The strategic direction of CH had been defined with M&S model and the Ansoff matrix. The current strategy of CH was defined as an analyzer with the M&S model and market development with the Ansoff matrix. However, looking at the SWOT analysis and the highest correlation CH can move into another strategic direction.
M&S analysis
Because CH is not going invent non existing products, CH will continue to be analyzer in the future, but they will enhance what other companies have already produced. Because of the company’s scale, they may improve and its products (Miles & Snow, 2016).
Ansoff matrix
CH will move to be in the market penetration. This is because the product already exist in the market but it will be improved by CH. It has the lowest risk and CH can become the best in the market (CFI, 2021).
Strategic Choices & Evaluation
After carefully formulating the matrix which was based of KFDC’s that CHI might encounter in the future, strategic options were created and assessed on their Suitability, Acceptability and Feasibility, by using the SAF model (Oxford College, 2018).
Choice Hotels Booking Hotels and cars platform
CH has a partnership with Avis car rental that is accessible to the Privilege members. This service can be found in the Choice Hotels Privilege website, however, it is easily reachable since it is needed to search deeper within their website (Choice Hotels, 2021b). The CT advises CH to expand this service to every guest due to the increase of road trips (O4). The expansion of the service would bring more profit for both companies helping during the resiliency during future downturns.
Choice Hotels Excellence Program
Choice Hotels is currently the leader in the USA regarding franchising upper and midscale segments. As competition increases (T1) and technology advances rapidly (T2), CH popular cloud-based property management (S5) will face rivalry, especially if their databases are non-secure (W2). To strive in the market and maintain the first spot, the CT suggests the implementation of CH quality program that has the goal of ensuring that franchisees are keeping up with the required quality standards. Although CH has already an external company assessing the quality of. The franchisees, it would be more beneficial for CH to create their own quality assurance team. This quality program would be mentioned in the contracts, by stating that if expectations are not met and quality decreases, the contract ends. This Excellence Program would help maintain the good image of CH brand image by controlling the overall quality and cut costs (Panda, 2022).
Convert hotels into dual branded hotels
To preserve its top ranking among low-cost and mid-range hotels, Choice should look at dual branding more fully. The combined selling points of the two groups (for example, long-stay and short-stay guests) make it easier to resolve a specific problem (occupancy during down turns). This functions best when two companies work together to address a demand in the target market (O1). Dual-branded hotels are not a new concept in the hotel development industry. In 2015, CH debuted its dual-branding approach with Sleep Inn and MainStay Suites (Choice Hotels, 2022c). The adaptability and competitive advantages of dual branding, according to hotel developers, contribute to its durability as well as other benefits such as cost reduction (T3). Instead of radical innovation, it is envisaged that the concept will continue to be improved as chain size and brand recognition grow.
Competitive Strategies
Competitive Strategy 1: Dual branding
Description
Dual branding is the cooperation of two brands for the same service or product to supply customers with improved quality services and products. This extension is executed when two companies share the same objectives and collaborate to improve their image, attract new customers and achieve customer loyalty (Ronzoni et al., 2018) CH already used this strategy when they made an alliance between Sleep Inn and MainStay Suites, in which Sleep Inn would provide short stays visits and MainStay Suites would provide extended stays, both in the same establishment (Choice Hotels, 2021a). This was a successful strategy that the CT advises CH to perform again, by making collaboration between WoodSpring Suites and Quality Inn.
Suitability
Upon research in the internal and external environment, it was concluded that the lack of employees in the hospitality sector (T3) represents a threat to CH, given the fact that CH has numerous hotels (S1) and that there is a growing demand(O1) for more. The Dual branding strategy would help CH reduce impactful costs such as marketing production and labor costs, since two hotels would work together and some departments, such as marketing, could be merged (Ronzoni et al., 2018). Quality Inn and Woodspring Suites would benefit from adhering to the Dual branding strategy since Woodspring is a strong brand with high performing figures whereas Quality Inn doesn’t have as much recognition and accomplishment (Choice Hotels, 2021b), (J. Fox, 2021). This would give the hotels the opportunity to increase their brand image and have an alliance which would be helpful for future downturns (S2).
Acceptability
Market needs should be the main driver behind the decision to develop a dual-branded hotel (Daniel, 2022). Depending on what the stakeholders decide, returns may be both financial and non-financial and will be quantified based on the benefits that stakeholders anticipate from the approach. For a single, 50-room hotel, having a full-time chief engineer or accounting staff may not be necessary, but when that same individual will handle 250 rooms, it becomes a wise investment (Braun, 2021). For instance, adding additional rooms across two hotels can increase staff flexibility, scalability, and lower labor costs while boosting productivity (Whyte, 2021).
CH can reach a wider group of potential customers by dividing a large hotel into two smaller ones and differentiating the experiences. The options are virtually limitless, and because of their effectiveness and diversification, they continue to be a desirable choice for investors (Hotel Management Network, 2021).
Feasibility
WoodSpring Suites, which experienced approximately +30% RevPAR gain due to occupancy levels of nearly 79 percent and a 16.6% rise in ADR (J. T. Fox, 2021). When compared to the same period in 2019, the Quality Inn brand’s RevPAR increased by 1.7 percent during the quarter, mostly due to a rise in ADR of 1.3 percent. Research has found that most operating efficiencies within dual-branded hotels have been achieved in the back-of-the-house areas of hotels – administration, sales and marketing, accounting, maintenance, and human resources. Two brands can share these support services (Daniel, 2022).
While occupancy rates at dual- and single-branded hotels are comparable, the average daily rate and revenue per available room are greater at dual-branded hotels. However, departmental costs for hotels with dual brands are comparable to those for hotels with a single brand (Dev and Steiner, 2020). Although dual-brand hotels save money on unallocated costs like administrative and general and maintenance, their IT and marketing costs are greater (SG&A table App1.1). Because of this, hotels with multiple brands have slightly lower gross operational profit margins than hotels with single brands (Concord Hospitality, 2016). Overall, we find that operating efficiency improvements in dual-branded hotels are less significant than those in single-branded hotels. However, due to the novelty of dual branding, hotels need more time to ensure stable functioning.
Both multi-unit and first-time developers who are aware of the alluring ROI possibilities from the ’marriage’ of two well-known brands under one roof are driving the solid pipeline (Read, 2022). Due to a smaller workforce and shared facilities, the dual brand prototype advertises significant operating cost reductions over two distinct hotels. Additionally, increased occupancy brought on by satisfying demand for lengthier stays boosts top line revenue.
Competitive Strategy 2: Choice Excellence
Description
Choice Excellence is the quality assurance program of CH that has the main goal of assess and evaluate the franchisees their customer service and hotel overall. Each of CH brands has unique qualities and advantages that will be used on the creation of the Choice Excellence (CE) program. CH will define their own standards based on the hotels unique the guests’ own judgement.
CH would create and train a team formed by already employed staff that would be in charge of assessing the franchisees in a quarterly basis and keeping up with the hotels’ quality service progress, by using appraisal tools that describe CH expectations. This quality program would first be implemented as a prototype and would not only assess but provide feedback and solutions for the points and services that needed to be improved. The Excellence Team (ET) would show up in the hotels without an upfront notice, since this way it would be more realistic and feasible the results. After collecting the data from the Appraisal Day, the ET would analyze it and get in contact with the hotels to communicate good practices and new strategies for the points of improvement.
Suitability
Competition is increasing in the hospitality market (T1) as demand from customers is growing (O1). CH is the leader in the midscale and upscale market and has to innovate and keep up with the current trends in order to maintain the leadership spot. Due to the large portfolio that CH holds, the franchisees’ quality is a factor that needs attention since it can have a negative impact on the brand image and give an opportunity for competition to outperform CH. Choice Excellence would help CH to control the quality of the franchisees and therefore still be ahead of the market (Panda, 2022). Furthermore, once the program would be completely implemented and the success rate would be examined, the program would be sold to individual hotels that struggle with quality excellency. This would create a new revenue stream as well as the increase of brand image.
Acceptability
The risk level is low, because there will be no major costs or losses during the implementation and execution of the program. This is because the CE will start of as a prototype that operates parallel with the current third-party company, therefore, in case the program does not have the expected success rate, CH will still have their partnership with their outsourced company that performs the quality assessment. Furthermore, by adhering to the CE program, the costs will decrease since outsourcing a service can be third times more expensive than creating the own programm (CNET, 2005). The vast majority of hotel owners continue to use the same traditional Quality Assurance service. As more hoteliers on the ground dispute the value of the up to three annual audits, decision-makers at operator head offices continue to cite benchmarking as the primary justification for using the same service as their rivals. The CE will consist of CH executive who will analyze the competitors behavior but set the standards separate from them, not following a uniform assessment approach.
As quality is an important factor that every hotel must hold, the CE program could be sold to individual hotels after the testing and analysis phase is over (Panda, 2022). This would generate revenue and create a new opportunity to enter a new market with a new revenue stream.
Feasibility
Based CBRE’s USA forecast for the hotel occupancy, it is projected to be 39.8% (CBRE, 2021). Using information from CBRE’s Trends in the Hotel Industry database, hotels have historically averaged a GOP margin of 11.6% (Mandelbaum, 2020). CH’s current operating profit margin is 23.36% (as of March 2022)(Choice Hotels, 2021). Choice Hotels had $0.527B in cash on hand in Q1 2022, an increase of 136.46% from the prior Q. Showcasing their strong financial performance this indicates that CH has the necessary resources available to invest in developing a new quality assurance program that sets their own standards for their franchisees to meet and sustain a consistent level of quality. Moreover, CH asset light business model helps to keep the operating expenses lower than the ones from their competitors (see App1.2)
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