
Companies need to be aware of the solid product that Amber Inn provides for business travelers. Conclusion Amber Inn & Suites is experiencing five consecutive years of unprofitable business. A major reason for this decline is the shift in advertising from the business traveler to the leisure traveler. The company is not meeting their service mission to cater to the business traveler. Since 1979 they have prided themselves on meeting the needs of the business traveler and by going back to that strategy focus on the target market they know best.
Too much money has been spent on advertising toward the vacation traveler and it has detracted from the business customer. In order to meet the needs of the business customer, the company needs to install Wi-Fi services in all guest rooms. This will help them reach the needs of the 24/7 business environment. By adding a fee for the Wi-Fi, Amber Inn & Suites is also able to have additional revenue stream for the company. Amber Inn & Suites also needs to increase room rates, costs are going up by 2% and by increasing rates by 7%, this will cover the increasing costs and also add revenue for the company.
Repeat customer are great for any business and adding an Amber Inn & Suites rewards card will help increase the already strong aspect of the business. The company also needs to find a way to target new customers and by adding four more national sales reps, it will help create brand awareness for the company. Amber Inn & Suites needs to shift the direction of their business back to targeting the business traveler. This will help them achieve their service statement and get back to what made them successful.
By adopting these strategies, Amber Inn & Suites should be able to turn a profit within two years. Amber Inn & Suites SWOT Analysis Internal Strengths and Weaknesses SWOT| Management| MarketingMix| Advertising| R/D| Segmentation| Offerings| Internal Strengths| ~Revenues are rising for the third consecutive year~ 11 national sales representatives and 54 local reps| ~ Positioned as a limited service hotel between economy and full-service~Located on major highways close to suburban industrial, office complexes, airports and larger regional shopping centers~Average room rate of $57. 2| ~Frontier strategy to create brand awareness and acceptance was successful~Budget is increasing to $12. 9 million| ~They have increased their market research last year and have a have a pretty good understanding of their customer~Location of the properties fits their target market | ~Located in the Western and Rocky Mountain states~80% business travelers~Average person stayed 2. nights~47% stay because it is close to next day’s activities and 36% stay based on price~73% are repeat customers~Average traveler stayed 11 different times during the past 12 months| ~250 property hotel chain ~Operates 200 Amber Inn properties and 50 Amber Inn & Suites properties~Average of 120 rooms per hotel~All rooms come with free continental breakfast| Internal Weaknesses| ~Fifth consecutive unprofitable year~Projecting a net loss of $15. million in 2005~Expenses continue to rise| ~ Non existent in urban and downtown locations| ~Average daily room rate decreased due to “free night stay” promotion~Too much ad space is spent on the leisure traveler| ~They do not have Wi-Fi on property and that is a major issue for the business traveler| ~Received complaints from business guests based on the number of vacation travelers and families| ~Do not offer restaurants, lounge, meeting room, concierge, luggage, room service or Wi-Fi on either property|
External Opportunities and Threats SWOT| Economic| Competition| ConsumerTrends| Technology| IndustryMarket Share| Legal Regulatory| External Opportunities| ~$113. 7 billion industry in 2004~Pretax profit of $16. 7 billion in the industry| ~Their 6. 2% revenue growth outpaced their segments growth of 5. %~Average daily room rate is $57 per night~67% occupancy is higher than their competition| ~ 50% customers travel for business purposes~ The average business customer paid $96 per night| ~Opportunity to increase technologies for business travelers to create added revenue and better overall service| ~ Room for growth as there was an average of 67% occupancy room rate | ~No legal opportunities noted| External Threats| ~Labor and utility costs are rising| ~ 4. 4 million hotel rooms in the United States~Two-thirds of all U.
S. hotel rooms are affiliated with a brand~Positioning places them in competition with Holiday Inn, Ramada, Red Roof Inn and Motel 6| ~50% are leisure travelers and not the target customer of Amber Inn~90% stay three nights or less| ~Other hotels offer Wi-Fi services for their customers, Amber Inn does not~Outdated hotel rooms without the updated technologies| ~ 10 Companies control 54% of the hotel rooms~Amber Inn and suites have 2% of the market share in the limited brand class| ~No legal threats noted|
Suggested Marketing Strategies 1. They should establish a market-penetration strategy to increase their market share in the limited service category| 2. Focus their advertising efforts on the business traveler and they represent the largest percentage of their customers and part of their service mission| 3. Add Wi-Fi services for an additional cost to increase revenue as well as offer a needed service for the business customer| 4.
They need to make an effort to increase their first time business customers by continuing the “frontier” Strategy”. They have a lot of repeat business and once a person stays at an Amber Inn, they are likely to come back| 5. Avoid marketing to families as it reduces the quality of the experience for the business traveler| 6. Increase the room rate in an effort to increase the Average Daily Rate and Revenue per room since 65% of travelers had the room paid for by the company| 7.
Do not offer a free night stay as it reduces revenue for the properties and the business traveler is not as price sensitive as the leisure traveler| 8. Increase the number of national sales reps while decreasing the number of local reps, in an effort to increase brand acceptance in states that travel to Amber Inn markets| 9. Create a rewards system to give repeat customers additional benefits