Avari Ramada Hotel Case Solution
lowest price. It can be said that hotel may be successful in attaining more customers through lower pricing but may not still many customers who are quality cautious. As in November, the company’s occupancy rate was lower than the competitor although the rates were also lowered that time.
4 Forecast with Increase in Revenue and Contribution
The increase in occupancy has a direct relation with the increase in revenue and contribution.
If Avari Ramada Lahore becomes successful in increasing the occupancy by 1% in each month including the first alternative. It will assist in improvement to contribution margin which will be then increased by 752400 and 0.82% growth in percentage on the basis of new pricing policy alternatives.Revenue will also increase by the same and will reach to 120,760,700. Although it is assumed that all others, factor like average price, economic effect and costs i.e. variable and fixed costs remain constant which may not be the case in real. Hence Avari Ramada Lahore has to fight for improving it.
Although Avari Ramada Lahore will not only have an effect on room revenue alone in real, it will impact revenues of food and beverages, increase in the variable cost of the room occupied and revenues earned from other services also.
If there is an increase in occupancy by 1% in each month while the second alternative in the pricing than the increase of revenue will be 710,676,which is although lower than the increase in firstly pricing amounted to Rs.41,724/- .
If Occupancy is improved through target pricing or group discount it may result in both increase and decrease the sum of revenue. Thus depending on the efficiency of implementing price elasticity and value analysis.
Although there will be increase in revenue by Rs.893000/- if Avari ramada Lahore successfully increase occupancy by 1% without doing any changes in the pricing policy
5 Effect on Revenues other than hotel rooms
Avari Ramada Lahore delivers and earn revenues by different services, other than the room but directly affected by it. Revenue from food and beverages through having six restaurants whose dishes and buffets are enjoyed by many hotel residents also and according to Raza estimation between 65% to 70%food is accounted for them. If occupancy of the room guest has an increase, it will also impact the revenue of food and beverages.
Avari Ramada Lahore also earned through delivering other services which mainly include rent a car sale and city tour. Many clients may feel convenient to take required service from Avari Ramada Lahore and due to increase in client turnover,there will a positive increase in revenue of other services also.
For the achievement of this mission,every hotel should focus to arrange for superlative services with the appropriate pricing, all the services that are sources of the revenue for Avari Ramada Lahore or any other are also value added for the customer. It may be concluded that customers might have an effect on the occupancy rate as well due to the other services.
There are many other services provided by hotels that are valued by the respective customer while may not count in an increase in revenue directly like helicopter service, valet parking, currency exchange, boutique, barbershop these can also have an impact on occupancy rate if not provided. Similarly, this service also results as increase revenue for the hotel and are also affected by the rising number of hotel residents.
For example, if due to increase in pricing there is a decline of 20% in customer, then this also have decline which estimated to 13% in food and beverage assuming 65% dependent and of 18% in the other services as revenue generated in other services belong mostly to the hotel residents. Thus, it be concluded that for increasing revenue in room services management of Avariramada Lahore should also consider impact on other services as well which may prove not to be overall beneficial
6 Recommendation on occupancy rate and average rate
Tahir seeks to make an increase in occupancy rate and average rate which is a productive effect for the Avari Ramada Lahore. Asboth average room rate and occupancy rate are lower than the competitors and need to improve.
Increase these both at the same time will be a difficult task for Avari Ramada Lahore as occupancy rate and average room rate follows an indirect relation. If average room rate price increases with the new policy alternatives, it will decrease the occupancy rate as the client will switch over.Similarly, occupancy rate cannot be increased through constant price.
Avari Ramada Lahore needs to lower down its price in order to increase their occupancy rate. Avari Ramada Lahore needs to consider the effect on the increase and decrease in room prices with the occupancy rate through price elasticity i.e. responsiveness of service demanded to a change in price and should select the best option maximising the revenue.
Similarly, if Avari Ramada Lahore tries to improve profitability through same rate and occupancy, it may lead to inferior quality and these may also be the reason for the adverse result in comparison with competitors. Tahir needs to consider performance through ROI (Return on Investment) if the hotel mission is to increase return rather than market share and revenues……………….
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