Bus 4645 Week 3 Individual Assignment
Middlesex University Dubai
MBA Module 4643 Financial Management and Economics
Individual Assignment
Toni Munns
Student ID: M00383523
February 2012
Module Leader: Dr Rajesh Mohnot
Word Count:
The following essay provides input to the marketing strategy for the first half of 2012 for The McKenzie Hotel Group’s newest hotel. This luxury 5 Star property located on the Palm Jumeirah, Dubai, United Arab Emirates. The input provided will cover consideration of the service on offer, target markets, cost analysis, supply and demand effects, market structure, pricing strategies, the impact of recession and consideration of currency effects. Through analysis and comparison with economic theories, recommendations will be made to guide the marketing …show more content…
strategy.
Summary of arguments.
The service to be marketed is a 5 Star hotel with 380 luxury rooms supported by a range of food and beverage and retail outlets. Located in Dubai the domestic market will be considered to be all countries within the Gulf Cooperation Council, given its accessibility via short-haul flights and that GCC currencies are broadly pegged against the US Dollar and therefore do not fluctuate against each other. The marketing strategy will cover sales in this domestic market and global key feeder markets.
As a basis for analysis I will now consider the cost of production and some scenarios which may require consideration with regards to a marketing strategy. The main cost items in providing a hotel service are labour, rent and facility charges, energy, room servicing supplies (linen), and food and beverage costs.
Table
In terms of predicting costs for the first half of 2012, it appears to be most likely that the cost base will stay stable. All costs are incurred in the U.A.E and the major items which are rent and labour are on long term agreements which are already fixed, longer term macroeconomic may impact these; for example expat labour from Asia maybe available cheaper on the employment market if the world economy slips into recession, although availing of this opportunity would require an adjustment of employment contracts locally or firing and rehiring of cheaper pools. Unit energy costs are variable and maybe influenced by macroeconomic factors effecting the oil price. These are difficult to predict however I have considered that global recession could lead to less demand forcing the oil prices to decline or that the continued tension in the Gulf particularly around the Straights of Hormus could lead to upwards pressure on oil prices. On balance for this exercise I have assumed energy prices with remain broadly flat. In summary the cost base for the hotel service appears to be flat for the first half of 2012.
To access the service type I will now analyse the price, income and cross price elasticities for The McKenzie Hotel Group offering.
I have observed from my previous experience within the hotel market in Dubai that in similar conditions a 33% reduction in room rates results in a doubling of demand suggesting a relatively high price elasticity of demand (-3). This suggests that in the demand luxury hotel market in Dubai is sensitive to room rates. The income elasticity of demand for such a service in Dubai is likely to be relatively high given its status as a luxury item, given the global nature of the market it is complexed to access how the individual income effects for each feeder market. There are cross elasticities that will have an impact on demand, key factors to consider is the cost of air travel to the U.A.E. Since such a high proportion of hotel room occupants arrive by air there is likely to be a high cross priced elasticity between demand for hotel rooms and the price of air travel. Looking ahead to the first half of 2012, effects on aviation travel may include oil price variations and …show more content…
taxes.
The market for the McKenzie Group Hotel in Dubai is highly competitive, STR Global said [1] “most room planned to open in the luxury segment (11,123 room & 34 projects) and upper upscale category (10,198 rooms & 31 projects) anticipate the new supply growth in 2012 is expected to reach 9.6% causing both rate and occupancy to slow down”. Making the market perfect competition. Competitive strategies will include discounted room rates, special offers for additional added benefits (such as complimentary transfers, room upgrades and theme park tickets), increased sales and marketing efforts through campaigns and resource. Having considered the analysis above, The McKenzie Hotel Group will need to compete on pricing, perceived added benefits (as mentioned) supported by driven sales and marketing efforts. In order manage the cross elasticity risk, likely to be impacted by the aviation sector The Hotel Group will invest efforts in the non-air travel local market and pursue pricing opportunity by creating packages with the airlines.
The market for The Hotel Group is broadly segmented geographically. Location of customers is biggest driver of buying behaviour, largely from four key feeder markets, Asia Pacific, Europe, GCC and North America. Demographically, gender has no effect and buyer from all markets tend to be middle aged.
In the European Market government level economic activity is likely to dominate prosperity given the current crises, high debt levels in certain countries (particularly Greece, Italy, Spain and Portugal) which have high debts and deficits will lead to big reductions in government spending and reduce consumer confidence, as one of the key feeder markets this will have a negative impact on demand combined with the broad economic forecast for the European Market is that growth will be flat, if not in recession. Therefore the European Market would need to be aggressive given the high elasticity market in the luxury hotel market. There are also considerations relating to European currency, I will address these later.
The Domestic market (GCC) is predicted to be relatively buoyant in the coming year with strong GDP growth predicted in certain countries such as Qatar and Saudi Arabia [2], on account of government spending activity mainly on infrastructure backed by oil and gas revenues. There may also be additional government spending on social schemes as a result of the Arab Spring in Levent countries. As a result of this activity in the domestic market is likely to remain strong. Given the Global economic climate The McKenzie Group Hotels should target the domestic market.
APAC
Given the breadth of feeder markets, a variety of currencies must be considered in relation to pricing effects for customers.
Costs are all incurred in U.A.E. Dirhams so the main impact on currencies is on sales. Since the U.A.E Dirham and GCC currencies are pegged to the U.S. Dollar there is no consideration required for the domestic market in respect to currency fluctuations. However some currency fluctuations may have a major impact on sales in the first half of 2012. The Eurozone crisis may result in a reduction in the value of the Euro against the Dollar (and hence the UAE Dirham) which will make luxury hotel accommodation in Dubai relatively more expensive for customers in the Eurozone market. As well as the cost of rooms from The McKenzie Group Hotel, customers will also be affected by the relative increase in costs for anything bought locally, such as food and entertainment. This risk further confirms that the European is not a good prospect for sales for the first half of
2012.
Since the UK is not in the Eurozone its currency (Sterling) moves independently to the Euro and given that it is traditionally a strong market for McKenzie Group this must be considered. Since the UK may enter recession again in the first half of 2012 it is unlikely that interest rates will be increased from their currently very low rates. In addition Bank of England monetary packages might also reduce the value of Sterling against other currencies and so holidays in Dubai are likely to seem relatively expensive for UK customers. McKenzie group should reduce its reliance on the UK market in the first half of 2012 to help protect against this risk.
Having considered various macro and micro economic influences on costs and sales for McKenzie Group Hotels in Dubai in the first half of 2012, there are some clear recommendations for the marketing strategy from my analysis. Costs are anticipated to be reasonably stable since they are either already fixed for the period or are incurred locally. Sales are likely to be much less stable. Given the high price elasticity on demand and the virtually perfect competition in the market in Dubai price sensitivities will be key. For sales from the European market in particular, high income elasticity combined with risk of a weak Euro and Sterling, and cross elasticity with aviation costs, could all have a negative impact on sales. In contrast, these effects have much less, if any, impact on the domestic market which is also likely to be buoyant from government spending. The recommendation is to invest sales effort in the GCC for the first half of 2012.
* References
1. Bibliography
MBA Module 4643 Financial Management and Economics
Individual Assignment
Toni Munns
Student ID: M00383523
February 2012
Module Leader: Dr Rajesh Mohnot
Word Count:
The following essay provides input to the marketing strategy for the first half of 2012 for The McKenzie Hotel Group’s newest hotel. This luxury 5 Star property located on the Palm Jumeirah, Dubai, United Arab Emirates. The input provided will cover consideration of the service on offer, target markets, cost analysis, supply and demand effects, market structure, pricing strategies, the impact of recession and consideration of currency effects. Through analysis and comparison with economic theories, recommendations will be made to guide the marketing …show more content…
strategy.
Summary of arguments.
The service to be marketed is a 5 Star hotel with 380 luxury rooms supported by a range of food and beverage and retail outlets. Located in Dubai the domestic market will be considered to be all countries within the Gulf Cooperation Council, given its accessibility via short-haul flights and that GCC currencies are broadly pegged against the US Dollar and therefore do not fluctuate against each other. The marketing strategy will cover sales in this domestic market and global key feeder markets.
As a basis for analysis I will now consider the cost of production and some scenarios which may require consideration with regards to a marketing strategy. The main cost items in providing a hotel service are labour, rent and facility charges, energy, room servicing supplies (linen), and food and beverage costs.
Table
In terms of predicting costs for the first half of 2012, it appears to be most likely that the cost base will stay stable. All costs are incurred in the U.A.E and the major items which are rent and labour are on long term agreements which are already fixed, longer term macroeconomic may impact these; for example expat labour from Asia maybe available cheaper on the employment market if the world economy slips into recession, although availing of this opportunity would require an adjustment of employment contracts locally or firing and rehiring of cheaper pools. Unit energy costs are variable and maybe influenced by macroeconomic factors effecting the oil price. These are difficult to predict however I have considered that global recession could lead to less demand forcing the oil prices to decline or that the continued tension in the Gulf particularly around the Straights of Hormus could lead to upwards pressure on oil prices. On balance for this exercise I have assumed energy prices with remain broadly flat. In summary the cost base for the hotel service appears to be flat for the first half of 2012.
To access the service type I will now analyse the price, income and cross price elasticities for The McKenzie Hotel Group offering.
I have observed from my previous experience within the hotel market in Dubai that in similar conditions a 33% reduction in room rates results in a doubling of demand suggesting a relatively high price elasticity of demand (-3). This suggests that in the demand luxury hotel market in Dubai is sensitive to room rates. The income elasticity of demand for such a service in Dubai is likely to be relatively high given its status as a luxury item, given the global nature of the market it is complexed to access how the individual income effects for each feeder market. There are cross elasticities that will have an impact on demand, key factors to consider is the cost of air travel to the U.A.E. Since such a high proportion of hotel room occupants arrive by air there is likely to be a high cross priced elasticity between demand for hotel rooms and the price of air travel. Looking ahead to the first half of 2012, effects on aviation travel may include oil price variations and …show more content…
taxes.
The market for the McKenzie Group Hotel in Dubai is highly competitive, STR Global said [1] “most room planned to open in the luxury segment (11,123 room & 34 projects) and upper upscale category (10,198 rooms & 31 projects) anticipate the new supply growth in 2012 is expected to reach 9.6% causing both rate and occupancy to slow down”. Making the market perfect competition. Competitive strategies will include discounted room rates, special offers for additional added benefits (such as complimentary transfers, room upgrades and theme park tickets), increased sales and marketing efforts through campaigns and resource. Having considered the analysis above, The McKenzie Hotel Group will need to compete on pricing, perceived added benefits (as mentioned) supported by driven sales and marketing efforts. In order manage the cross elasticity risk, likely to be impacted by the aviation sector The Hotel Group will invest efforts in the non-air travel local market and pursue pricing opportunity by creating packages with the airlines.
The market for The Hotel Group is broadly segmented geographically. Location of customers is biggest driver of buying behaviour, largely from four key feeder markets, Asia Pacific, Europe, GCC and North America. Demographically, gender has no effect and buyer from all markets tend to be middle aged.
In the European Market government level economic activity is likely to dominate prosperity given the current crises, high debt levels in certain countries (particularly Greece, Italy, Spain and Portugal) which have high debts and deficits will lead to big reductions in government spending and reduce consumer confidence, as one of the key feeder markets this will have a negative impact on demand combined with the broad economic forecast for the European Market is that growth will be flat, if not in recession. Therefore the European Market would need to be aggressive given the high elasticity market in the luxury hotel market. There are also considerations relating to European currency, I will address these later.
The Domestic market (GCC) is predicted to be relatively buoyant in the coming year with strong GDP growth predicted in certain countries such as Qatar and Saudi Arabia [2], on account of government spending activity mainly on infrastructure backed by oil and gas revenues. There may also be additional government spending on social schemes as a result of the Arab Spring in Levent countries. As a result of this activity in the domestic market is likely to remain strong. Given the Global economic climate The McKenzie Group Hotels should target the domestic market.
APAC
Given the breadth of feeder markets, a variety of currencies must be considered in relation to pricing effects for customers.
Costs are all incurred in U.A.E. Dirhams so the main impact on currencies is on sales. Since the U.A.E Dirham and GCC currencies are pegged to the U.S. Dollar there is no consideration required for the domestic market in respect to currency fluctuations. However some currency fluctuations may have a major impact on sales in the first half of 2012. The Eurozone crisis may result in a reduction in the value of the Euro against the Dollar (and hence the UAE Dirham) which will make luxury hotel accommodation in Dubai relatively more expensive for customers in the Eurozone market. As well as the cost of rooms from The McKenzie Group Hotel, customers will also be affected by the relative increase in costs for anything bought locally, such as food and entertainment. This risk further confirms that the European is not a good prospect for sales for the first half of
2012.
Since the UK is not in the Eurozone its currency (Sterling) moves independently to the Euro and given that it is traditionally a strong market for McKenzie Group this must be considered. Since the UK may enter recession again in the first half of 2012 it is unlikely that interest rates will be increased from their currently very low rates. In addition Bank of England monetary packages might also reduce the value of Sterling against other currencies and so holidays in Dubai are likely to seem relatively expensive for UK customers. McKenzie group should reduce its reliance on the UK market in the first half of 2012 to help protect against this risk.
Having considered various macro and micro economic influences on costs and sales for McKenzie Group Hotels in Dubai in the first half of 2012, there are some clear recommendations for the marketing strategy from my analysis. Costs are anticipated to be reasonably stable since they are either already fixed for the period or are incurred locally. Sales are likely to be much less stable. Given the high price elasticity on demand and the virtually perfect competition in the market in Dubai price sensitivities will be key. For sales from the European market in particular, high income elasticity combined with risk of a weak Euro and Sterling, and cross elasticity with aviation costs, could all have a negative impact on sales. In contrast, these effects have much less, if any, impact on the domestic market which is also likely to be buoyant from government spending. The recommendation is to invest sales effort in the GCC for the first half of 2012.
* References
1. Bibliography