The Savoy Hotel- Marketing and Operations - Essay Example

?The Savoy Hotel- Marketing and Operations Report Executive Summary This report explores the profile of the newly-renovated Savoy Hotel in London in terms of the environmental factors, market segment and provision of high quality service. This report is borne out of thorough research of the literature. The steep price to be paid for the grand renovation pushes the management, embodied by the Fairmont Hotels and Resorts, to exert more effort in marketing, reduction of overhead expenses and maximizing revenue. This is only possible with the employment of appropriate and effective marketing methods, and the provision of high quality service, maintaining good relations with both internal and external customers and sustaining a good reputation and status in society. Introduction The Savoy Hotel has earned its reputation as a British icon since 1889. It has been known to be the first hotel to have electricity and sophisticated bathroom facilities. Its rooms bespeak of luxury, style and sophistication with views of London and the River Thames. In 2007, it temporarily closed down for major renovations and has now recently re-opened in November, 2010 under the management of Fairmont Hotels and Resorts. To recover from the expenses of the ?100 million restoration, the Savoy needs to increase its efforts to market and sell its services. This paper will report on a comprehensive contextual research of the Savoy Hotel business situation and its re-opening. Macro and Micro Environmental Factors This portion will discuss macro and micro environmental factors that may affect marketing and service delivery of the Savoy Hotel. A. The Internal Environment 1. Staff: Staff needed to believe in the philosophy the Savoy Hotel stands for, that “genuine hospitality is achieved when engaging service and attention to detail elevate each stay into cherished memory” (http://www.fairmont.com/EN_FA/AboutFairmont/OurPhilosophy/, 2011, para.1) Thus, the staff themselves need to be committed to ultimate customer satisfaction with the way they work, thinking of the guests’ comfort and convenience while allowing them the privacy they need and deserve. Brown et al. (2005) recommend that staff be aptly educated in customer relations to achieve the satisfaction of the hotel guests and to enable them to build up the hotel’s good reputation through word of mouth. For many activities, such as product development (Hansen, 1999) and diffusing best practices across the organization (Darr, Argote, & Epple, 1995), expertise must be transferred and shared among units. Indeed, companies that are more effective at knowledge transfer have been shown to have a greater likelihood of organizational survival and higher levels of productivity (Dart et al., 1995; Dyer & Nobeoka, 2000; Galbraith, 1990). It just proves how knowledge is a critical organizational asset. In the case of the Savoy Hotel, staff should be well-equipped with the knowledge and values of most aspects of the organisation, most especially in their own jobs. Having knowledgeable, courteous and happy staff brings about happy and satisfied guests who will keep coming back for more. These guests know that they are in good hands and with efficient staff who are able to provide them with their needs, it is likely that their satisfaction will bring in more business for the hotel. To take the advise of Nilsson, the person responsible for the resurrection of Scandic Hotels, decision-making power should be shared with sales and service-front-line workers “right at the customer level” (Goodman, 2000). Nilsson recommends a decentralized management system to focus on total customer satisfaction. So if a customer requests for something, the staff is able to decide on its provision without having to refer the customer to a higher authority. Of course there is a ceiling limit to this kind of decision-making and it has to be known by all staff. Since Savoy is part of a chain of the Fairmont hotels, it should also be given enough authority to come up with local decisions that concern their own issues. Unloading some responsibilities to line managers is beneficial to Human Resource Management, especially in the face of never-ending tasks set in the achievement of company goals (Budhwar & Sparrow, 2002). There are certain issues which may be too complex for top management to understand alone and sharing the burden with those directly involved may ease it. It results in more motivated employees and more effective control of some issues and concerns. It helps improve organizational effectiveness. Devolvement to local managers is a wise move since they can respond faster and maybe even better to local problems and conditions which central HRM is not as familiar with. Most routine problems can be resolved at the ‘grassroots level’, and getting personnel specialists from HRM to investigate it will take more time to perform strategic functions. Line managers would be in a better position to take charge. In doing so, it practices their decision-making skills, preparing them for more responsibilities in the future. Also, devolvement helps reduce costs by redirecting the traditionally central bureaucratic personnel functions (Budhwar & Sparrow, 2002). A study by Budhwar (2000) involving in-depth interviews of topmost personnel specialists was conducted in UK in 1994-1995. It was reported that the positive outcomes of devolvement include more problems being solved at a lower level, better change management, more responsible line managers, improved efficiency of employees and more freedom for specialists to move away from routine activities, allowing them to concentrate on central organizational HR functions. On the other hand, negative outcomes include increased pressure to train line managers, problems of maintaining consistency in the system due to differences in standards, the need for strict HR auditing and the problem of maintaining a balance of power between line managers and personnel specialists (Budhwar, 2000). Staff should also be well-compensated for their service to the company. Apart from salary remuneration, it is important to consider their non-monetary needs. Hotel management need to be aware of and fulfill employee needs. In every employment, employees consciously or unconsciously expect a kind of “psychological contract” apart from the expectations the job usually presents – benefits and compensation for a particular job description. This psychological contract usually includes open and honest communication, managerial support and challenging and interesting work. Employees are becoming increasingly aware of the non-monetary rewards that companies can provide them. It is generally important that the job not only fulfills their economical needs, but their socio-emotional needs as well. “This implies that recruiters need to go beyond a discussion of compensation and benefits and highlight aspects of their organization that job candidates will find intrinsically satisfying.” (Lester, Clair & Kickul, 2001, n.p.) 2. Office technology: Any business especially one as big as a hotel chain needs to be properly equipped with the latest office technology to facilitate efficient operations and sustainability of the business. The internet is one basic but indispensable tool to have in a competitive environment which thrives on information and knowledge to determine the business’ commercial success (Franch, Martini, Inverardi & Buffa, 2005). In the Savoy, internet technology is responsible for making public its services and features for marketing purposes. The internet is also a means to “transfer descriptive information on vacation destinations, thereby engaging in advertising activities; facilitate the entry of holiday locations into international sales and promotion networks, thus taking part in activities aimed at commercialization; and organise more effectively and represent the tourist offering through private and public business associations, thereby integrating the offering” (Franch et al., 2005, p. 318). Internet technology can also increase the efficiency of existing operative management activities such as information searches, bookings, regulating tourist flows, etc. as well as setting up new work methods that enables better services, improved productivity and expedite the adaptation of new market conditions (Franch et l., 2005). 3. Budget and Finance: The anticipated re-opening of a legendary hotel is presented as iconic of opulence and luxury. No expense seemed to be spared with the estimated ?100m extensive renovation (Savoy Shock, 2008). This expense is apart form marketing and operational expenses that follow the renovation. Of course, this investment needs to be recalled in terms of profits in the coming years. Rust et al. (1995) have come up with the Return on Quality (ROQ) model which incorporates the costs associated with improving service and satisfaction with finances. The model argues that satisfaction and quality efforts have a positive financial impact only if the financial benefits of satisfaction improvements exceed the cost of the quality program and achieving the desired satisfaction level. The Savoy Hotel seems to have adopted such a perspective. Rust et al. (1995) advice that instead of just concentrating on the revenue impact of the upgrading of hotel services and facilities, it should also examine the profit impact of satisfaction and service investments. Rust et al (2002) have pointed out a dual emphasis on cost reduction and revenue enhancement would bring in more profit for the business. Cost reduction brings in profits from operational efficiencies and improvements that decrease costs such as standardization, efficiency improvements and defect reduction (Rust et al, 2002). Revenue emphasis on the other hand, argues that improved products and services that enhance customer satisfaction lead to higher revenues and positive financial benefits. This is possible when products and services exceed customer expectations and its effect is retaining customers, improving sales to already retained customers and attracting new customers. Mittal et al. (2005) explain that a healthy balance between cost emphasis and revenue emphasis should be strived for in order to produce the best results with regards to profitability by simultaneously increasing revenues and decreasing costs. B. The Micro-Environment The Savoy should be able to maintain its good relationships with its customers, agents and distributors, suppliers and even its competitors. Living out its philosophy on all levels with the provision of ultimate customer service and uncompromisingly clean and sophisticated environments, the hotel works together with its agents and distributors in the delivery of the aforementioned. “Fairmont Hotels & Resorts has established firm marketing relationships with several credit card companies, financial institutions, and airlines to complement its growing portfolio” (http://www.fairmont.com/EN_FA/AboutFairmont/ProgramsAndPartners/, 2011). The Savoy management should exert all efforts in sustaining positive and healthy relationships within its micr-environment to prevent boycotts or bad publicity. Garrett (1987) discussed how boycotts and bad publicity can gravely affect one’s business to deteriorate due to pressures from opposing forces. Black (1983) defines boycott as a "concerted refusal to do business with a particular person or business in order to obtain concessions or to express displeasure with certain acts or practices of person or business." (p. 98). So boycotts, no matter which direction it goes, whether from the Savoy management to a particular external customer or vice versa should be avoided at all costs. The same is true with lawsuits. The Savoy Hotel should take all the necessary precautions to avoid them as one strong lawsuit against them can spell disaster. C. The Macro-Environment 1. Political: Known to have entertained high profile guests such as Queen Elizabeth herself, politicians and celebrities, the Savoy is considered a neutral ground for anyone and welcomes people from all walks of life and ideologies. However, in 1929, the Savoy figured in a political issue involving racial discrimination for not allowing access to black people in the hotel. Paul Robeson, the great Black celebrity of his time, and his wife were being honored for a party but was refused admittance to the Grill Room. This has sparked a great deal of controversy for the hotel, however, the government did not want to intervene and be implicated in the controversy (Freedomways, 1998). Now that it was Prince Charles himself who officiated its re-opening last November 2010, (http://www.examiner.com/celebrity-headlines-in-national/prince-charles-officiates-savoy-hotel-opening), the political strength of the hotel has increased and so is its responsibility to uphold the high expectations of the public due to its royal endorsement. 2. Economic: The Savoy Hotel’s image has been one that caters to the rich and famous. Its marketing kit projects how expensive it is to experience its plush environment and ultimate services. Business Travel World (2008) expects that it will charge ?500 a night to enjoy the Savoy due to the recent grand renovation done on the hotel. It is actually a steep price to pay even for the rich. It is hoped that the new owner of the Savoy, Saudi Prince Al-Waleed Bin Talal will be successful in bringing in his oil-rich friends as the hotel’s new clientele. The Estates Gazette (2010) reports that the Savoy hotel is actually suffering huge losses after the complete renovation to the amount of ?20 million. This has been due to its temporary closure for 3 years while renovations were ongoing. Reports also point to around ?230m of debt secured against the Savoy and is up for renewal before the end of December 2012. That is why there is magnified pressure for the new management to do well during this reopened season to make up for losses and strive for profit in order to keep the hotel at least afloat enough until it reaches its return on investment (ROI). 3. Socio-cultural: The Savoy Hotel, managed by the giant chain of hotels, Fairmont Hotels and Resorts enjoys a positive image in terms of reflecting the culture of the location it is situated in. “Fairmont locations don't just exude history; many are nothing less than regional landmarks”…. “Fairmont's guests should experience an authentic reflection of each destination's energy, culture and history. One that extends from the solitude of a snow-wrapped peak or white sand beach, to up-tempo urban sounds of the world's most dynamic cities” (http://www.fairmont.com/EN_FA/AboutFairmont/OurPhilosophy/). Thus, hotel guests can expect a cultural treat on top of the excellent customer service promised by the Savoy. Following the environmental philosophy of the Fairmont management, The Savoy is also deeply committed to the environment, and has launched a Green Partnership Program, which commits to minimize the hotel’s contribution to a negative impact on the planet. It has incorporated improvements in waste management, sustainability and energy and water conservation in its properties. Such operational improvements bring about environmental benefits by way of reduced utilities consumption and best practices. Efforts at environmental care include recycling, organic waste diversion in the hotel’s kitchens and retrofitting energy-efficient lighting. Fairmont’s joint hotel and community projects, Eco-Innovation, concentrate on Savoy’s efforts to “Think globally and act locally” (http://www.fairmont.com/EN_FA/AboutFairmont/environment/GreenPartnershipProgram/Index.htm) 4. Technological: The Savoy has taken advantage of technological offerings of the internet and has launched a grand website that communicates to potential clients the services, facilities and features of the hotel. The website offers various links to information searched about the hotel including its history, press releases, accommodation packages, photos and videos to preview and many more. Customer convenience is also provided by partner travel and airline agencies that offer bookings at the hotel in conjunction with their flights and tours. Prospective clients only need to book online in the comfort of their homes to transact business with the hotel. Market Segment From the websites of the Savoy Hotel and its managing group, Fairmont Hotels and Resorts, it claims to cater to a wide variety of market segments. However, at the state the Savoy Hotel is in right now that it has just completed an extensive renovation, it seems to be exclusive to moneyed clientele who can afford the plush services of the world experts hired to provide ultimate customer service. The video names high profile former clients as well as the high quality facilities and services offered. Anyone watching the video will be impressed at how the management has come up with such a magnificent conglomeration of opulent environment, well-known professionals and excellent customer service. At the same time, for those who have financial constraints may just continue to merely dream to be a Savoy Hotel guest because it does not offer affordability. The Savoy may be intimidating to the masses as it projects its target market to be members of royalty, the rich and famous and maybe as a venue for very special events like grand weddings or balls. My recommendations will be to widen their target market to include corporate accounts, family/ group tours, conferences, venue for environmental conferences and meetings, simple celebrations, seasonal leisure trips, etc. with choices of premium and discount packages. To follow the advice of Rust et al (2000), dual emphasis should be given to cost reductions through more efficient management and operational strategies as well as revenue enhancements through customer satisfaction improvements. The management is also recommended to learn effective yield management, which is a “sophisticated approach to managing room sales based on a detailed analysis and close monitoring of demand” (Jones, 1995, p. 1111). It can be expected that at the onset, the Savoy’s original market segment may be expected to avail of its services mainly due to its novelty and the status it could bring these affluent guests, however, in the long run, different market segments should be taken into account depending on the demand forecasts. Donaghy et al (1995) stress revenue maximization techniques aiming to increase net yield through predicted room allocation capacity to the hotel’s predetermined market segments at optimum price. These authors believe that the goal of yield management is the formulation and profitable alignment of price, product and buyer. This implies that the Savoy may adopt the practice of adjusting rates to various market segments in their attempt to widen their target markets. Developing and Sustaining Quality and Customer Relations The flamboyant image of the Savoy Hotel generates high expectations in terms of quality in all aspects of the business. Foremost is the service it offers its customers. Mahatma Gandhi has shared a very important insight regarding customer service (as cited in Fall, 2005): “A customer is the most important visitor on our premises. He is not dependent on us. We are dependent on him. He is not interruption in our work—he is the purpose of it. We are not doing him a favor by serving him. He is doing us a favor by giving us the opportunity to serve him.” –Mahatma Gandhi, 1980 Gandhi has captured the true essence of customer service in his statement. It is an enlightening view that helps customer service providers to appreciate their work and their customers more. Fayerman (2002) defines customer relationship management (CRM) as “an enterprise-wide business strategy designed to optimize revenue and customer satisfaction by organizing the institution around customer segments” (p. 58). This strategy may yield changes in existing organizational culture and behavior should personnel enact innovations in their customer relations. “The resulting transformation allows organizations to more effectively select, attract, retain, and even grow customers” (p. 58). Pozza & Noci (2006) simply define CRM as “an organizational effort aimed at improving customers’ retention through a better management of the relationship lifecycle” (p. 144). This only proves that even if organizations revolve around business, the element of human relationships still matters a lot if the business projects are to be successful. Ledingham (2005) describes relationship management as a process of managing relationships between an organization and its internal and external publics. Internal public refers to the people within the organisation – co-workers, superiors, staff, etc. and external public refers to customers, suppliers, etc., basically, people outside the organisation that still deals with the people in the organisation. Such relationships established between the organisation and its publics can impact the economic, social, cultural or political well-being of the other (Ledingham, 2003). Fall (2005) agrees that providing customers opportunities for feedback and the two-way flow of communication is essential. Examples of strategies in soliciting open communication include providing customers with comments cards, a link to provide online feedback via the organisation’s Web site, 1-800 consumer hotlines, focus group interviews, follow-up telephone calls and satisfaction questionnaires (Fall, 2005). Having on-site managers available to personally talk with customers offers yet another chance for consumers to “connect” with the organization. Although one of the goals of businesses is to acquire a wider market traversing customers from various backgrounds, current customers should still be given priority in service. From a quantifiable standpoint, the value of a faithful consumer equates to repeat business—business that is much more cost effective to capture compared with the costs associated with generating new business. The Technical Assistance Research Program (TARP) studied the cost of getting new customers as compared to retaining current ones and found out that it is five times more expensive to obtain a new customer than to keep a current one. It was also revealed that at least 50 percent of consumers who experience problems will not complain or contact the organisation and simply take their business elsewhere. Their statistics report that the average organisation loses 10 to 15 percent of customers per year due to bad service experiences. Consumers are more apt to return (or stay) if they feel some kind of a personal connection to the product, service, or organization. It is but normal for customers/ consumers to desire individualized, personalized service combined with individualized, personalized information. If customer service is not fulfilled, then they move on to another company which can (Fall, 2005). TARP research also reveal that those customers who experience bad service will tell as many as 16 friends about the negative experience. Another study conducted by the White House Office on Consumer Affairs indicates that 13 percent of dissatisfied customers will tell 20 people about it and that this multiplier effect redounds to loss of revenue (Fall, 2005). The key element here is to keep customers satisfied. Popli (2005) claims that the best measure of quality of one’s service or product is their customer satisfaction. Satisfaction, in this view is a function of perceived performance and expectations (Kotler & Fox, 1995). It should be the goal of the Savoy Hotel to go beyond the expectations of customers. When customers are delighted or highly satisfied, it creates an emotional bond with the hotel, not just a rational preference, and this results in high customer loyalty. This loyalty may push customers to speak highly of the Savoy to others, actively endorsing it to them and it becomes the best form of advertising. It has been established that the best form of advertising is by word-of-mouth testimonies of happy customers. Aside from making the effort to retain current customers, there is likewise value in wooing back customers who have left. This is especially important for the newly-refurbished Savoy Hotel. However, many companies do not attempt to make win-back strategies a priority in their marketing programs. One reason is that they may believe lost customers are equivalent to dead opportunities. It is much easier to justify that the customer’s exit was something they had no control of and therefore, it is impossible to attract that customer’s business again. However, most customers have no special reason for leaving and if only asked back for their business may be willing to return (Vtrenz). Another reason why companies do not attempt to win back their lost customers is pride. Since win back strategies risk getting negative feedback from lost customers, it means having to admit being wrong. Some companies simply refuse criticism, no matter how constructive it may be. By putting pride aside, there is much to learn from listening to customer feedback. Companies learn ways to improve their products or services to better please even discriminating customers. A company, exerting additional win-back efforts, is two to three times more likely to gain business with inactive or lost customers than from new prospects. Apart from revenue gains, the company regains goodwill and minimizes the negative word of mouth typically associated with defected customers (Vtrenz). However, if efforts to win back customers do not bear fruit, it is still beneficial to keep things positive and keep the door open for future business in case they reconsider. Customers who leave for reasons such as price or perceived better quality of a competitive service may realize that it isn’t really a better fit for them after all and may eventually re-engage with the old company. It is also likely that their needs change and that they might be in a better position to appreciate the old company. Bottom line is keeping professional relationships with lost customers positive so it increases the probability that they will renew business ties in the future (Vtrenz). . Conclusion The Savoy Hotel needs to be able to meet the high expectations they have set up for themselves when they grandly renovated their hotel for a hefty sum. Known for its opulence and high quality service over the years for more than a century now, it needs to maintain its reputation in making guests feel like royalty. However, in practical terms, although its marketed image is one that targets the upper classmen as its clientele, it needs to expand its market segments to include a wider variety of customers without compromising on its high quality. Management needs to come up with effective strategies to attract their target markets with innovative services and events. They also have to revisit their system of lowering costs and maximizing revenue. Most importantly, the Savoy needs to focus on their customers. The literature, and common sense, point to establishment of harmonious and fulfilling interpersonal relationships as key to successful customer relations. 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