Analysis of Luxury and Budget Hotels - Lab Report Example

? OF Compare Luxury Hotel and Budget Hotel The Hotel Industry is reported to be a$3.5 Thigh growth industry in the global economy, and encompass hotels, casinos, cruise shipping, clubs, restaurants, food service, tourism, and transportation according to Cornell University School of Continuing Studies (2011). Hotel Operators in choosing to operate Budget or Luxury Hotels have to define strategies that will ensure profitability, but the nature of operations, and the services provided, differs in terms of quality, speed, reliability, dependability, cost, and flexibility from an Operations Management perspective. According to Jones and Lockwood (2001), the industry is a complex assembly of customer processing, information processing, and material processing that leads to process choice of hybrid types inclusive of job shops, batch production, mass customization, and mass production all within the same operation (Jones, Lockwood, 2001), Additionally, the specific content of the industry does not always allow process layout to closely match process type, and the theory of Operations Management becomes difficult to apply (Jones and Lockwood, 2001). It is in this context the operations of Budget Hotels and its Luxury counterpart will be compared, and the results will there lacked the level of accuracy, and absoluteness prevalent in operations like the auto industry and other manufacturing entities. According to Dejong (2010), the difference between Budget Hotels and a Luxury Hotels, is that budget hotels tend to derive more value from operations given the leaner cost structures that are based on lower capital investments, land cost, and the staff to hotel room ratio. They are therefore able to achieve higher operating returns, which facilitate higher contributions to the hotel bottom lines (Dejong, H. 2010). Luxury Hotels on the other hand, according to Dejong (2010), are considered less risky then Budget Hotels in terms of development prospects, in that the entry barriers to new entrants are very high in this segment of the market. Studies have shown that Luxury Hotels are normally established in urban or resort areas, where they are characterized by the low number of available sites for development, compared to Budget Hotels which are found principally along highways, in close proximity to airports, and in suburban areas (Dejong, H. 2010). The strategy in locating these hotels in theses different areas separates and characterize the customers will be attracted to them, and the financial status and satisfaction desire levels of customers will play a critical role in deciding who chooses a luxury hotel as against the budget hotel. Economic conditions of the market, is also a key factor on the development choices of investors, and where the loan value ratios are decreasing compare to earlier periods like 2010 versus 2008, lower capital will be required to build budget hotels instead of luxury, and it is in this direction many business entrepreneurs will resort to achieve financial success and stability (Dejong, H. 2010). The hotel Investment climate criteria is one major reason why investors are turning to Budget Hotels in South America, Central America, Asia, especially in Brazil, India, China, and Dubai, instead of Luxury Hotels according to Dejong (2010). The criteria have an investment component and a market related component. Investors look at the investment horizon, the medium objectives, and risk tolerance before looking at the market related aspect which include the maturity of the destination markets being targeted, the supply and demand and the state of the credit market before deciding whether the cost and returns from luxury and or budget hotels are attractive enough to warrant the investment of their capital (Dejong, 2010). According to Dejong (2010), substantial saving opportunities are available for companies that incorporate budget properties into their managed hotel programs over luxury hotels, and other upscale properties. Additionally, in expanding into budget hotels, they reaped the benefit of becoming part of a globally recognized chain which will connect them to the preferred supplier agreements. These agreements will enable them to achieve significant savings in the price of supplies and other service benefits (Dejong, 2010. Benefits of this nature, according to Dejong (2010) will serve to further strengthen their marketing strategies to attract the maximum number of clients in their segment of the market at even lower prices but with the same feature across locations (Dejong, 2010). Budget hotels in China for example, are attracting millions of tourists and business men as well as from the local population, due to the prevailing boom in the industry, according to Shen (2008), due to the cost factor, reliability and speed. These hotels on the average, charge less than $45 per night, compare to $ 200 in the more luxurious five star locations (Shen, S., 2010). According to Shen (2010), these hotels are reliable in provide room services for their guest in approximately 10 minutes , and many successful business men entering the country often rush to these facilities. This is a far cry from pre the 1999 period, when the government did very little to encourage domestic travelling, and many Chinese had to stay at grim gust houses that were notorious for their lack of heat and poor plumbing (Shen, S. 2008). The Chinese Budget Hotels according to Shen (2010), has been expanding like the United States in the 1950’s when tourism and highway expansion were powerful and effective drivers in the economy (Shen, S. 2010). According to Carlson Wagon Travel (2011), Budget Hotel Brands have existed historically in Europe and North America, but a change in trend is happening, in that they are expanding in other parts of the world, as hotel construction booms in emerging markets (Carlson Wagon Travel, 2010). This lower class of service has not been traditionally part of the managed travel programs, but improvements in quality of services offered, as well as heightened cost sensitivity globally has attracted the attention and considerations of prospective guest and travel management companies (Carlson Wagon Travel, 2010). This is possible due to the improvements in the quality of the rooms being provided, as well as the change in desires of guest who may require greater innovations during their holidays. A critical contribution to this change is the fact that globally, tourists are becoming more environmentally aware, and sees it as their responsibilities to adopt lifestyles that support their convictions. In some cases they will spend their times doing activities hiking, walking, jogging, and competing in marathons, and other outdoor events that takes them away from hotels. \ Changes is lifestyles like this are more conducive to Budget Hotels rather than Luxury, and will lead to the market being skewed in the direction of low budgets, thereby further threatening the existence of Luxury Hotels in certain geographical locations. The founder of Easy Hotel gave a lucid example of the difference between Budget Hotel and Luxury Hotel, by describing in the form of his motto, what the company offers, when he customers when he said to an interviewer, “ Sleep, shower and go”, according to Hotel Mule (2010). Guests he reiterates are required to use the rooms for basic necessities such as sleeping, showering, and then leave, so that the rooms can be prepared for the next guest. These sizes of these rooms are so small that they leave no room for any form of attractions to the users (Hotel Mule, 2010). According to Hotel Mule (2010), Budget Hotel rooms can be cleaned within fifteen minutes, as they contain only a bed, washroom, a compact shower, and toilet much like what obtains of cruise ships. This is an English concept that often bears fruit, compare to luxury hotel which quests will require several days of advance booking to access. In London for example, these compact living cells provides standardize living accommodations at affordable prices compare to those in luxurious locations (Hotel Mule, 2010). Luxury Hotels in London, for example are facing stiff competition to retain their position of dominance in the market, and one of the main threat apart from the low cost services from Budget Hotels, is the emergence of Yotel; a novel Japanese approach which entails providing luxury services at budget hotel prices in ideal locations (Hotel Mule, 2010). They however, continue to offer high quality services to their quests as is traditional for the industry, in the form of marble bathrooms, antique furniture, regular or spa suites, butler services, internet access, and mini-bars, according to Hotel Mule (2010). Based on the quality of services offered, it therefore takes more time for Luxury Hotels to prepare their rooms using the different types of hybrid process Lockwood and Jones (2001), brilliantly expounded in their presentation. In terms of speed the Budget Hotels will require only a quarter of an hour, but its competitors (Luxury Hotels), due to their unique mass customizations, and jobs shop type productions, may require even a week to prepare their rooms to meet the high standards expected by their quests. The Japanese novel approach have capitalized in this possible weakness of the Luxury Hotels, in terms of preparation time, and are offering in London and in the near future other locations, Yotel rooms to quests with only four hours advance notice, according to Hotel Mule (2010). They have found away to improve their production process using far superior technology than that which prevails in the luxury Hotels and at lower cost structure, to make inroads in the market. According to Hotel Mule (2010), Luxury Hotels are finding it difficult to justify their prices because of personnel cost globally are skyrocketing in numerous regions of the world, especially in terms of the human resource utilization component of the operation. Cost has risen to between 40 % and 50% in the top segment of the market, to the extent that management according to Hotel Mule (2010), are not able to constantly achieve the high room tariff they depend on to remain profitable, and had to be cutting cost in improve occupancy rate (Hotel Mule, 2010). Berlin, the capital European city in terms of tourism, for example, had to reduce the room rates for its 17 five stars Luxury room hotels, to 100 Euros per night in a recent move. The competitive pressure from Budget Hotels, has forced these European top performing hotels, in terms of price-performance rate, to change their strategies to remain viable, according to Hotel Mule (2010). This concession is also a possible indication of the changing tastes of guests who have been drawn to equivalent quality at cheaper prices, reliable services, speed, and the dependability offered by Budget Hotels, in Europe, and the trend may continue in other areas of the world, signifying even greater threat to the existence of Luxury Hotels Budget Hotels have defined themselves, according to Hotel Mule (2010) by the prices they offers, but these pieces also limits the services offered, while Luxury Hotels defines themselves by the services that justifies their prices. However, Luxury Hotels in specific regions of the world like in Asia are finding it difficult to maintain their status quo in terms of price, speed, quality and dependability, due to the diminishing number of qualified applicants to occupy their rooms (Hotel Mule, 2010). Grace F. (2010) describes Budget Hotels as normally old, clean, but not fancy like Luxury Hotels, and adorn with worn facilities. The offer nothing free, except the basics and charged their customers prices that range from $ 45 to $110 per night in the Los Angeles area for example. While Luxury Hotels in comparison, are for people who are able to live affordable lifestyles. Employees for these operations have to be given specific training to provide for their guests during the entire time of they are at the hotels (Grace F. 2010). The quality of service apart from the accoutrements that comes with luxury rooms, include services for massage, gyms that have the latest exercise equipment, in-house bars, restaurants, beauty centers and laundry services. These services in areas like London for example, according to Grace F. (2010), anywhere between 240 to 525 Euros per day. According to Domingo (2003), a product or service offered to customers has three dimensions, namely quality, delivery and cost. The quality is the attribute required by the customers, buyers, or users that gives the product the primary value status it has. Suppliers according to Domingo (2003), has to pay attention to tolerances, specification features, and varieties in order to maintain excellent quality status, while cost refers to the cost of producing and delivering the final products to the customer. This is largely dependent on the prices paid for the materials in the job shop, batch production, or mass production or mass customization process that may be used (Lockwood &Jones 2001). The final cost according the Domingo (2003), affects the marketability of the product and services offered, as well as the profitability of the company supplying the services. Delivery according to Domingo (2003), is taking the finished products or services to the targeted customers at the right time, geographical locations, quality, and quantity required (Domingo, S. 2003). Budget and Luxury Hotels will differentiate the services offered so that they can offer their clients process at the high end as well as the low end. Luxury Hotels add values to the materials they acquire to deliver services at the high end, including brands as well as highly trained personnel to successfully affect the quality of the delivery of the services, while Budget Hotels does the opposite, in that they strip the materials they used to a bare minimum to deliver according to the prices advertized. The three dimensions of the products and services, will experience ongoing variations and manipulations by both the Luxury and Budget Hotel owners, as they constantly strive to capture the maximum number of clients in the different segment of the market, bearing in mind that the available technology, the nature of the competition, the culture of the region, quality of staffing, the financial capability of clients, the marketing strategies, current political environment, as well as the economic climate are significant variables that will affect the final prices offered to customers both locally and globally. Budget Hotels seem to be the more attractive option in the hotels industry, based on all the factors that have been examined and the results they have produced. The Japanese company that is marketing Yotel in a novel way, has shown that with improved technology, the quality, speed, reliability, dependability, and cost of services to customers can be provided competitively. The number of customers in the Luxury Hotel market has been declining to the extent that the survival of this entity is threatened. This is in places like Europe in particular, where the cost of human resource cost of services is rising at a rapid rate. However, Luxury Hotel entry cost serves as a deterrent to new entrants, and will survive in some areas where land costs , and the relatively number of operators are few. The distinction between both categories however, will remain in terms of quality, speed, reliability, cost, and dependability and the segment that best meet the customer’s needs at the time the y require, will dominate the market in that location. REFERENCE 1. Hotel Mule (2010). Polarization of Markets-Luxury and Budget Hotels www.hotelmule.com/management/html/.44/11-2844.html , 05/10/11 2. Grace F. M. (2010). luxury Hotels vs. Budget Hotels www.ezinearticles.com/?luxury-hotels-budget-hotels&id=4851164 , 05/10/11 3. Domingo, R.T. (2003). The QCD Approach to Operations Management RTD Online Business Management Articles www.rtdonline.com/bma/mm/14.html , 05/11/11 4. Dejong, H. (2010). Budget Hotel vs. Luxury Hotels www.ehotelier.com/hospitality-news/item.php?id=A19524_0_11_0_M , 05/11/11 5. Shen, S. (2008). China Budget Hotel Industry is booming as Tourism grows www.nytimes.com/2008/;01/16/business/worldbusiness/16iht-hold.1.9252219.html?pagewanted=2&= , 05/11/11 6. Lockwood, A., Jones, P. (2001). Process Choice, Process Layout and Technology in the Hotel Industry Track: Hospitality and Tourism www.POMSMeeting.org/meting2001/2001/cd/papers/pdf/lockwood , 05/11/11 7. Cornell University School of Continuing Studies (2010). Hotel Operations Management Tactics for Profitability www.cornell.edu/sc/progrsms/index.php?y=126&s=overview, 05/11/11 8. Carlson Wagon Travel (2010). Budget Hotels Brands go Global www.cwtindustrywatch.com/industry/_watch/.../article3.html , 05/10/11 9. Read More