The Performance of Shanas Four Apartments - Case Study Example

Table of Contents Table of Contents 1 Introduction 1 Data analysis 2 Other issues to consider 4 Marketing ideas 5 Conclusion and recommendation 6 References: 8 Introduction Keeping proper records is of paramount importance in determination of a business’ profitability. It is also important in unearthing areas where the business is making losses. This was the reason behind Shana’s creation of an excel system of analyzing the performance of her business’ performance. However, proper record keeping alone is not enough to assure one of the desired levels of profitability. There need to be proper advertising and pricing measures put in place while the business must offer the desired quality of service if it is to be profitable. This paper analysis the performance of Shana’s four apartments with an aim of establishing whether they are performing well and recommending the measures that she should undertake to ensure her business attains the desired level of profitability. Data analysis From the data provided by Shana, a one bedroom deluxe is the most profitable of her four apartments contributing 41.39% of the total profit she realised. The one bedroom deluxe had a total profit of $10,452 which was the highest and also had the highest average revenue of $46.44 per night. On the other hand, the apartment that has the lowest profitability is the one bedroom apartment as it only contributed 6.84% to the total profits she realised. The one bedroom apartment only realised $1,727 profit while only contributing $22.54 revenue per night. The profit ability for the one bedroom deluxe is neither high nor too low as it is within the industry average of 40-50%. However, the one bedroom apartment’s profitability is too low and something needs to be done to improve it. The rate charged by Shana seems to favor the higher end of the market as only a few hotels are charging higher rates. Furthermore, the most popular of her apartments are the ones that she charges lower fees implying that her apartments might be overpriced (William, 2005) .Charging too high rates might adversely affect the apartment’s profitability especially if the apartments are not of superior quality since customers want to get value for their money. This would make them opt for places charging lower rates so that they can maximize their experience. From the data provided, the double bedroom apartment is the least popular of Shana’s apartments. Although it was rented 63 nights just like the one bedroom apartment, it was only booked seven times compared to one bedroom’s 14 times. This might be because it is the most expensive and hence not many can afford. On the other hand, the deluxe studio apartment was the most popular being occupied 129nights with 16 bookings. It is worth noting that Shana’s apartments are not being utilized to their maximum potential. In fact, the most popular deluxe studio was only occupied 126 nights implying that it remained vacant for 236 nights. Although it may be difficult for the apartments to be occupied every night, aggressive marketing needs to be undertaken in order to double the number of nights the apartments are occupied. This would go a long way into boosting revenue and hence profitability. There are a number of factors that need to be considered when assessing the profitability of rental cottages. Such factors include the present conditions of the apartments. Good cottage conditions will be a boost to the apartment’s profitability since people want to get value for the money they pay. On the other hand, if the apartments are in bad conditions, many will opt for other places hence adversely affecting profitability. The number of services offered within the apartments will also contribute to their profitability. If the level of service is high, Shana will realise a lot of return visits hence boosting profits. The apartment’s location is also important in assessing profitability. Those apartments that are strategically located can charge higher prices while still receiving high number of visitors as opposed to the ones not strategically located. The rules set by the proprietors may also affect profitability. For instance, Shana denies herself any profit for a customer who would want to book for less than three days. The general economic conditions should also be considered in assessing profits. This being in tourism industry implies that people only spend when they have extra money after settling their more basic needs. As such, when the economy is doing well, people would have more money to spend in holidays and hence the apartments would make more profits as opposed to when the economy is performing poorly. The marketing effort undertaken by the apartment’s owners would also greatly influence profitability. When aggressive marketing campaigns are undertaken, Shana will manage to woo more visitors into her apartments thus contributing to more profit since a night’s occupancy contributes a certain level of profitability. Other issues to consider Shana has set a nightly rate for the entire year. This is not a common practice throughout the industry. The prices in the industry are dictated by the forces of demand and supply. This implies that other service providers raise or lower the prices of their apartments depending on the level of demand for the apartments. Fixing the nightly rate for the entire year might be affecting the profitability of Shana’s apartments adversely. This is because when it is off peak, other providers will charge relatively lower prices hence depicting Shana’s apartments as the most expensive and hence customers would opt for other places. On the other hand, fixing the rate does not enable her to take advantage of peak time and hence charge high prices which would make up for the off peak less profitable period. This might be one of the reasons behind her apartment’s lower level of profitability. Shana also has a discriminatory rule that bars one to book an apartment if he/she is booking for less than three days. This is despite the fact that her apartments are unoccupied for the better part of the year. As such, she denies herself of any profits that those who book for less than three days would be bringing bearing in mind that the apartments charge nightly rate and hence each night contributes some level of profits. In fact, those who would book for less than three days may be the majority and may be the same ones who book for three days and more. For instance, her neighbors’ visitors most likely also visit for less than three days and in these instances they are forced to look for accommodation elsewhere. This drives away profits. The ideal thing would be to allow everyone provided the apartments are unoccupied. Shana’s advertising methods are also likely to be adversely affecting her profits. She only concentrates on newspaper advertising whish might not reach enough people. She should be aggressive enough and be more creative in her advertising so as to reach as many potential customers as possible. She should consider using more options such as radio, TV and going online while employing a sales representative to woo customers on the beach. In other words, she should be more creative in her advertising. Marketing ideas There are multiple marketing ideas that may assist Shana increase her profitability. These include; a) Make use of internet – establish a ‘sea view’s website that will enable her connect directly with the customers and potential customers. This should include contacts and an option for feedback and questions about the apartments (James, 2001). Let it contain as much information as possible and contain an option for online booking for those who may not want procedural booking. In addition, open pages in the social media such as Facebook to boost the advertising efforts. This would also depict the apartments as high class and hence though looking for quality holidays will opt for sea view. b) Use of representatives – appoint representatives or marketing agency to advertise her apartments on the beach -equivalent of merchandisers in the supermarket to woo customers on the beach. This will be effective in attracting first time visitors in the beach and those who may be stranded. c) Introduce more services in the apartments so as to make them first class and have some more discount facilities. d) Sponsor activities and events- she should research on the local area and include the nearby attractions and activities that her guests could enjoy during their free time. Let her apartments become the local inside source of events, festivals and parties. This would give memorable experiences to customers who would always want to come back. Conclusion and recommendation As has been observed above, Shana has ma de a great step forward in ensuring that her business performs profitably. This is because she can be able to gauge the profitability of each of her apartments as well as their profitability using the excel system she has established. This can point towards the weak points of her business and as such she will be able to take remedial measures. This will ensure that she realizes the profitability levels she would want her business to achieve in the long run. However, her efforts are not enough but she needs to do more if her business’ profitability is to change as much as she wants. I therefore make the following recommendations that could make her business more profitable within a shorter time than she envisages. a) Shana should allow the forces of demand and supply to dictate the night rates of her apartments. Shana currently sets yearly night rates for her apartments. However, this may not be healthy for her business since customers may find her too expensive during recessions and hence opt for alternative accommodation hence denying her business. Similarly, a fixed rate denies her a chance to make extra profits during peak times. This means that the fixed rates are adversely affecting her profits and should be done away with. b) Shana should avoid discriminatory policies – Shana does not rent her apartments to people booking for less than three days. However, it may be possible that most of her customers would still be the ones booking for less than three days. Furthermore, there are very many customers who would want to book for a night or too that are locked out and hence she drives away business. Furthermore, a customer denied a chance to book for one or two days may never come back even when he/she wants to book for many days. As such, Shana should do away with the three night’s policy and allow anyone to book provided the apartments are empty. c) Undertake more aggressive marketing and establish online booking system- Shana currently uses newspaper advertisements only to market her business. However, this may not be effective in reaching as many customers as possible. Alternative means such as the internet, sales representatives, TV etc ought to be co-opted if the numbers are to increase. Furthermore, she should establish an online booking system for those who may deem letters and emails too involving. This way the numbers and hence profitability will rise. By implementing the above the recommendations, Shana will realise improved sales and profitability within a very short time. References: James, K2001, Business administration, London, Rutledge. William, S2005, Contemporary accounting technique, Oxford, Oxford university press. Read More