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Avari Ramada Hotel Case Solution

Solution Id Length Case Author Case Publisher
516 1498 Words (5 Pages) Wasim Azhar, Marc Fetscherin Harvard Business School : M314
This solution includes: A Word File A Word File and An Excel File An Excel File

As per the equation of the demand prescribed in the economics, any decrease in the room rate will tend to increase the occupancy rate and vice versa. The total forecasted revenue is linked to both the occupancy rate and the average room price; therefore, the effect of any price increase or decrease will be vague and uncertain. Moreover, the practical consequences of increasing or decreasing the room charges are complex and they may not follow the demand and price relationship of economics (with a price decrease the demand for the product or service increases). Hence, before deciding to alter any one of the two factors, one needs to consider a lot of factors including the seasonality effect, type of rooms, other revenue generation services of hotels and the demand forecasts.

Following questions are answered in this case study solution:

  1. Should Raza seek to increase the occupancy rate or average room rate? What are trade-offs? What factors should he consider?

  2. What other metrics could/should Raza use to evaluate the performance of his pricing structure? Why?

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Avari Ramada Hotel Case Analysis

1. Should Raza seek to increase the occupancy rate or average room rate? What are trade-offs? What factors should he consider?

As per the equation of the demand prescribed in the economics, any decrease in the room rate will tend to increase the occupancy rate and vice versa. The total forecasted revenue is linked to both the occupancy rate and the average room price; therefore, the effect of any price increase or decrease will be vague and uncertain. Moreover, the practical consequences of increasing or decreasing the room charges are complex and they may not follow the demand and price relationship of economics (with a price decrease the demand for the product or service increases). Hence, before deciding to alter any one of the two factors, one needs to consider a lot of factors including the seasonality effect, type of rooms, other revenue generation services of hotels and the demand forecasts.

Consideration of factors
1. Seasonality Effect

In the off season of summer (months of May, June, July and August), the charges of almost all the rooms went down to attract the customers. This is essential that this promotional offer is continued. This implies that Avari needs to divide the price determination process into two halves, he off season and the usual demand season.

2. Type of Rooms

The type of rooms also plays a major role in determining the pricing strategy of rooms. The space of the room for Avari hotel is less than the comparable space for Pearl. The promotional offers of Avari are also not that different from Pearl. This implies that with all other promotional offers in place, the price of the rooms should be at par or below than the comparable prices of Pearl.

3. Revenue Generation Services

The marketing and sales department has to realize that occupancy rate and price of the room should also take into consideration other revenue generation services as well. The food and beverage sales amount to less than half of the overall sales (46%). Therefore, if the pricing strategy can include these services as well, then the overall profits of Avari will get strengthened.

4. Demand Forecasts

As the room and suite types differ a lot in their pricing; hence, it is also vital that the demand forecasts for each type of customer are also laid forward. The current pricing strategy extracts maximum profits from the FITs and those corporate sector professionals who have no contract with Avari. The current occupancy rates show that the major portion of occupants is the EBS and VEBS rate customers. If one takes a look at the most recent month’s revenues and occupancy rates than it is clear that 45% of the clientele was special which offered a 45-50% discounted rate. This type of occupancy trends is not good for hotel as it lowers the profits.

The construction of a tax free zone indicates that in the near future, the hotel may expect to have more EBS and VEBS or corporate clients as its prime customers. Hence, the rate for this cadre of customers is really significant. Moreover, the company should offer different offers to different customer’s types by taking into consideration their total contribution margin.

Trade-offs for Price Increase

The Avari promotes itself as a five star hotel. Almost its entire clientele base belongs to elite sectors. Any significant decrease in the price may be harmful to the image of the hotel. Moreover, from a financial perspective, by decreasing its price, the hotel will essentially decrease its profits. On the other hand, the price decrease will tend to enhance the occupancy rates as new customers (in the form of individuals and companies) will visit the hotel. The price decrease will help Avari to gain additional market share.

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