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1155066115

YU Hengdi
Background and objectives
Forte Hotels, a large European hotel chain, is developing a new hotel chain in the United
States, targeting business people traveling from European to the United States. The objective
of Forte Hotels is ensure that European business travelers recognize the Forte name and
associate with comfort and service, and it also aims to expect American business travelers
associate the hotel with mid-priced hotel chains and have functionality of American hotel
chains as well. In this report, I am going to use conjoint analysis to make recommendations
on hotel bundle design.
Conjoint study design
Firstly, we conduct a conjoint study design. (See tables in appendix)We introduced 5
attributes which can decomposing 15 levels. Then 16 most valued bundles of rooms were
produced for customers to rate. 300 respondents participated in conjoint analysis study. We
use 40 out of 300 respondents data to run the pathway preference analysis. The last step is to
make analysis.
Cost-benefit analysis
When considering the revenue potential, following levels have the largest negative
contribution: pool, small exercise room and small pool, complimentary fruit&cheese bowl.
The best positive contribution is internet access. Following are the total incremental fixed
cost as well as the average expected incremental contributions for each designed bundles:
Table1
Professional 1
Total incremental fixed

Professional 2

Tourist

Deluxe

4100

2500

4000

6400

-4

-3

-3

-5

cost($)
Contribution margin($)

The difference of $3 in incremental contribution for a room that is priced at 100 per night
means 3% difference. It seems slightly difference for each room per day, however, it have
large effect in a large quantity scale. For instance, the difference of (-3) and (-5) for 150
rooms in one year results in difference of $108000.
As the case indicated, price are among the top three reasons for business travelers to choose a
hotel. This means Forte Executive Innes has little flexibility in pricing strategy and any
incremental may have large negative impact on sales. So control cost is a crucial way to
increase profits.
From the financial perspective, from the table above, the most efficient option is
professional 2 followed by tourist bundle, Professional 1 has a similar fixed cost but a
lower incremental contribution. The most inefficient bundle is Deluxe.
When comparing to competitors, non-financial aspects should also be considered. Most
competitors offer speaker phone but no internet access, which has a high incremental
contributions. The majority offers newspaper and exercise room and small pool. Room

office and room fax and shoe shine is only offered by one competitor, respectively. So Forte
Executive Innes also has the opportunity to capture these segment customer to become
successful.
Optimal Product Analysis
There are several choice rules can be used when run the programs. The first choice rule is not
appropriate in this case because the number of respondents is not sufficient enough and
business hotel is not a very high involvement product/service. Logit choice model is better
than share of preference because it gives larger weights to more preferred products and
smaller weights to less preferred products. So I use logit choice rule to make this analysis.
Table2. Logit choice model
Scenario / Product
Courtyard by
profiles
Marriott
Predicted market shares
...with Professional 1
...with Professional 2
...with Tourist
...with Deluxe

Nittany Lion Inn Atherton Hilton


22%
19%
18%
19%
19%

17%
14%
14%
15%
15%

Toftrees
16%
13%
13%
13%
14%

Scanticon
23%
19%
19%
19%
20%

New Product
Profile
23%
n/a
19%
16%
18%
16%
20%
14%
20%
13%

Revenue per Unit Revenue Weighted


of New Product by Market Share
n/a
n/a
100
16
101
16
101
14
99
13

Deluxe Choice
Both market share rule and logit rule indicate that Deluxe is the fourth choice because it has
the lowest market share and revenue. Although it offers internet access and tape library which
are very attractive to customers, it also has the highest financial and operating risk.
"Tourist Choice
From the table 7, the "Tourist bundle is same as Hilton except the small exercise room and
small pool. This slight difference may not make big difference when customers choose a
hotel. From table 3, we can see that both market share and revenue is second lowest.
Professional 2 Choice:
Professional 2 has the lowest fixed cost and highest contribution margin as indicated in
table 1. This can make Forte Executive Innes to reach breakeven point earlier. Under market
share choice rule, it provides the highest market share for Forte Hotel. If Forte Executive
Innes employs professional 2 as a choice, it can be a cash cow for Forte Hotels. However, it
cannot build up a long term competitive advantages. This type of room offers room fax and
tape library, which are provided by some competitors as well (table7). If customers look for
this bundle of room, then Professional 2 seems the better one, but if a customer looks for
other extras, Forte Executive Innes will in the inferior position. In a word, if Forte Hotel
adopts cost leadership strategy, this option can be the first choice.
Professional 1 Choice:
Taking financial and non-financial aspects into consideration, Professional 1 is the best
choice for Forte Executive Innes in the long run. This type of room has the similar fixed cost
to tourist but lower contribution margin. It also has the highest market share and revenue.
Although lower contribution takes Forte Hotel longer time to reach break-even point, this
type of room is differentiated from all other competitors. Professional one is offers levels
nobody in the market deliver yet. Professional 1 offers office room, and this is the only
room provides internet access and fruit&cheese bowl. With this attribute, Forte Executive

Innes can build up a brand that offers this type of product and develop its competitive
advantages in the long run. This options can also serve particular targeted customers. If the
differentiated brand is cultivated, premium price can be charged in order to increase
contribution margin.
All in all, this type of room is the best choice if forte hotel adopt differentiation strategy or
second one choice if they choose cost leadership strategy.
Table3. Logit choice rule-market share optimal
Scenario / Product
profiles
Predicted market shares
...with Optimal Product
...with Optimal Product
...with Optimal Product
...with Optimal Product
...with Optimal Product

Courtyard by Nittany Lion


Marriott
Inn
22%
17%
18%
17%
18%
18%

1
2
3
4
5

Atherton
Hilton

17%
14%
14%
14%
14%
14%

Toftrees
16%
13%
13%
13%
13%
13%

23%
18%
19%
19%
19%
19%

Scantico
n
23%
19%
17%
18%
18%
17%

Market
Share of
Optimal
n/a
19%
19%
19%
19%
19%

Revenue per
Unit of
Optimal
n/a
94
94
94
94
99

Revenue
Weighted by
Market
n/a
18
18
18
18
18

Table4. Logit choice rule-revenue optimal


Scenario / Product
profiles
Predicted market shares
...with Optimal Product
...with Optimal Product
...with Optimal Product
...with Optimal Product
...with Optimal Product

Courtyard by Nittany
Marriott
Lion Inn
1
2
3
4
5

22%
19%
18%
18%
18%
18%

17%
14%
14%
14%
14%
14%

Market
Atherton
Toftrees Scanticon Share of
Hilton
Optimal
16%
23%
23%
n/a
13%
19%
17%
19%
13%
18%
18%
18%
13%
19%
17%
19%
13%
19%
17%
19%
13%
19%
17%
18%

Revenue per Revenue


Unit of
Weighted
Optimal
by Market
n/a
n/a
102
19
102
19
99
18
98
18
101
18

Table 4 indicates that all optimal products have the same market share when optimizing the
market share.
From table 5, optimal product 1 offers room office without restaurant delivery. This type of
room offers room fax and shoe shine (like Scanticon). This option might be a good choice
because it has lower fixed cost and highest contribution margin compared to the previous four
options. The revenue in this type room is also high. The competitors dont provide pool as an
attribute, so it can be a competitive advantage for Forte Executive Innes.
Optimal product 2 offers the same except the type of room, small suite. But it has slightly lower
market share.
In conclusion, option 1 seems feasible because it has the low fixed cost and highest contribution
margin, even compared to the previous four options. But these attributes are also offered by
competitors each. Consequently, I still recommend Professional 1 as the best concept to
implement.
Advantage and limitation of conjoint study
Conjoint analysis provide several advantages: By using conjoint analysis study, firms can use
the partworth from the study to modify existing products and services to better satisfy
customers needs; 2) quantify attributes. Conjoint analysis quantify attributes and make it easy
to identify which attributes or levels are valued more by customers; 3) financial evaluation.
With financial and market information, firms can make financial feasibility evaluation.
There are also some limitations when using conjoint analysis model. 1) Attributes
decomposition could be inappropriate. For instance, convenience & extras might not include

those attributes that perceived by travelers; 2) limited ability to study too many attributes or
too many levels; 3) limited ability to take into account interaction in attributes. For example,
internet access and videotape library might have interactive effect, but its hard to evaluate; 4)
some attributes may be selected arbitrary and may not be valued by customers.
Further improvement and Recommendation
When conducting collect preference data, no segmentation is adopted. Specific
recommendations are as follow: 1) Fortes strategy in developing the new train is twofold. But
it should also separate European and American customers when collect preference data because
there difference between these two kind of customer. 2) Price and location is not included in
the data. As case indicates, these two attributes are the top reasons business people choose hotel
and they should be included in further improvement. 3) More respondent data should be used
in order to improve the accuracy of the analysis. In this case, only 40 out of 300 respondents
data is used, the sample may not representative enough.
Appendix:

Attributes / Levels
room
biz amenities
leisure
extras
rest.delivery

Table 5 conjoint study design


Level 1
Level 2
Level 3
Level 4
small suite
large room
room office
WWW access
sp.phone
room fax
exercise room
pool
pool & exerc.room
shoe shine
tab lib
fruite & cheese
newspaper
yes
no
Table6 New product profile

Attributes / New Product


Profiles
Room
Bus Amenities
Leisure
Extras
Rest Delivery

Professional 1 Professional 2 Tourist

Deluxe

Room Office
Internet access
Exercise room
Fruit and cheese
No

Large Room
Internet access
Exercise room + Pool
Tape library
Yes

Small Suite
Room fax
Exercise room
Tape library
Yes

Large Room
Speaker phone
Exercise room + Pool
Tape library
No

Table7 Optimal Product Profiles


Attributes / Optimal
Product Profiles
Room
Bus Amenities
Leisure
Extras
Rest Delivery

Optimal Product 1 Optimal Product 2 Optimal Product 3 Optimal Product 4 Optimal Product 5
Room Office
Room fax
Pool
Shoe shine
No

Small Suite
Room fax
Pool
Shoe shine
No

Room Office
Room fax
Pool
Shoe shine
Yes

Room Office
Room fax
Pool
Newspaper
Yes

Room Office
Room fax
Pool
Newspaper
No

Table8 Existing Product Profiles


Attributes / Existing
Product Profiles
Room
Bus Amenities
Leisure
Extras
Rest Delivery

Courtyard by Marriott

Nittany Lion Inn

Atherton Hilton

Toftrees

Scanticon

Small Suite
Speaker phone
Exercise room + Pool
Newspaper
Yes

Large Room
Speaker phone
Exercise room
Newspaper
Yes

Large Room
Speaker phone
Exercise room
Tape library
No

Small Suite
Speaker phone
Exercise room + Pool
Newspaper
No

Room Office
Room fax
Exercise room + Pool
Shoe shine
Yes