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DELTA GRAND PACIFIC HOTEL

Tom Gleave prepared this case under the supervision of Professor John Kennedy solely to provide material for class discussion. The authors do not intend to illustrate either effective or ineffective handling of a managerial situation. The authors may have disguised certain names and other identifying information to protect confidentiality.

Ivey Management Services prohibits any form of reproduction, storage or transmittal without its written permission. This material is not covered under authorization from CanCopy or any reproduction rights organization. To order copies or request permission to reproduce materials, contact Ivey Publishing, Ivey Management Services, c/o Richard Ivey School of Business, The University of Western Ontario, London, Ontario, Canada, N6A 3K7; phone (519) 661-3208; fax (519) 661-3882; e-mail cases@ivey.uwo.ca.

In July 1996, Ross Cunningham, Director of Sales and Marketing for the Delta Grand Pacific Hotel in Bangkok, Thailand, needed to devise a marketing strategy that would ensure the hotel’s success in its very competitive market. Specifically, Cunningham wanted to ensure that the hotel maintain and eventually increase its two key benchmarks of performance, namely, occupancy rates and average room rates, by milking the Sukhumvit Micromarket to its fullest potential. This was a considerable challenge given that Bangkok had witnessed many new hotel developments in recent years, a trend which was expected to continue into the near future. Compounding this challenge was the anticipation of a sharp drop in occupancy at the hotel due to the likelihood that an important client contract would not be renewed.

COMPANY PROFILE

The Delta Grand Pacific Hotel (DGP) was considered to be the Asian flagship hotel of Toronto-based Delta Hotel and Resorts Ltd. (DHR), the largest independently owned hotel company in Canada. DHR had established operations in Canada, the United States, Cuba and Thailand and was in the process of developing resorts in Malaysia, the Philippines, Vietnam and Indonesia. DHR was a management company which was hired by hotel property owners to manage their operations. The DGP was owned by two joint venture partners.

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The DGP opened in 1993 and was located in a 20-storey building complex in the heart of one of Bangkok’s prime business and tourist districts, an area Cunningham referred to as the Sukhumvit Micromarket. The hotel positioned itself as offering four-star plus accommodations along with five-star service. It had 390 rooms and suites as well as a wide array of complementary facilities including Asian and Western-style restaurants, piano and karaoke bars, eight banquet and meeting rooms in a range of sizes, swimming pool, fitness centre and business centre. Each room came equipped with IDD telephone, refrigerator, colour TV with cable and satellite connections, digital safe, coffee and tea-making facilities, individually controlled air-conditioning and mini-bar. The 390 rooms were classified as standard (94), deluxe (223), signature (62), signature suite (10) and royal suite (1). In Cunningham’s view, the hotel would have been considered a five-star operation if it had been located in North America or Europe; however, due to the competitive nature of the Bangkok market, as well as consumers’ high expectations, it was necessary to position the hotel one-half grade below. The hotel was located within a building complex in which the first four floors of the western side of the building were occupied by one of Thailand’s well-known, up-scale department store chains, Robinson’s, along with a McDonald’s Restaurant which was situated on the first level. Drive-up access to the hotel was available on its east side.

The hotel catered to two distinct customer categories: international corporate executives and leisure seekers. Approximately 60 per cent of the revenues generated at the DGP came from room occupancy and related services such as laundry and business services. The remaining 40 per cent came from the various food and beverage services that were available. The sales mix of the room occupancy portion was as follows:

Corporate business 55–60%
Leisure and ad hoc meetings 25–30%
Airline crew 15%

In 1994, the DGP had signed a two-year contract with an international airline agreeing to provide its flight crews with 60 rooms per night, every night of each year, thus translating into a 15 per cent annual occupancy rate. The airline issued a closed-tender bid every two years and was currently seeking to gain greater reductions in room rates from the DGP during the 1996 bidding process. In return, the DGP submitted a bid offering the current average room rate with an additional two or three free rooms per night, depending upon total flight crew demand. Given the nature and tone of the discussions that Cunningham had had with the airline over the previous several months, he concluded that it was unlikely that they would sign another two-year deal with the DGP and the hotel would, therefore, lose the business by September 1996.