Group Sales Importance in Combating Recession Research Paper

Introduction

The United States hospitality industry is one of the most vibrant in the world in the service delivery sector of our economy. Due to its unique position in the globe and diverse cultures that allow a variety in the provision of services, coupled with tremendous advancement in technology, booking in hotels, participation in tourism and general travel seems to enjoy a pride revolution. The sector of hospitality, especially the hotel industry, is exposed to great competition that enables innovations in service delivery and alternatives that supplement the mainstream services of boarding, hosting and food.

The industry has however, not thrived on a whirlwind of successes. There have been difficult spatial recessions that can be told through reduction in the number of customers, few arrangements for travels and bookings, large amounts of capital in client retention strategies as well as attempts in innovation to keep the number of clients high even during these bottleneck periods. During these periods, hotel occupancy levels subside so that most hotels are not worth sustaining. Raising room rates do not always work to alleviate this phenomenon.

Recession is associated with a declining overall activity in economics with greatest impact in employment, corporate and private profits and investment. Falling prices is just one of the indicators. Inconsiderable inflation or deflation that is not commensurate with economic planning is a common future of economies in recession. Economic depressions are thus within the reach of many countries and pose the greatest challenges to overall service delivery sectors. Once recession sets in, most service industries suffer with few exceptions of the so called “recession proof” such as medical provision, cosmetic industry entertainments and to a least extent, education (Siegel, 2002).

Global recession is debatable in the context of time. IMF predicts a recurrence period of between eight and ten years with a per capita input of the globe being zero or even negative. Three points or less of the GDP index can perfectly describe a state of recession with the years 1990 to 1993, 1998 and 2001 to 2002 qualifying since the last of such periods in 1985.

Recession is reflected as a negative GDP growth and a reduction or surge in inflation. The expected scenario is that when there is a slow down in economic activities and corporate returns start to waiver, companies scrutinize their travel and hospitality budgets. The immediate reaction to a notice of recession is a softening of group travels and corporate involvement in hospitality. This cycle is repeated each time a recession is threatening in the US (Tully, 2008). Leisure travel does not suffer much because vocations are preferred to good accommodation.

In America, there is a general speculation eminent recession based on parity of purchasing power as predicted on avenues of less spending by consumers, a drop in the stock prices that have affected markets elsewhere and the mortgage issue that has pushed up the credit cost worldwide (Tully, 2008).

The average modern recession is quoted to range for six to eight months and before it is described, it might just be winding up (Siegel, 2002). The effects of recession are felt immediately in loss of jobs by some people in various service sectors since the demand for their services or goods related to their production service reduces. The stock market usually registers poorly during this period (Jenifer, 1994). In the US, the talk of recession in the last quarter of 2008 and its possible encroachment into the year 2009 has most economy sectors reeling in panic. The hospitality and tourism sector is no exclusion. The effects of this recession are already being felt. People feel that their lives have been hijacked by increased cost of living for this period of time.

Currently, the GDP growth is projected to slow down from the current 2.2% while the CPI rises to 2.6%. These values are rising. This portends a growth, retardation or decline in the hospitality industry depending on the strategies of the sector stakeholders. This is in tandem with the fact that hotels adjust quite fast to these changes as opposed to other sectors. The PKF estimates the rise in room rates in response to the rise in economic indices at a three point lead of 5.6% ahead of inflation in the current fiscal year (PKF- HR, 2008).

Rising inflation usually has a potential of increasing operating costs. Different sectors approach recession variedly. Various strategies are used to offset or at least reduce the effects of this state of economy. The service and more specifically, hospitality sector, has devised some rather interesting approaches to this scenario. Studies indicate that the hospitality industry is vulnerable due to the tendency to raise room rates to maintain profitability from operations.

This arises from labor requirements and negligible automation. The industry can only rely on increased employment for its customers that translates to higher purchasing power to be at par with other sectors. The industry, nonetheless, boasts of great foundation in financial management that enables it to enjoy a better position in the anticipated recession than ever before (AH&LA Lodging Survey, 2008). The worry of most stakeholders therefore is in longevity of their operations during this recess.

The status as it is warranties not only innovation to curb eminent and already biting restructure in the industry. Market reports show “recession drills” and specific customer retention strategies can help to carry businesses through turndown once this is predicted (Varian, 1989). More client oriented approaches need to be introduced to complement the existing strategies. The industry needs to target not only the traditional market; new markets should be ventured into while the promising ones maintained.

Research Question

Considering the likelihood of choice for group services by most clients during recession, the study aims to investigate the necessity and relevance of the former strategy in maintaining marginal profits. In carrying out this study, the investigator was guided by the hypothesis that group services can cushion the effects of recession through marginal profit gains as opposed to services offered to individual customers.

Justification of the study

The hotel industry will always experience competition within itself and for opportunity selection by customers during changes associated with fluctuations in economic conditions of states. The state of this competition is even enhanced during bottleneck periods when hotels compete for the few customers available. In old days it was okay for a hotel to have only rooms and a restaurant. Today a hotel has to have a recreation center, an elegant spa, a shopping arcade, etc.

The guests want it, even if they just stay for one night. Hotel managers have to deal with a lot of wishes and expectations of the guests, so they have to have a look of the hospitality industry from two sides: from the industry specific and from the guest specific (NYSE:CHH, 2006). The understanding of specific needs of these customers so that establishments have a competitive edge is paramount.

Knowing the factors that determine choice of specific services that are attractive to clients especially during turndown periods plays a great role in maintaining business. The rationale of hotels introducing client specific services is geared towards achieving this. Relating the time of slump, kinds of services wanted and investment costs to during these periods on one hand to consumption rates, degree of customer retention and profits accruing will inform the decision to intensify group services or diversify into other forms of maintaining profitability during these periods.

Reactions to future circumstances can borrow from this study. The results of correlating these variables is instrumental in making an informed market decision on what kind of services to invest in to avert the effects of recession in future. Furthermore, methods used to remain profitable as championed by this study may be a starting point to making even greater innovations that will work for future circumstances. All stakeholders are informed appropriately to consider perfecting their drills to prepare for future economic difficulties.

Assumptions and study limitations

The luxury that is associated with big hotel spas and pleasure domes is reportedly underutilized (ISPA, 2006). The idea of investment in these services is therefore, on the face value, uneconomical. Hotels may want to supplement the returns from these investments through conventional services that tend to maximize on small scale investment. It is, however, noteworthy that the trends in returns in investment in these suites are on the rise (PKF, 2006). It is assumed here that the increase in returns necessitate the use of these services to accommodate willing clients.

A report by AH&LA (2008) indicates that services associated with technological advances are increasingly finding their way into hotel industry. These services have been preferred by clients on conditions of stability in finances. This study will assume that under financial difficulties, clients will opt for cheaper even traditional services if the technologically advanced services are not tailor made to benefit their constraints.

Finally, this study assumes that the effects of recession affect all subsectors and cross contribution from other industries that are stakeholders to the hotel industry while this may vary according to states. The United States hotel industry is assumed to be affected in the same manner throughout the country. This study will therefore have the same ramifications for the whole hotel industry in the US.

Literature review

Management of businesses in the 21^st century has an equal number of successes as challenges. To be in business, management has to have the most important duty to manage change. Strategy and vision are most important while analytical and problem solving skills are a must. Structures should be put in place to motivate while entities should invest in valuable communication and interpersonal skill development. The last and the most important balance in the approaches above is the ethical and spiritual orientation that favors client retention.

Recession has been defined as a decline in overall economics engagement affecting sectors of employment, corporate and private profits and investment. When two or more quarters experience negative growth in gross domestic product (GDP), a country is said to be in recession.

These tallies are confirmed by statistical economic data. When a recession starts in January, for example, the only way of assessing its viability is when the statistics on economic trends are released in July of the same year. Some economists describe it as a decline in the value of goods and services in a country for a consecutive two terms of a three months period (Jenifer, 1994). The indicators are varied but characterized by falling or rising prices below or above projected GDP.

Recession affects the general economy. However, some companies and industries are hit harder due to their sensitivity to changes inflicted into the state economic process. The production of durable goods is most affected due to the fact that people tend to cut back their spending on durables which are assumed to last through the recession period. These industries are followed in this effect by the financial industry such as banks which face lack of demand for financial services at the time since people spend less. The third is the tourism and the hotel industry. The effect in this industry is because of perceived leisure that they provide. The effect is most felt in the middle income serving hotels and lodgings.

Trends and Forces

CCH indicated that the occupancy fell during the years 1997 to 2003. Thereafter, there was a rise in economic growth that boosted the industry and it has seen the trend to date. The graph below indicates the trends.

In the present downturn, most people are of the feeling that the circumstances will be worse because of the credit crunch and the housing crisis. The buck, however, it is advanced, stops with the government’s role in containing or reversing it, thanks to the election year. The political description may, well, not indicate the exact position in the United States scenario since one may want to capitalize on it due to political realignment. A state of recession is analyzed by national bureau of research, where one exists and this is usually in response to the underlying economic facts.

In general, what defines recession is a turn in the negative direction in the growth of the country. Suffice this to say, the nation’s growth is in spurts out of the normal control of government and strategists. The GDP may grow or shrink depending on the status of the economy. During this time, unemployment, inflation and reduced production will miss many advances in the general economic growth. The slow and steady growth of the economy is not assured. The interest rates may have to be lowered, economic incentives issued or tax breaks instituted.

The US economy has experienced growth which altogether has fluctuated on a number of times into the global recession. Prior to 1985, recession in the US had no much effect on the global economy. However, the subsequent ones of 1990 to 1993, 1998 and 2001 to 2002 indicated a scenario where such impacts in the economy have greater effects in all sectors of the world economy (Jenifer, 1994).

Recession primarily arises from control of the supply of money in an economy. The actions of the Federal Board to control money supply, interest rate and inflation contribute to a balance in the money market and control inflation, which when missed the control is lost and the Fed must correct this. The US scenario suffers from relaxed policies in lending that made it quite easy to borrow money as well as keeping interest rates low. The lack of sustainability of these actions caused an apparent inability to sustain the economy. There has thus been a credit market meltdown due to these policies.

Factors that retard short term growth in the economy cause recession. These have been enumerated as rising prices of oil in the international market and regional wars. These however, are known to correct themselves within a very short time and do not account for the trends in full time recessions that have been witnessed in the history of the US.

Prior to the current recession, the 1990 to 1991 global recession had great impacts in the US economy. It was milder that those experienced after the world wars. The measures of labor market stagnated up to the official end of the period. There was great unemployment especially from the service industry and even education was slightly hampered as a result. The effect on the labor market was so enormous it continued slumping long after the official end and after the indicators of economic growth improved. Employment was affected in most occupational and production industry sectors. The effects were badly felt in the hospitality industry.

There was however, a great expectation for rehire for the main service sectors (Gardner, 1994). In the following recessions of 1998 and 2001, the effects were equally the same, only this time the US economy responded slightly stably.

The effects in the US are also as a result of a number of associated service and produce industries such as the air travels that is exposed to terrorism and affect business, the health and disease outbreaks that reduce the number of people ready to ravel, communication and internet that affects the bookings through online reservations that do not take quality of service into consideration, marketing strategies and competition. After September 11^th bombing, the rate of bookings decreased to less than 2.5 percent but due to economic stability have increased to around 25 percent. The next threat that awaits and which is forecasted to cost the industry great retardation is there cession

In Missouri, the industry has a considerable number of players who compete and complement to provide services in hotel and resort, tours and travel, food and beverage, conferencing and group hosting, tourism and activity and a whole host of specific programs within the sector. Some of the best hotels and resorts in Missouri are Westin St. Louis, Black River Lodge, Big Cedar Lodge, Hannibal, Table Rock Lake, Branson, and Chateau on the Lake, Branson among other three and four star hotels. These hotels are served by clients from all over Missouri. Chateau on The Lake ranks as the most popular in Branson.

The sector thrives in a considerable variety of supplementary service industries such as labor, marketing, transport and communication. The latter has been instrumental in reformations and development seeing increased marketing through online bookings, conferencing, industry news that enable development of strategies and overall improved technology in service delivery.

The Missouri community of hoteliers thrives in a number of professional chapters that assist in engaging the best to suit clients. The great Missouri chapter is one such kind of association that includes hospitality professionals from hotels, clubs, theme parks and casinos. These professionals chart the destiny of services in the Missouri area and propel networking and education that address current trends in the hospitality industry.

Hotels will provide services depending on their rating and cost of hosting. These vary and are determined by the location, and prestige. In Missouri, which hosts a number of high class hotels, the services determine the class. Hotels struggle to provide services ranging from service marinas, luxurious hosting, attractions and vocational lodging, family fanfares and conventional hosting and meeting spaces. There are provided bed and breakfast services, rendezvous of romantic nature, summer services and even Christmas activities. The degree and quality of these services definitely affect the customer wave and choice of which they will associate with.

Determining fluctuations in market response

Responses to recession vary according to the thought of the policy makers. Measures include deficit spending to necessitate economic growth while tax cuts may also be considered so as to boost capital for business. A hands-off government has also been proposed especially by the liaises-faire economists. The most employed strategies in business are to gauge the ability in spending and to design offers that would maintain the customers. Worker replacement and motivation play major roles during this time.

The role of theoretical models in research has been more of a complement that an alternative. The economic theory is a policy tool that enables the research to be informed through policies and trends. In analyzing the trends and effects in and of recession respectively, one is able to understand the magnitude to which government policy and factors of recession as contributed to by government involvement shape the understanding and strategies in the industry. The strategies must be defended from a policy perspective for them to hold water.

When we want to determine fluctuations in market responses such as choice or withdrawal of services, a regression analysis would be necessary to compare against the known factors contributing to this adjustment in behavior such as taxes, rates of inflation or government policies that cause recession. These aspects of policy changes should find description in the independent variables of comparison such as seasons or location to make them viable.

The equations generated from this regression analysis will enable us to predict effects of strategies introduced to curb any negative effects of such policies or transformations in economy. When the effects are not so paramount to cause any jittery, usually price elasticity are enough to forecast the economic rearrangements. Theory thus forecasts the anticipated outcomes of experimental research. The use of economic theory enables the prediction of variables of study. The relevant parameters are projected in this theory to understand the importance of cycles in relation to adjustments in consumption behavior.

Hotel industry standards are measured in the operating performances. This is measured in the amount of revenue per room availability referred to as RevPAR. This is calculated as the percentage of room occupancy over the average room rate on daily basis that is realized. The measure is a demand function D(q) where the profits realized depends on the number of rooms occupied (q) and the function of rates per room (D) such that profit is:

• p =D(q) the price at which q units of rooms are occupied.

Methodology

The study was carried out in a four diamond star hotel in Branson. It is one of the most popular and celebrated hotels in Missouri and the most luxurious in the Branson region. The variety of services makes it stand as one of the most visited hotels in the region.

Branson has a population of about 7,000 people with more others considering it home due to its diversity in natural scenery. It is situate in a mountainous area with Ozark beaches adjacent and showing a spectacular environment that has been referred to as the “Live Entertainment Capital of the World”. The area was first home to Mabe Brothers who built a theater at the Highway 76 and referred to themselves as the “Bald Knobbers”. What was started by these brothers has been a maintained; music and comedy to visitors who visit Branson.

The place has wonderful features such as caves (Marvel Cave, for instance) where Silver Dollar City theme park now stands and still remains a place of highly regarded entertainment. Visitors have been in the area since some 100 years ago due to its beauty and outdoor activities that fascinate. It is the most popular family destination for vacation in the whole of Missouri. These characteristics place “Chateau on the Lake” Resort Spa & Convention Center in a vantage location that describes its status as a preferred destination for a variety of services.

Population of the study

In this study, the researcher considered potential customers in the hotel industry within and out of the study location according to bookings recorded in the clientele system of the hotel. The idea of using this population was due to the fact that in the hotel industry, one is a client if he/she books into a hotel, the potentiality which actually characterizes the industry from other general service sectors like education, health provision or even transport and tour

The study was centered on determining the import of specific services of which the choice population is under no bias to enjoy in the hotel. This qualifies the population choice to be all customers in categories of transient, individual or family and corporations that subscribe to the services of the hotel, churches or delegates of conventions.

Research Design

The study was a cross sectional descriptive design. Descriptive design is helpful in identifying behavior based on perceived determinants of choice. It is most suited in customer behavior to service provision such as the study portends. Cross- sectional studies take into consideration variations in times and characteristics of a study. This is suitable where data is collected over different times from different clients and management. The data obtained is representative of the behavior or reaction causal factor which is recession- which borrows from time.

Samples

Subjects were in categories of individual, family or transient clients; group service clients such as corporations, churches or conventions and; the management of the hotel. Hotel records were used as sampling frame that necessitated the choice of the first two categories of clientele. The first choice for subjects’ i.e. individual, family or transient customers were willing clients, ready to spend, and had more than a singular booking into the hotel. The second choice of clients i.e. members of corporation, association, church or convention was pegged on clients willing to spend and have booked into the hotel more than once.

The researcher used simple random probability sampling where all in the identified population were given equal probability of selection (Moore et al, 2008). The frame was considered as a whole. Of the total sample space, the investigator chose 20 in each category through random selection of names from the sample frame. The probability of choice for any given client was thus (20/N) x 100% = (120/N), where N is the sample space in each category. Three experienced managers were selected for the purpose of this study at their will on first come basis.

Determination of variable relationship

The number of clients booking during specific times was compared statistically through percentages. Again, the response of clients to determinants of their choices during recession was compared. The comparable returns for each groups during this spending season was also noted. The dependent variable in both cases was the marginal profits. Independent variables were time and the number of clients.

Questionnaires were also used to gauge the clients’ approval of the determinants of their choices for a given hotel. The major influence in this choice was cost of service. Other determinants included prestige, quality of services, influence form other customers and location. These were to complement the results of the demand survey. Data obtained from questionnaires and hotel records of profit margins were entered into spreadsheets against the input from each category of services. The input was assumed to correspond to the number (q) of clients booking into rooms.

Data Analysis

Data was analyzed using Ms Office Excel 2007. Tabulation for the margin of profits and corresponding individual and group services was done for a sample of room bookings as shown in the table below.

Table 1: Profit margins per season (Months): the table shows the trend for the six months from February to July for the profits accrued from individual services and from group services. It can be noted that there was high profits from group services but there was even distribution for individual services.

The results of the survey to determine the attribute of choice based on cost of services was also done and tabulated as below. The responses were to the opinions concerning the cost for the services.

Table 2: Scale of Agreement for Cost of Service per client type.

The following table presents the findings of choice for each client category based on other demand factors.

Table 3: Scale of Agreement for Other Determinants of Choice per client type: The choice of most clients were: for prestige, the quality of service offered, influence from other people and the hotel’s location.

Results and analysis

Table 1 shows a great parity between individual services and group services. The data indicates that at any given season, the number of bookings for group services is lower than those of individual services but the margin of profit arising from room bookings is much higher. This is an indication of the strength of group services in containing clients even in current economic slow down. The results were presented in the graph below.

Using coefficient of multiple correlations, the relationship between the cost of service and the type of clientele was analyzed as follows: this was done so as to compare the factors that most contributed to the trends in profits for groups and individual services, and one uniting factor that contributed to both the group and the individuals choice of the hotel.

R_x.y1y2 =

The data for the analysis was entered into the Ms Excel software. Correlation analysis was then done for the two entries with reference to the cost of services. There was a positive correlation for each case of services choice (choice for group services r = 0.69 and choice for individual services r = 0.82). The choice for group services scores lower than that of individual services on a cost evaluation basis.

From the results it can be found that the cost of the services determines the choice of hotel is less in group services than is the case for individual products. This is partly due to shared cost of group services. Group services are favored against a backdrop of increased costs of services.

Other determinants of choice according to the scale of agreement reported were also analyzed for correlation for different types of clients.

The correlation analysis between other determinants of choice and cost of services was similar for both individuals and groups at (r = 0.98). This indicates that the overall quality of service that determines all the other factors as compared to cost is viewed similarly to affect choice.

Discussions

The study indicates that group sales have a greater potential for returns throughout the seasons. Individual choice confirms that based on the cost of services, group services are cheaper but cumulatively profitable, hence the apparent choice by customers. There seems to be the likelihood of clients choosing group services based on the notion of combined spending or what is called mutual spending for mutual enjoyment according to AH&LA Lodging Survey (2008).

Determinants such as prestige, prior knowledge of the services through influence and quality of services and the location are chosen on an equal footing between each group of clients. Most clients choosing group services recorded agreement that their quality is better as compared to individual services. On the other hand, individual clients who know about group services prefer them to individual services under reduced spending seasons.

Limitations of the study

The study was limited by the assumptions that the hotel industry is profit maximization and a cost minimization entity. This implies that for the smallest possible capital investment, the hotel should get the maximum possible revenue.

The diversity of group and individual services was also limited to the studied setting. The implication is that where individual services could be better and lower in cost, the scenario could drastically change. This scenario is most unlikely but probable. The study thus assumed that on average, the cost of providing group services as in the case of the studied hotel is lower than that of providing individual services. This in itself is a limiting factor to this study.

Suggestions for future research

This study implies that at a given time in the hotel industry, group services will provide greater returns and that that recession changes the spending pattern of most clients seeking services to hospitality industry. The degree to which economic imbalances may affect the specific variations in services for each region in the US can be investigated to narrow down the effects for the stakeholders to fully understand the dynamics of the industry. A further study may shed light into which of the groups targeted in service delivery may be of greater yield. Knowledge of this will further enhance the hotels’ strategies to invest in the most viable groups during recession or even under normal economic circumstances.

The idea of transforming individual utility into the potential group services also lingered on the mind of the investigator during this study. A study should be done to find means of transforming individual consumption during normal economic times to group consumption at the onset of recession. This will help in utilizing the cycle of consumption by clients for greater benefits by the hotels.

Conclusion

Knowledge of the most cost minimizing services and what determines choice of clients during recession and the best returns as per the service category for an investment in this hotel informs the use and improvement in service delivery. The findings of this report help the hotel management to develop grater strategies for competition and customer retention during economic recessions in future.

Works Cited

PKF- HR, (2008). Lower RevPAR Forecast Reflects Impact of Recession. Web.

Friedman, M. (1962). Capitalism and Freedom. Chicago: University of Chicago Press.

Jennifer, M. G. (1994). The 1990-91 Recession: How bad was the labor market? Monthly Laboratory Review. Web.

Moore, D. S. & Starnes, D. S. (2008). The Practice of Statistics, 3^rd Ed. NY: Freeman.

Siegel, J. J. (2002). Long Run Stocks: Market Returns and Strategies, 3^rd ed. N Y: McGraw-Hill.

Tully, S. (2008). Recession: Where should your money be? Web.

(NYSE:CHH, 2006). Web.

(AH&LA Lodging Survey, 2008). Web.

(ISPA, 2006). Web.