Hotel Ipsum

Market Strategy
1.0 Introduction: Where Are We Now?

Executive Summary
Hotel Ipsum opened in 2011, and by 2013 shareholders were considering selling the property due to a
lower than expected return on investment. Hotel room supply in the local market had significantly
increased, and this created a completely different competitive scenario than what management had
originally expected. The current market situation created unexpected pricing pressure due to the
imbalance of room supply and demand. After analyzing the situation, the hotel’s General Manager,
Rafael Escobedo has decided to develop a comprehensive marketing plan to improve the profitability of
the hotel and deliver better results in the short- and long-term. The plan will be developed to meet or
exceed the shareholder’s financial performance targets, which is a 6% return on the investor’s
$14,400,000 investment in the hotel property.

Market Analysis: Tourism Trends (External Analysis)

Tourism in the hotel sector in Bogatá has been growing due to a variety of economic, political /
governmental, social and technological factors. Economic prosperity is fueling domestic travel and
tourism, and the increased use of the Internet has reduced the friction associated with finding, analyzing,
and booking a hotel room. In addition, Columbia’s political environment has greatly improved, which
has help stabilize the country and improve the confidence of foreign investors. Finally, advantageous
government regulations combined with significant capital investments from foreign investors has helped
foster business and leisure travel to Bogatá.
The following is a brief list of overarching market trends that were impacting the tourism and hotel sector
in Bogotá during the time of Rafael's dilemma:
1. Increased foreign travel to Columbia: A more stable political situation combined with substantial
improvements in security has created a very positive trend in foreign travel. From 2004 to 2011,
there was a 10.4% compounded average growth rate (CAGR) of visitors to Columbia, and a
primary destination for travels was Bogatá. This has greatly impacted the demand for hotel rooms
in the target area.

2. Improving economy: The GDP per capita had doubled in the prior 6 years. The economic
prosperity helped fuel greater domestic travel, which was 39% of the hotel’s customer base. In
addition, Columbia’s sustained economic growth was attracting a larger number of international
companies, which helped support future growth of travelers to the area.
3. Occupancy and Prices: The observed trend in the Bogota’s hotel market was that occupancy levels
were maintained while average pricing increased slightly overall even when some new hotels
arrived with under-market prices.

Competition
Hotel Ipsum was experiencing a fair amount of competition in the local market from the following hotels:
Hotel Estelar Calle 93, Cite Hotel, Hotel Pavillon Royal, and Hotel BH Parque 93 While there were
numerous hotels in the surrounding area, the 4 hotels listed above are targeting the same target segment.
Hotel Ipsum was positioned to meet the general needs business travelers who were 90% of the hotel’s
customer base. The local competitors were playing in the medium-high level category with fees ranging
between $140 and $280. Rafael identified competitors in the following manner: a. Fees b. Location c.
Amenities d. Star rating Hotel Ispum carved out a unique position from the competition by offering a
relatively high level of functionality and design for the price. Rafael believed that Cité Hotel was the
organization’s closest competitor, but Cité Hotel was a five-star hotel that was significantly more
expensive.

Hotel Ipsum’s Current Customer Base:

The hotel’s customer base was mainly international customers, representing 61% of its customer base
while the national customers were 39% of the total customers. Countries of origin of the international
guests of Hotel Ipsum were mainly USA, Spain and Mexico. Based in the analysis of data from 2012,
Hotel Ipsum management realized that the main reason for travelling among their customer base was
business (90%) and tourism (10%).

Current Trends:
Trend 1: Hotel Ipsum’s customer base has increased their use of the Internet to select and book their hotel
room. They are also increasing their use of third party sites such as Expedia to book their hotel room.
Trend 2: Consumers in Columbia have become more informed and educated, and they are seeking greater
value for their money when traveling, especially when it comes to choosing a hotel to visit. Technology
has empowered the consumer to seek for greater value from businesses.

SWOT Analysis
Strengths Weaknesses
 High quality product  Limited marketing experience
 High quality / personalized services  Limited marketing activities
 Ideal location  Inability to meet financial targets
 Competitive / adaptive Pricing  Low occupancy on weekends
 Unique boutique hotel  Amenity disadvantages (e.g. no pool)
Opportunity Threats
 Marketing is improving  Growing supply
 Economy is improving  Competition targeting the same consumers
 Increase in international demand  Competition has unique amenities
 Internet is becoming mainstream  Investors investing in additional properties
 Room for growth in target segments
2.0 Marketing Strategy: Where Do We Want to Be?
Financial Objective
a) Sales and Profit.
Given: a. Investment of $14,400,000, b. ROI target of 6% ~ EBITDA target of 6%, and c. In order to
achieve the financial objective, Rafael Escobedo would need to achieve an EBITDA of greater than
$864,000.
Sales Objective:
From Appendix 5, EBITDA is 27.6% of Sales
The sales target: $864,000 / 27.6 = $3,130,435 (greater than)

Profit Objective:
a. ROI target of 6%
b. EBITDA of greater than $864,000

Brand / Non-financial" Related Objectives

Rafael Escobedo should focus on achieving the "brand / non-financial" related objectives below in order
to increase the occupancy rate and average daily rate:
1. Increase brand awareness (key brand objective)
2. Increase brand preference (key brand objective)
3. Improve brand reputation (key brand objective)
4. Improve brand perception (key brand objective)
5. Improve purchase intention (i.e intention to stay at the hotel)
6. Social media likes, followers, comments, retweets, blog comments, and so forth (Facebook, Twitter)
7. Travel agency: positive ratings from customers, positive comments, number of shares, etc.
8. Web traffic increase: search engine marketing clicks, search engine optimization related clicks,
earned media clicks
9. Valuable customer generated content in company blogs, website, and so forth.

The brand objectives listed above are non-financial objectives, but they will have an indirect impact on
sales and profitability. For example, positive reviews on sites such as Trivago, and TripAdvisor could
have a positive impact on future revenues and profits.

Achieving a targeted level of improvement in the brand / non-financial objectives would certainly help
Hotel Ipsum reach its financial objectives. The following is a brief analysis of the occupancy rate needed
to achieve the company's brand objectives:
Revenue Shortfall: Approximately $200,000
Objective: Improve weekend occupancy rate to achieve the financial objective.
Current weekend occupancy: 20%
Total room nights for the weekend: 104 x 80 = 8,320
Rooms occupied: 8,320 x .20 = 1664
Average Daily Rate: $168
Weekend revenue (20% Occ): 1,664 x $168 = $279,552 Weekend revenue target: $279,552 + $220,000 =
$499,552
Number or rooms: $499,552 / $168 = 2,974
Occupancy %: 2,974 / 8,320 = 35.7% occupancy (versus the current state of 20%)
 Customer Objectives.
Based on the situation analysis, the customer objective for Hotel Ipsum is to (1) attract new customers and
(2) retain existing customers.
Objective 1: Attracting new customers.
Background:
- Customer base: Business (90%) and tourism (10%).
- The average guest stay was 2.2 nights per guest.
- The average occupancy rate was 59%.
- Average occupancy from Sunday to Thursday around 75%
- Average occupancy for weekends (Friday and Saturday) below 20%.
- International customers 61% of base and national customers 39% of base.
- International guests of Hotel Ipsum were mainly USA, Spain and Mexico
Rafael Escobedo should perform the following to attract new customers:
- Weekend Tourists / Travelers: Given the low weekend occupancy rate, Escobedo should conduct
market research to determine the unmet needs of weekend travelers (for tourists). For example,
Escobedo may find he could increase weekend occupancy if he featured live music in the hotel bar
etc. Also, the hotel is located at walking distance from some of the best restaurants, bars, and
nightlife in the city.
- International Tourists / Travelers: Given the positive trend in the number of visitors from other
countries, management could target tourists from countries outside of USA, Spain and Mexico to help
attract new customers and increase weekend occupancy.
- Domestic Travelers: The economy in Columbia has improved, and the economic prosperity has
fueled domestic travel. Management should also target key domestic target audiences that will
appreciate what Bogotá should offer.

Objective 2: Retain existing customers

Rafael Escobedo should perform the following to retain existing customers:
- Business Travelers: 90% of Hotel Ipsum’s customers are business travelers. Management should
conduct research to determine the segment’s willingness to recommend the hotel to friends /
colleagues (Net Promotor Score). The findings will help the hotel develop programs and improve
processes that impact customer loyalty.

- Loyalty programs: Management should use best practice loyalty programs to retain the installed base
(e.g. VIP services, upgrades, and so forth).

- Weekend Travel: The hotel should create offers that motivate business consumers to travel to the
hotel on Friday and Saturday (tourism or for pleasure).

Strategic Objectives.
1. Segments (based on behavior):
a. International business travelers
b. International tourists / leisure travelers
c. Domestic business travelers
d. Domestic tourists / leisure travelers
2. Targeting
The foundation for the targeting approach is profit potential, growth, and segment size. Additional
factors are based on the macro environment (growing GDP / economic growth, international business
expansion, increased domestic travel, technology usage, security in the region, and so forth).
Primary Targets:
- Domestic tourists / travelers (focus on new customers)
- International business travelers (focus on new and existing customers)

Secondary Targets:
- International tourists
- Domestic business travelers

3. Positioning.
Elements of Differentiation
a. Extensive range of comprehensive business facilities
b. Unique design / décor
c. Personalized services
d. Strategic location
e. Boutique hotel environment
f. Minimalist concept

Domestic Tourism
Increased domestic travel combined with solid economic growth provides a tremendous opportunity for
Hotel Ipsum. For domestic tourists, the hotel offers consumers a luxurious, relaxed environment where
they could recharge their batteries during their tourism stay. At the same time, the hotel is located at
walking distance from some of the best restaurants, bars and nightlife in the city.

Positioning Criteria: Important, distinctive, superior, communicable, and not easily copies.
a. Position for domestic tourists: A unique boutique leisure hotel with personalized services in a highly
desirable location around some of the best restaurants, bars and nightlife in the city that is value
priced.
b. Position for international business travelers: A unique minimalist concept luxury hotel with an
extensive range of comprehensive business facilities in a strategic location with unparalleled personal
services.

3.0 Marketing Mix: How Are We Going To Get There?

Brand and Product Management

General product overview: Hotel Ipsum:
a. Luxury 5 stars hotel offering 80 fully equipped rooms in the heart of Bogotá.
b. Extensive range of comprehensive business facilities.
c. Built in June 2011 and designed in a minimalist relaxing décor
d. Personalized services
e. Up-to-date technical business facilities, high speed Wi-Fi Internet connection and conference facilities
to hold business meetings
Key attributes that sets the hotel apart from competitors:
a. Strategic location
b. High-level gastronomy offering
c. Minimalist decor concept
d. Simplicity and comfort
e. Relatively low number of rooms
f. Overall personalized customer service
g. Boutique hotel environment
Pricing Strategy Overview
Hotel Ipsum’s pricing strategy was based on Rafael’s average price objective for 2012, which was to
carry a $188 average daily room rate. The hotel’s overarching pricing strategy was (1) to leverage the
area’s economic prosperity, technological improvements, and increasing security to achieve a 12% price
increase, and (2) to dynamically set price based on demand, and (3) to leverage the property’s key
attributes (listed in the previous question) to achieve occupancy levels that would help maximize pricing
levels.
Management’s pricing strategy didn’t succeed as planned because tax exemptions and an increase in hotel
room supply created high pricing pressure. In addition, without solid a solid marketing plan, it is likely
that consumers didn’t understand the value they would receive for the price offered. Finally, over time,
the imbalance between offer and demand will create a long-term challenge for the hotel, and in the short-
term the challenge was only addressed with a price reduction versus a plan to properly position Hotel
Ipsum.
New Pricing Strategy
The new pricing strategy is designed to generate enough demand to meet or exceed the company’s
EBITDA target of 6% (from previous assignment – the increase in weekend revenue will need to be
$500,000 or 2,973 additional weekend stays at the hotel). The new pricing strategy will be to align value
added marketing programs with dynamic competitive weekend pricing to meet or exceed the 2,973 room
stay target. The key to the new strategy will be to ensure that the new pricing aligns with the demand
creation strategies from the new promotional mix. For example, weekend vacation packages will be
competitively “value priced” to generate enough demand to achieve the ROI target.
Channel Management and Retailing
Given the competitive landscape and the findings from the PESTEL analysis conducted for the prior
assignment (political, economic, social, technology, legal, and environmental), Hotel Ipsum should
perform the following changes to its distribution strategy:
1. Leverage third party intermediaries such as Expedia.
2. Create distribution on social platforms.
3. Enhance the website to handle pricing, booking, and so forth.
4. Evaluate the benefits of a centralized reservation system (digital)
5. Use traditional travel agencies
6. Use online travel agencies
7. Use affiliates to sell and book rooms.
The distribution strategy will be to use third parties to remove distribution friction and increase bookings
to the meet or exceed the 6% ROI target.
Communications Strategy: Integrated Marketing Communications (IMC)
The following communication strategy was designed to achieve the hotel’s ROI within a reasonable
marketing budget:
1. Leverage social networking to build brand awareness, brand preference, ultimately brand equity.
2. Integrate internet marketing / digital promotion strategies to drive traffic to the company’s new
website (e.g. SEO, SEM, display, etc.).
3. Integrate a digital public relations strategy to help position the company’s brand to consumers.
4. Use personal selling as needed to build strong relationships in the market.
5. Integrate traditional media as needed in key target locations (inflight print ads etc.)

4.0 Expected Results

1. Itemized budget
Marketing Budget:
a. Social Media Marketing: 600 x 12 = $7,200
b. SEM: 1500 x 12 = $18,000
c. Web Development = $7,000
d. Web Maintenance: $400 x 12 = $4,800
e. Public Relations Agency Test (6 Months) $1,200 x 6 = $7,200
f. Direct Sales Force: $900 x 12 = $10,800
Total $55,000

2. Forecast of incremental sales.

Background:
EBITDA target: $864,000
EBITDA is 27.6% of Sales (From Appendix 5), The sales target: $864,000 / .276 = $3,130,435
(minimum)
Current Sales = $2,910,432, Revenue Shortfall = $220,003
Incremental revenue strategy: Generate a minimum of $220,003 in incremental revenue by increasing
weekend occupancy rates to the figure below by executing the new market activities listed above.
Current weekend occupancy: ~ 20% (1664 arrivals / 8320 potential stays)
Incremental increase in occupancy: $220,003 / $168 = 1,210 new arrivals
New weekend occupancy: (1210+1664)/8320 = 35%
Additional incremental sales revenue potential by raising rates to $225 on the weekend = $91,968.

3. Pro forma
Gross sales: $3,294,253 ($3,130,435 + $163,818 shown above)
COGS (Var Costs) $1,304,524
Channel Commissions: $92,239
Gross Contribution: $1,989,729
Marketing and Sales Expenses $55,000
Net Contribution $1,934,729
Fixed Costs $988,276
EBITDA $946,453
 4. Additional Metrics

Non-financial Objectives.
Rafael Escobedo should consider the following non-financial objectives in order to increase the
occupancy rate and average daily rate:
1. Brand awareness
2. Brand preference
3. Brand perception
4. Purchase intention (i.e intention to stay at the hotel)
5. Social media likes, followers, comments, retweets, blog comments, and so forth (Facebook, Twitter,
etc.).
6. Travel agency: ratings from customers, positive comments, number of shares, and so forth
7. Web traffic increase: search engine marketing clicks, search engine optimization related clicks, earned
media clicks
8. Customer generated content in company blogs, website, and so forth.

Customer Objectives.
Based on the situation analysis, the customer objective for Hotel Ipsum is to (1) attract new customers and
(2) retain existing customers.

Objective 1: Attracting new customers.

Background:
- Customer base: Business (90%) and tourism (10%).
- The average guest stay was 2.2 nights per guest.
- The average occupancy rate was 59%.
- Average occupancy from Sunday to Thursday around 75%
- Average occupancy for weekends (Friday and Saturday) below 20%.
- International customers 61% of base and national customers 39% of base.
- International guests of Hotel Ipsum were mainly USA, Spain and Mexico
Rafael Escobedo should perform the following to attract new customers:
- Weekend Tourists / Travelers: Given the low weekend occupancy rate, Escobedo should conduct
market research to determine the unmet needs of weekend travelers (for tourists). For example,
Escobedo may find he could increase weekend occupancy if he featured live music in the hotel bar
etc. Also, the hotel is located at walking distance from some of the best restaurants, bars, and
nightlife in the city.
- International Tourists / Travelers: Given the positive trend in the number of visitors from other
countries, management could target tourists from countries outside of USA, Spain and Mexico to help
attract new customers and increase weekend occupancy.
- Domestic Travelers: The economy in Columbia has improved, and the economic prosperity has fueled
domestic travel. Management should also target key domestic target audiences that will appreciate
what Bogotá should offer.

Objective 2: Retaining existing customers.

Rafael Escobedo should perform the following to retain existing customers:

- Business Travelers: 90% of Hotel Ipsum’s customers are business travelers. Management should
conduct research to determine the segment’s willingness to recommend the hotel to friends /
colleagues (Net Promotor Score). The findings will help the hotel develop programs and improve
processes that impact customer loyalty.
- Loyalty programs: Management should use best practice loyalty programs to retain the installed base
(e.g. VIP services, upgrades, and so forth).

- Weekend Travel: The hotel should create offers that motivate business consumers to travel to the
hotel on Friday and Saturday (tourism or for pleasure).

Strategic Objectives.
1. Segments (based on behavior):
a. International business travelers
b. International tourists / leisure travelers
c. Domestic business travelers
d. Domestic tourists / leisure travelers