Budget Hotel vs. Luxury Hotel: An operation management perspective - Essay Example

?Budget Hotel vs. Luxury Hotel: An operation management perspective This paper highlights on the key differences and similarities between a “Budget Hotel” and a “Luxury Hotel” from the viewpoint of operations management. Within the hospitality industry, the positioning concept of both these segment lies at opposite extremes. Although there are some commonalities in the concepts but the differences among them are striking. By definition, a budget hotel targets to the lower end of the spectrum and differentiates itself through cost leadership. While on the other hand, a luxury hotel as the name denotes targets to the upper segment of the market offering endearing features. Budget Hotels A budget hotel aims to provide a hotel with basic necessities and they are mainly targeted to an audience who are willing to minimize their expenses. It requires you to draw a smaller amount of cash to stay in a budget hotel. They are especially designed for visitors who are willing to spend a nominal amount of money on their stay. Travelers and senior citizens are amongst the frequent visitors of budget hotel. The budget hotels operate on a low-price model. The level of service is highly standardized and designed to suite “no-frills” convenience customers. Fiorentino (1995) identified budget hotel as “a brand new purpose-designed product concept in the hospitality industry which relies heavily on three factors; branded product concept, value for money, and service consistency”. Jones (2002) identified some of the key characteristics of a budget hotel which are mentioned below: Lower prices (Emphasizing the affordability factor) Limited facilities and services Targeted for the transient market Located on major road networks or in secondary urban locations (retail parks) Standardized operating procedures and rates countrywide A survey was conducted in China to identify the critical success factors in the budget hotel segment of the industry. The researchers (Hua, Chan & Mao, 2009) identified that three factors; physical product, service quality and location were amongst the most critical success factors. The physical product was connoted with the guest’s bedroom as interviewers identified the bedroom comfort level to be a vital element. As opposed to luxury hotels, budget hotels tended to focus more on the core physical products such as the guestroom beds. Among the factors included in service quality, they identified guest safety, security and the speed of guest service to be among the top priorities. In addition to that, the research also indicated that hygiene and cleanliness are also of fundamental importance in maintaining highest service quality. Finally, an attractive location was also imperative for the hotel’s success. Industry experts believe that it takes only 18 months to recoup the investment in China if the budget hotel is located at an ideal location (Hua, Chan & Mao, 2009). The investors of hotel deemed that the geographical coverage of the hotel network was crucial for the budget hotels. The location of the budget hotel is one of the key factors that determine its financial performance. Budget hotels should be located at a place which is accessible with adequate car parking facilities. The model cannot be successful on a premium priced land since the hotel rates are much lower as compared to luxury hotels. The rooms for a budget hotel are as clean as a luxury hotel but they are not extravagantly lavished and decorated with furnishings and designs. The budget hotel operates on the concept of cost leadership. The buildings are constructed of architectural materials to ensure that they are maintenance-free. The grounds are watered by an automated underground sprinkler system. There is a decentralized air conditioning and a heating system to ensure that failures are limited to single rooms not the full hotel as they aim to minimize their total cost. Although Budget hotels provide standardized products and services but there are slight alterations made to the product and service ranges to make them more attractive to a specific group of customers. Budget hotels lack most of the basic amenities that are common in luxury hotels. However, they include freebies such as breakfast and newspapers. These hotels have reduced the number of facilities to maintain a lower room rate which is a vital consideration in this segment of the market. Budget hotels use a lot of cost minimizing tactics to ensure that they are operating profitably. For instance, they will use disposable plastic cups instead of expensive glass which has a chance of being shattered and requires cleaning, all of them add to the cost of administration. Trained individuals are placed at the counters to ensure that they kindly treat the guests. A computer management system tracks the billing of the guests, reservations and processes the registrations. Luxury Hotels A luxury hotel provides much more than the basic necessities and is a brand identity that has an emotional appeal. It’s more about offering a valuable experience rather than serving a particular function. Visitors who have a love for more than the basic level of comfort will find their place in a luxury hotel. These hotels provide a feeling of relaxation and comfort as they are decorated with plush interiors designed by the specialist designers using the most expensive fittings and furnishings. Luxury hotels charge higher room rates as their guest expect higher quality of service. Luxury hotels are well-suited for people who do not just want a place to stay but to have a feeling of royalty during their stay in the hotel. The level of service is what differentiates a luxury hotel from a budget hotel. They usually provide 24 hours service, a concierge desk, and shuttle transportation. Special requests are also accommodated to ensure highest level of service quality. These hotels lay a high emphasis on the guest experience and ambiance by adorning the layout with cozy robes, fluffy beds, high-thread-count sheets and pillowcases, and down comforters. An iconic or individual architectural design is often a key characteristic of a luxury hotel like London’s Silken Hotel. Luxury hotels will have several facilities such as comfortable beds, luxurious bathrooms, lounges, spas, ballrooms, bars and coffee shops; all of them which you will not find in a budget hotel. A luxury hotel has a properly-designed and well-equipped swimming pool. There are vast numbers of facilities provided in luxury hotel as you will find barber shops, beauty parlors, and medicine shops are also available within the territory of the luxury hotel. Telephones are provided in the guestrooms for the visitors which is not a case for budget hotels. There are special arrangements made to provide facilities for dancing and orchestra. Luxury hotels maintain highest service standards by ensuring that all kinds of cuisine, food and beverage services are available for their diverse range of customers. Although the human personnel is identical in both kind of hotels as they are professionally trained, experienced and courteous but the human personnel of a luxury hotel is a step ahead, since they are targeting to higher end of the market segment. The staff of a luxury hotel is much more active and professionally qualified. They even know more than one language to make sure that they can competently handle the multinational visitors. The level of customization is also different in both types of hotel as budget hotels offer a very small level of customization and there are cases under which the human resource requires a high degree of judgments such as in handling customer complaints whereas luxury hotel staffs are highly trained in managing delicate situations (Lockwood & Jones, 2001). The human resource of a luxury hotel is much more qualified and professional than budget hotel. They attend courses and seminars to ensure that they are abreast of the latest trends in the industry. A research was conducted by Sila & Ebrahimpour (2003) to identify the total quality management initiatives at different luxury hotels. They identified that product are carefully designed after soliciting the input of their customers and employees. They also use customer feedback to improve their current services and processes. For instance, one of the hotels created a trademark bed which was to be used in its guest rooms after obtaining feedback from the guests through a focus group. The findings also revealed that the designing of the products and services are done at the corporate level. To ensure highest level of service quality, luxury hotel management conduct self audits and outside audits which cover all aspects of the hotel operations. Unlike budget hotels, luxury hotels have a formally introduced a Total Quality Management Program in to their operations. They have been devoting time to Six Sigma Training which mainly focuses on the soft skills of company’s human capital. They have also implemented a “360 degree Feedback” to obtain an aggregate view on how the company is performing and what is the morale within the organization (Sila & Ebrahimpour, 2003). The top leadership of a luxury hotel is highly involved with a clear vision as to where the hotel aims to stand in the future. They held themselves accountable for the performance of the company considering both on the financial and operational sides. Those companies which implemented a TQM in their hotels, shifted to a different form of organizational hierarchy. There management style shifted from a centralized form to a decentralized form of management to make certain that communication flow was smoother and it flowed in both the directions (From top down to bottom up). Luxury hotels are highly concerned about retention of their customers which is an aspect of brand loyalty that is missing in budget hotels. They have quality committees which review information pertaining by making follow up calls to guests who were disappointed by the level of service provided to them. To have a central focus on guest experience, luxury hotels conduct informal interviews with guests about their stay in the hotel. Formal methods of evaluating the experience of guests include, guest comment cards and guest satisfaction tracking system. These sophisticated management systems are designed to track service attributes directly related to satisfaction and guest retention at the hotel (Sila & Ebrahimpour, 2003). The companies have also advanced database systems which monitor the market conditions and analyze how potential revenue streams can be maximized. In an essence, these systems are in place to assess the effectiveness of yield management practices. Conclusion The two different positioning strategies in the hospitality industry are creating value for themselves by targeting to specific group of users. They are not competing as their philosophy poles apart with each other. Both these categories of hotel are regulating their processes in a way there strategy warrants them to operate. The operation management practices are distinct in each segment implying that each segment is pursuing a different strategy. To be more precise, each segment is generating competition for itself. Bibliography Fiorentino, A. (1995), “Budget Hotels: not just minor hospitality products”, Tourism Management, Vol. 16 No. 6, pp. 455-62 Hua, W., Chan, A. & Mao, Z. (2009), Critical Success Factors and Customer Expectation in Budget Hotel Segment: A Case Study of China, Journal of Quality Assurance in Hospitality & Tourism, Vol. 10, pp.59–74 Jones, P., (2002), An Introduction to Hospitality 2nd Edition,Thomson Lockwood, A. & Jones, P. (2001), Process Choice, Process Layout and Technology in the Hotel Industry Track: Hospitality and Tourism, Proceedings of the Twelfth Annual Conference of the Production and Operations Management Society Sila, I. & Ebrahimpour, M. (2003), ‘An Examination of Quality Management in Luxury Hotels’, International Journal of Hospitality & Tourism Administration, Vol. 4(2) 2003 Read More