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Roccoco New York Hotel

1. How important is the customer service in the boutique segment of the hotel
industry? What other factors are important to the success of the hotels
competing in the segment?

The boutique hotels the have characteristic of being relatively small, quiet, convenient,
well staffed and offer upscale high-end and ample amenities. The boutique segment
also provides a specialised and personalised service. This would be integrated into the
overall experience concentrating on making the customer feel at home or as
comfortable as humanly possible. This segment would also offer unique services that
would not normally be provided by low cost orientated segments.

When a customer stays at the hotel they want the whole experience to be carefree and
comfortable. Excellent customer service is a key component in satisfying this need.
Factors such as speed of service and handling of special requests certainly enhance
the customer service of the hotel, which if performed correctly gives positive customer
perceptions. Another key dimension of customer service is the attitudes that the
employees display towards the customers when interacting and performing tasks. No
matter how excellent the hotel facilities and amenities are if employee attitudes are
negative the entire outlook of the hotel becomes negative. Due to the competitive nature
of the hotel business, customer service needs to incorporate innovative ideas and
methods on how to differentiate it self from other hotels. This would call for the service
to be proactive on the part of the employee, for example, finding out the names of each
customer and greeting them using their names. All of these factors eventually end up
making the customer happy which increases the repeat customer base.

Thus, customer service plays a very important role in the success of the boutique
segment hotel. Excellent customer service in such a segment forms one of the primary
requirements that a potential customer would seek. Customer service has a direct link
to the customer’s perceptions, which influences their decision for a repeat stay. This in
turn relates closely to the occupancy levels of the hotel, which in turn affects the hotel
bottom line.

Other important factors:


♦ Price
The price rate of rooms also contributes to the success. Although at this level the
customers are not purely price sensitive but would definitely be aware of the price for
quality of service received. Thus the room rate must be competitively priced for the
service offered and must also take into account the room rate of competitors.

♦ Amenities
The amenities are one of the factors that are used to differentiate one hotel from
another. If a hotel offers unique amenities that are appreciated by the customer it will
have a positive effect on their stay and promote a desire for a comeback. Additional
amenities would include that of complementary shoeshine, coffee delivery with wake-up
calls, fresh flowers in rooms, standardised bath amenities, slippers, bath robes, fruit
baskets, and entertainment services.

♦ Atmosphere & Cleanliness of property

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The atmosphere of the hotel is another important factor, as it is related to a persons first
impressions and perceptions, both of which are important characteristics in attracting
customers.

♦ Special facilities
Special facilities include areas such as meeting facilities for business travellers together
with a business centre. The need for office facilities such as internet, e-mail,
printer/copier, fax and teleconferencing are some of the unique facilities that would
differentiate the hotel from its competitors and provide a competitive edge, since
majority of the guests (weekdays) would be that of business travellers.

♦ Geographic location
The geographic location of the hotel is very important since it determines or increases
the chances for the number of potential customers. If the hotel is located in an area
where there are lots of attractions or places of interest, which attracts people, it is most
likely that the people would book into these hotels due to the convenience.

♦ Support systems to get customers


Another important factor is for having a support system that would direct potential
customers to the hotel instead of being taken up by a competitor hotel. This can be
achieved by striking up an alliance with other hotels in the vicinity so that if they are full
their customers can stay in the alliance hotel. This works particularly well if both hotels
are part of the same holding company. Thus the business “stays in the family” and
everyone benefits.

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2. What are the Roccoco New York Hotel’s resource strengths and competitive
liabilities? What do you see as the competitive strengths of the Roccoco New
York Hotel relative to other hotels in the New York City Market?

Resource Strengths

♦ The grand atmosphere of the hotel can be viewed very positively and considered as
a resource strength. `As commented by Ms. Bressner, “I was pleasantly surprised
with the grand atmosphere at this hotel. It can be described as an oasis in the heart
of Times Square. The lobby area is small, yet elegant and quaint”. This indicates
that the money used for the renovation of the hotel was well spent since the object of
creating a boutique type hotel has been achieved.
♦ The care and beauty of the rooms and publics areas are also considered as a
resource strength. The guestrooms offered great convenience for computer modem
hook-up and have plenty of workspace. These provide further positive impressions
of the hotel, which is ideal for attracting customers.
♦ The hotel has an excellent food and beverage manager who is well trained an able
to prepare superb banquets and creative menu concepts. This has a positive outlook
on the customers especially concerning that of room service orders. This has been
indicated by the increase in food sales.
♦ The hotel has an excellent doorman who portrays a positive outlook on the hotel.
This is highly invaluable since he creates the first impression of service expectation
on the customers.
♦ The hotel has a 24-hour room service and the answering of the hotel room service
order is considered positive since it is very personalised.
♦ The alliance that the Roccoco hotel has with a nearby property to refer their
customers to Roccoco hotel when the are fully booked is a resource strength. This
provides for a source of customers, who if, were not referred would have stayed at a
competitor hotel.
♦ The room rate of the Roccoco hotel is also very competitively priced as compared to
the other hotels of its segment in the vicinity.
♦ The Hotel is located in the hub of the city and is surrounded by corporate buildings,
restaurants, shopping and the theatre district. This is an advantage since customers
have access to these facilities and this would make it convenient for them if they
stay in the Roccoco hotel.

Competitive Liabilities

♦ The overall customer service is bad


− The room service menu is too limited and the food takes too long to reach
the customer. The service trays are not timely collected.
− The cocktail bar service is too slow.
− The service at the lobby desk is bad and the employees have a bad
attitude. The booking requirements were not correctly implemented, for example
in the case of Ms. Bressner, king-size bed and non-smoking.
− The bell boy takes too long to deliver the baggage and is not well trained
on how to properly deliver the baggage and lacks customer communication skills.

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− Employees are disempowered and cannot make routine decisions since
approval is needed from supervisors. This causes delays to the customer.
♦ The old corporate culture of the employees. Most of the employees were part of the
old hotel whose strategy was that of a low cost hotel. They thus bring the old way of
thinking and customer service, which is wrong for the boutique type hotel.
♦ Weak brand image or reputation.
♦ The company’s meeting facilities were limited to less that 2000 square feet with no
business centre.
♦ The formal training program has been cancelled. The new employees are not
formally trained but are trained on the job. They are also provided with the hotel’s
500-page operations manual, which is not user friendly and not easy to learn.
♦ The hotel does not have any middle management. These positions have been left
open due to the high labour cost.

Competitive strengths of the Roccoco New York Hotel relative to other hotels

♦ They offered a personalised atmosphere, which is cosy, quaint, and quiet and is
oriented towards a specific niche market. Excellent design and arrangement of the
lobby, restaurant and guestroom.
♦ Nearby property support for a source of customers.
♦ They have an excellent chef and food is of exceptional quality
♦ The room rate price was competitive.

3. What steps does Roccoco Management take to build core competencies and
competitive capabilities that ensure a pleasurable stay for Roccoco guests?

− Roccoco NY Hotel is designed to offer a personalised atmosphere and targets a


specific clientele as compared to its major competition whom are too large and will
have a general clientele focus.
− The Roccoco has a great hotel property and the rooms are considered extremely
favourable. Roccoco provides a personal fax machine in the rooms on request by
guests. The rooms are also designed to have modem hook-up and plenty of
workspace.
− Roccoco contracted a famous New York artist to design an art deco lobby area,
restaurant and guestrooms.
− The hotel also provides special amenities such as complementary shoeshine, coffee
delivery with wakeup calls, and entertainment services were available to all guests.

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4. What is your assessment of the financial strength of the Roccoco Hotel? How
does its financial performance compare to the industry averages?

Financial Analysis
1996 1997

♦ Gross margin = Income before Fixed Charges 19.58% 24.32%


Total Revenue

♦ % Room Contribution Margin 63% 66%%

♦ % Food and beverage Contribution Margin 8% 10%

♦ % Other Contribution Margin 20% 28%

♦ % Admin & General to Total revenue 15% 13.5%

♦ % Admin & General to Total Undistributed Exp. 44.12% 43.27%

♦ % Marketing Cost to Total Revenue 7.5% 7%

♦ % Marketing Cost to Total Undistributed Exp 22.05% 22.43%

♦ % Increase in total Revenue (from 1996 to 1997) 11.6%

♦ Marketing cost - Operation & Maintenance $181066 $202207

♦ 4% diff. bet Industry Gross operating Income $147719 $204902

From the financial analysis above the following can be deduced:


i) The gross margin for 1996 and 1997 are 19.58% and 24.32% respectively. This
is as indicated by the positive growth in the occupancy levels.
ii) From the contribution margins of the three revenue bases:
− The rooms have a contribution margin of 66% for 1997. This is highly
favourable.
− The other contribution is 28% for 1997 and has increased by 8% since
1996.
− The Food and beverage contribution margin is 10% for 1997.

These figures indicate that although there are varying rates in the contribution
margins each department contributes positively to the bottom line of the
business. Thus it will not be favourable to drop any of the departments since the
contribution margin will be negatively affected and the fixed costs of the hotel
would not be adequately offset.

The industry financial comparison showed that the level of gross operating income was
about 2 to 4 % points below the average for comparable properties. This means that for

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1997 Roccoco hotels were below the average gross operating income by $204902. The
administration and general expenses for 1997 consist of 43.27% of the total
undistributed cost and is 13.5% of the total revenue generated. It is also evident from
the Roccoco financials that the marketing cost for 1997 contributed for 22.43% of the
total undistributed cost. This cost was also more than the operation and maintenance
cost by about $202207. Considering that the hotel’s most important activities and costs
should be in operations, this high marketing cost is unacceptable. From this analysis it
is also clear that Roccoco is spending too much of money on marketing. Although it is
important for the hotel to effectively market itself it can make better use of the their
financial resources by rather focusing on training and development of the employees to
improve the customer service competency.

It is also clear that the Hotel does not generate enough revenue to adequately cover its
fixed costs and Debt service depreciation and taxes. For 1996 it had a net cash loss of
$905970. In 1997 although the situation improved it only made a net cash flow of
$419534. It is clear that Roccoco’s debt service is really putting a strain on the hotel on
achieving real profits. For 1997 the debt service was 15.74% of the total revenues. This
value is too high and makes one re-evaluate the real benefit of spending all that money
on the upgrade of the hotel.

The hotel has three options of increasing the bottom line. These are;
1. Decrease internal expenses
2. Increase the average daily rate
3. Increase the occupancy levels

Option 1 should always be explored but it must not be the core focus since certain
areas like money spent on effect training needs to be revisited.
Option 2 would work but this is seen as a short term solution since it is has also been
clear that rate increases results in the decrease in the number of customers. However
the link between value for money and the room rate needs to be explored in more detail.
Option 3 would be the ideal focus area since the other two options would results in a
marginal increase in cash flow of small proportions and are short term. If the occupancy
levels were increased with great customer service, the repeat customers and new
customers (word of mouth) would increase thus maintaining the hotels market share
and increased revenue.

From the Occupancy levels graph below it can be seen that the Roccoco hotel has
always been below the industry average occupancy rate. The competitive set 1 and 2 of
hotel groups have always maintained an occupancy level greater than the industry
average. It is thus evident that the core focus of Roccoco Hotel should be on the aim of
increasing the occupancy levels

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Occupancy levels

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86

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Occupany Level (%)

82

80

78

76

74

72

70
1995 1996 1997
Years

Roccoco Comp set1 Comp set 2 Average

5. Do you think that Roccoco employees find the hotel a pleasurable place to
work? What actions have been taken by Roccoco management to create a
strategy-supportive corporate culture that motivates employees go to great
lengths to satisfy customer expectations?

No, the Roccoco employees do not find the hotel as a favourable place to work.
Employee satisfaction is very low due to the shifts in management and the ambiguous
nature of policies, procedures, and management support.

From the results of the Employee satisfaction survey, the three worst scoring
dimensions are hotel policies, the training you receive and your opportunities for
advancement. These factors all affect how the employee carries out their tasks and it
directly affects the level of customer service of the hotel. Due to cost cuts the previous
HR manager terminated the two-week training program for new employees. Even
though this showed short term financial rewards the long-term failure is now becoming
evident in the low customer service levels, high customer complaints and number lost
customers. The new employees are not properly introduced into the culture of the hotel
or the processes that are followed by the hotel. They do not learn how to do a task the
correct way but are expected to learn from other employees whom might be performing
the tasks wrongly in the first place. The employees are rather given a 500 page-
operating manual that is difficult to understand and implement. This adds to their
frustration.
The other issue of significance is that the employee turnover rate is low, which means
that employees remain in their current positions for a long time, as there is no room for
movements or promotions. This is a factor that would eventually de-motivate the
employee causing them to exhibit this feeling in their attitudes towards customers
leading to bad customer service and low occupancy levels.

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From the results of the Roccoco Employee Survey (non-managerial employees) the
following are highlights of the points that scored low. Roccoco management needs to
noted and addressed these concerns:

− Employees do not receive clear guidance on the extent to which they can bend the
rules to satisfy customers.
− Employees do not receive clear guidance on how to best serve the guests.
− They do not receive clear, planned guidelines for doing their job.
− They work on unnecessary things.
− Employees are not allowed to perform work in a way that suits their own style and
approach and they do not ignore guidelines in order to do their job.
− Employees do not receive clear guidance on how to resolve customer complaints.

From the key points listed above it is clear that the employees lack clear guideline on
how to best perform their jobs. It is also clear that the 500-page operation manual is not
adequate to introduce and teach the employee the skills needed for a hotel that
demands high customer service. The employees are not given the freedom to express
themselves thus they cannot promote innovative ideas that may be found in competitor
hotels. The work performed is too procedurally orientated and these are also not well
taught or followed. The employees thus feel dis-empowered and eventually lose interest
in their jobs.

Basically apart from the initiation of the employee survey Roccoco management have
not implemented or taken any action to create a strategy supportive corporate culture.
This would be very important action seeing that there is a low employee turnover rate
with most employees being carried over from the previous hotel whose strategy was
that of a low cost hotel as opposed to the boutique type hotel.

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6. What recommendations would you make to Roccoco management and its
board of directors to improve the hotel’s performance? How does the
complaint letter from MS. Bressner or the results of September 1998 Shopper
Survey influence your suggestions? Should the complaint letter and the
Shopper Survey influence your recommendations?

From the industry and competitive analysis it is clear that Roccoco Hotel has no
corporate strategy for the running of the hotel. The culture of the hotel is not one for a
boutique type hotel. This can be seen in the operational processes set up for the
employees together with inadequate training. These are not well defined or controlled
and thus the employees do not know how to handle situations when they come up. This
leads to bad customer service, which is directly linked to low occupancy levels and lost
revenue. Thus the following recommendations are made.

i) Firstly, management needs to identify a clear strategy for the Hotel. This must
highlight the position of the hotel in the industry and its target market.

The following strategy it suggested. It would be appropriate for Roccoco Hotel to


select a distinct competitive strategy approach that is Focused (or market niche),
based on differentiation and concentrate on a narrow customer segment by out
competing rivals by offering outstanding customer service and a unique
experience. The focus of the competitive advantage is for the ability to offer niche
members a service that they perceive is better suited to their own unique tastes
and preferences.

ii) Management must instil into its culture and get the commitment from employees
to remain totally dedicated to serving the niche customers better than any other
competitor.

iii) Emphasis should be on building a capable organisation. All employees must


be properly trained on how to effectively carry out their duties and enlightened on
the implications of bad customer service. Employees must be given some degree
of responsibility and flexibility in carrying out their jobs. The focused niche market
strategy will definitely require employees to be empowered with some degree of
authority.

iv) The budgets of the hotel must be linked to the strategy. Ample resources
must be allocated to the strategy critical activities such as operations and human
resources (to develop service capabilities).

v) Management must then create strategy supportive polices and procedures


to provide top down guidance to supervisors and employees whereby
establishing some degree of regularity and stability in how the operations is to be
carried out. Specific tasks and procedures from the 500-page operations manual
must be extracted and presented to relevant employees in a clear easy to
understand format. This must be designed for quick reference only with the major
focus being on formal training. Management must create a process flow for the
hotels operations strategy. This will help to identify problem areas and to
optimise the whole process to ensure maximum customer satisfaction.

vi) The hotel structure and work effort must match the strategy. The importance
of middle management for the leadership and control functions cannot be further

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emphasised. Roccoco hotel must consider employing competent middle
managers that have experience in high service environments or hotel services.
The marketing effort must be included in the overall hotel strategy so that all
attempts are made to successfully satisfy the target market.

vii) The hotel should consider instituting best practices and a commitment to
continuous improvement. On the job training can be very effective if it is
applied in the right way and when it is directed towards achieving the corporate
strategy. The hotel should carry out environmental scanning and actively seek
information on how activities are carried out by world class hotels. This will allow
them to benchmark themselves to the leaders in the industry. They must create
processes and the culture to always improve in every activity that is performed.
This will help to improve the customer service.

viii) The hotel should consider creating internal support systems to facilitate the
hotel’s service delivery processes. The hotel can make use of computer software
and IT systems to integrate the whole process to keep a database that keeps
track of customers personal preferences.

ix) The Hotel must establish an effective reward system that must be aligned to
achieving the strategic goals of the hotel. This will help to motivate and create a
service-induced environment.

x) The specifics of customer service enhancement:

− The doorman needs to be rewarded and made aware that he is doing a


great job and keep up the good work.

− The reservations desk/personnel must be adequately staffed and on


starting their shift correctly identify the specific requirements of the customers
that will be checking into the hotel that day, before they arrive and make sure
that the necessary arrangements have been made.

They must be alerted to new customers entering the hotel and immediately
turn their attention to the new customer. In fact, it would be great if the
doorman had a device to signal that a potential customer will be entering the
hotel. This would give the lobby personnel the prompt to focus their attention
on the customer.

− The bellboy needs to be informed of the importance of his job and the
negative effects that he can have, if his job is not properly carried out. He
needs to be trained on the proper way to deliver the baggage to the relevant
room and how to indicate to the guest the special amenities that is offered by
the hotel. A special delivery time must be set within which the baggage must
be delivered. In fact as far as possible the baggage must be delivered at the
same time when the guest enters the room.

− The answering of room service calls should be carried out as present


since it is in line with the personalised attention that the hotel is striving to
offer guests. The food menu should try to incorporate more easy to prepare

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options although the quality of the food should remain excellent. The guest
must be properly alerted to the lead times for elaborate meals.

The hotel must set up a routine for room service tray pick up, which should
preferably be carried out after 10pm. In fact proper records of all room service
orders for the day should be kept and the person should make sure that these
rooms are targeted. This would optimise the time for this task.

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