How to Manage Budget Hotels – Cases in London Dissertation

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Background

With the steady growth in tourism, provision of quality and affordable hospitality services is exponentially gaining credence (Weygandt et al., A 2008). The quality of service offered and the satisfaction of the customer are factors that have been considered to be leading to the retaining of customers and the general success of the hotel industry.

The hotel industry in the UK has been on a steady rise. According to the United Kingdom Tourism Survey, there was a steady rise amounting to 74.5 percent in hotel bookings by the end of September 2010 (O’Neill & Mattila, 2010).Hotels in London, according to the survey, have particularly recorded the highest a high occupancy rate of about 82.6 percent as compared to other regional hotels in the UK.

This was, however, not only noted in hotel bookings, but also in the general hospitality and the larger tourism industry (Sheehan & Ritchie, 2005).The performance in the whole industry depends on many factors of the economy. According to Burch (1994) this is actually what is forcing hotels to embrace the need for innovation so as they may stay competitive as survival of the hotels and retention of customers fully becomes a tricky affair.

The Budget hotel concept is fast gaining momentum in the UK. The concept is a kind of limited service hotel whose key features are guided by parameters such as bedroom size, the costs of construction per bedroom, and finally, ratio of revenue from rooms and the total turnover of the hotel (Tri Hospitality Consulting, 2007).

The report talks about several aspects such as background of the budget concept, budget and location, as well as even the growth aspects expected in the sector. It has also detailed performance of the budget industry, the response of the consumers to the concept, development and operation of the budget hotels, and finally, future predictions for the sector.

This report is quite useful to the study as it tries to the almost comprehensive outlook of the budget hotel industry (Albrecht, 2008). However, there are some areas in which the report is limited. For instance, it does not really give the management styles used by the respective budget hotels.

Significance of the study

The budget hotel concept is one that is fast gaining momentum in the hospitality industry all over the world. This concept of limited service hotels is one that has its profound peculiarities. This study will investigate the factors that give this concept a strategic edge over the other types of hotels.

The study of budget hotels in the UK will contribute to the pool of knowledge about the hospitality industry. This means that this study will not only give a detailed exposé of the management best practices in the budget hotel industry, but will greatly add to the general body of knowledge on many other aspects in this segment of the hotel industry such as human resources, performance, location and even the general development of budget hotels.

Further this research will assist me gain valuable insights into the existing challenges in the operation/management of budget hotel that form the core of budget hotel industry in the UK. This information will be crucial since some of the issues identified could be of great use if replicated elsewhere.

My family has invested in a budget hotel in my hometown and this research is going to help me know the various issues including management/operation strategies also that should be looked into to achieve success in my business. The UK has had a head start in the budget hotel industry and therefore some of the replicable practices could be employed in my business.

Objectives

The objectives of the study are as follows:

  1. To investigate evolution/development of budget hotels and impact on the experience of traditional budget hotel
  2. To analyse three cases hotels in terms of their operation, interior design and space management.
  3. To identify various strategies implemented by budget hotels in London.

Research Questions

  1. How did the budget hotels evolve?
  2. How peculiar is the operation, interior design and space management of the budget hotels?
  3. What are the existing strategies used by budget hotels?

Literature Review

Though there is limited specific literature on budget hotel industry, there exists, however, a lot of related literature which can be of great use to this dissertation. This literature review will generally look at an assortment of issues related to hospitality industry in general and budget hotels in particular.

There are several issues that can make an establishment a competitive strategic edge in the market. Corgel (2002), for example, notes that service quality has been an issue that is gradually taking shape in the UK. According to Waldrop (1992), some business attributes that reflect business performance include growth, image of the company, customer loyalty and also the market share of the company.

A lot of literature available has greatly concentrated on this service quality, something which is intangible, hence a bit complicated to assess (Tse & Olsen, 1999). What makes it difficult to measure is that customers cannot easily store the type of service they got from one particular place and compare it with other service that is close due to many reasons (Okumus, 2002). Firstly, the services offered by different hotels do vary a great deal, thus making it almost impossible to compare (Crossland & Hambrick, 2007).

Budget hotels

Generally budget hotels can be distinguished from the rest based on three major aspects. First of all is the size of the bedrooms of these hotels. Usually, budget hotels tend to have smaller bedroom sizes unlike those ones of the conventional hotels (Cannina et al., 2006). So budget hotels tend to have more bedrooms per area as compared to those in the conventional full service hotels. This equally means that with the less cost per room of the floor translates to even lower initial capital costs required; thus higher revenues realized.

This also therefore shows that the other aspect that distinguishes budget hotels is the costs of construction per bedroom. For the budget hotels the costs per room become much lower. The revenue generated from the rooms in relation to the total turnover of the hotel can be used to distinguish between the two. This means that the percentage of revenue from budget hotels in relation to total turnover is higher for budget hotels. There are other areas that also clearly distinguish between full service hotels and budget hotels.

Some researchers have since established some of the various components of service as a whole. D’Aveni (1990) illustrates that tangible aspects of service include physical facilities available; the types of equipment used, the general grooming and appearance of the staff etc. Kim (2003) asserts that the other component is that of reliability, which could be said to mean the capacity of the personnel to provide the particular service promised with accuracy and under the reasonable time expected.

Full service hotels usually have a full fledged restaurant attached to them. This is unlike for the budget hotels. But this should not mean that budget hotels do not offer their customers food. Budget hotels may offer complimentary meals (Dev, 2002). For example these could include serving customers with free toast, coffee, juice etc.

Another area is that which has to do with pricing. This is one area in which limited service hotels have great advantage over full service establishments. For example, a night’s stay in a budget hotel might be a half cost of that in a full service hotel. Thus, for people who would love to save a little bit, there preferred option is usually the budget hotel.

Realizing that room revenues form the bulk of all revenue in all classes of hotels, budget hotels have capitalized on the rooms to reap maximum profit from a given setting (O’Neill & Mattila, 2006).

What they have actually done is that they squeeze so many rooms into the given space so as to reap this benefit from that space (Capozza & Lee, 1995). As such, a survey carried to classify what constitutes those Budget hotels concludes that budget hotels maximize on floor space, consequently leading to lower initial costs of hotel establishment (Teas, 1994).

Another peculiar thing about budget hotels is that they more or less have similar indicative costs per room (Schmidgall & Damitio, 2006). Finally, for Budget hotels, the revenue coming out of rooms is usually above 70% and above as compared to other conventional hotels, whose collection from rooms averages at around 50% only of their total turnover (Tri Hospitality Consulting, 2007).

The UK budget hotel industry has metamorphosed to an extent that at the moment, there are notable brand names that dominate the market (Hayes & Ninemeier, 2007). These include Premier Travel Inn, Travelodge and Express by Holiday Inn. The three constitute the major players in the market. As of April 2007; Premier Travel Inn had 488 numbers of hotels while Travelodge had 304 (Chang & Hong, 2002).

Another crucial aspect is responsiveness (David, 2001). This actually relates to how willing the personnel may be to attend to the customer. Most customers also require assurance and trust in the particular service provided (Woolley, et al., 1997). Finally, empathy has equally been said to play a crucial role in service delivery (Schmalensee, 1985). This has to do with that caring and personalized attention granted to the customer (Simons, 1994).

All these elements are crucial to our research since we will be able to see how different managers address some of these elements to achieve strategic advantage in the budget hotel business in London. The information will also give some valuable insights into the areas of operation that make the given budget hotels stand out.

There are equally different dimensions that are quite important to the guests. In other research carried out it has been found out that customers attach different levels of importance to different issues in the hotel (Panvisavas & Taylor, 2006). In the findings, it was found out that customers valued responsiveness followed by reliability; and the least being empathy (Donaldson & Preston, 1995).

This information will further assist in mapping what the managers of the different budget hotels focus on in order to address the challenges of customer satisfaction (Meissner, 2010). Furthermore this information has critically explained how the managers employ different strategies to deal with the freaky issues of decision making (Dopson & Hayes, 2009).

Brown et al (1993) have also critically analysed the ways of improving measurement of service quality. His work is equally useful to this study as service quality is important to customer relation and loyalty (Laws, 2004). There are issues associated with service quality. For example, sometimes customers may complain about the food quality that is offered by the hotel.

The matters touching on food are sensitive in that some of them arise out of cultural differences of the customers (Laws, 2000). Another problem is the general attitude and the kind of motivation that the workers have, slow response to customer, poor or inadequate communication among the customers, staff and even management, to even housekeeping problems (Gartrell, 1994).

From the research that was carried out, it was found that some of the hindrances to proper service quality include budget; staff familiarization and knowledge of the customers, as well as lack of training of the employees (Eyster, 1996). Financial constraints can really cause trouble to hotels as this will mean lower commitment to quality service provision (Sheehan & Hudson, 2007). For example, under a constrained budget, the employees cannot give generous discounts to the customers (Ismail, 2002).

They will need permission from the top management and this can lead to de-motivation or slow delivery of services. This information is quite useful to budget hotels (Faulkner & Russell, 1997). This is because from the case studies we will be able to see how these challenges are forestalled by the management of these budget hotels.

Human resources

Several researches have documented recommendations aimed at improving service quality. First is the need for management to interact more with the visitors in order to familiarize with the guests’ needs and desires (Fisk et al., 1993). Another issue that has been stressed is the need for the management to make sure that responsibility is delegated to the other staff so that everybody in the system has experience with decision making (Ford et al., 2009).

There is also need for staff to be exposed to formal training before they are hired and also even after employment (Jagels, 2007). This could be in form of refresher courses. This greatly aids in dealing with customers from varied cultural backgrounds (Freeman, 1984). Some clients expect empathy more than others and this is one of the aspects in which training could prove useful.

Staffing is one area that takes most revenues from many organizations. It is therefore important for the players to look at the staffing costs seriously (Laws et al., S 1999). Budget hotels have done this and most of them can still operate efficiently on a staff fewer than 20 on full- time basis (Brady & Conlin, 2004).

In a bid to cut on the staffing costs, some budget hotel chains have decided to do away with reception areas so that bookings can still be done in the pubs. Others balance between permanent and full-time employees in such a way that they retain very few full time staff as much as possible (Sainaghi, 2010). The strategies differ from one hotel chain to the other (Garrison & Noreen, 1997). This dissertation will look at the different strategies that some of the budget hotels use to achieve a strategic competitive advantage.

With different measures to cut down on costs as explained through this literature, it can be seen that for one to succeed in this cut-throat competition, there is need to have a strategy that works (Ambrose et al., 2000). So many budget hotels in the UK have now reached the stage of extreme maturation, thus, there is need to come up with several strategies (Philips, 2005). Many chains, for instance, have resorted to aggressive branding to beat this cut-throat competition.

From the literature analyzed we can see that various studies conducted it can be seen that no study has ever covered all the issues that constitute budget hotels as this study is going to do. In essence this study will majorly identify all the areas that make budget hotels stand up. So far there is no research that clearly compares budget hotel vis a vis the other types of hotels. This study will therefore try to find out aspects that have governed the evolution of budget hotels.

The study will determine the roles the budget hotel’s operation, composition; interior design and space management play in strategic planning in hospitality industry. Further, the study will identify and analyse the various strategies employed by budget hotels. The budget hotel phenomenon is unique and there is need to clearly research and enumerate some of the features that define the various brands of this type of hotels. This research will look at the various strategies that budget hotel put in place to maintain a competitive edge.

Performance

Performance can be said to be one of the measures that are put in place so as the organization gains a commitment that is in line with organization goals (Albrecht, 2008). Neely (1998) views business performance as one based on evaluating the efficiency and the expected effectiveness of the actions taken by the business with a view to attaining the set organisational goals. Performance has been viewed to be that framework that governs the execution of the strategy of an organisation by others.

This means that the framework serves as a description of the process through which an organisation manages to translate its laid down plans into desired results or outcomes. Performance of hotels is an issue that has been of great concern in the hospitality industry (Harrison & Enz, 2005). Performing hotels are those committed to certain quality standards. By meeting these standards the hotels manage to enhance their image as they satisfy guests through constant improvement (Adner & Helfat, 2003).

They do this through several strategies like constantly focusing on in-house training for their staff. According to Altinay (2006) most hospitality industries, just like any other forms of business, do consider performance seriously. Higher revenues reflect good performance (Yusel & Yusel, 2001). The revenue inflows from budget hotel industry have been on the rise (Adner & Helfat, 2003).

This is also in line with the growing number of hotel rooms in this sector and occupancy. Several hotels employ varied strategies to achieve the desired outcomes. This study will therefore investigate the various dominant strategies employed by the budget hotels under study.

Location

Location greatly affects the success of budget hotels. For instance, in studies conducted in Southern and Northern parts of UK, it was established that the South budget hotels did far much better than those in the North (Asree et al., 2009). Though several reasons could be advanced to explain this phenomenon, it is clear that this business is location sensitive (Friedman & Miles, 2002).

There is a positive outlook for budget hotel business since there is increasing demand for them in UK as the guests who fill the hotel rooms are mostly domestic (Avelini, 1998). The budget hotel business has managed to capture the imagination of swathes of domestic tourists, some of whom are quite new to hotel staying (O’Neill & Xiao, 2006).

The budget hotel business is a mass market concept since most of the budget business gains easy market penetration as seen in other countries in Europe. Its concept is, however, rather more developed in UK (Baum, 1998). What is more, the leisure market is experiencing exponential rise and this therefore makes the outlook positive (Laws, 1997). Availability is also a critical aspect in business (McGahan & Porter, 1997).

Customers usually prefer to associate with whatever is available. Budget hotels are usually readily available in many locations in UK (Beals & Denton, 2004). On top of this, they do provide satisfactory standard of accommodation. But this price is not the only driver of budget hotel bookings (Mark et al., 2009). Other drivers could include things like non-intimidating environments, consistency etc.

Consumers perceive budget hotels positively. Whenever faced with expenditure to incur, most individuals usually expect value for money (Buhalis, 2000). This means that the customer is paying for quality and even quantity (Chadee & Mattson, 1996).

Development and operations of Budget hotels

Hotels and the hospitality industry started hundreds of years ago. Since time immemorial people have travelled for so many reasons including commerce, leisure, religions concerns, immigration etc (Dev, 2002). According to a report carried out by Texas Tech University, the very first hotels were initially like private homes that were open to public (Imperiale, 2002).

But these had very negative reputations. However, with time some of the very first inns were started in America in 1607. The years that followed also saw a surge in business hotels all over the world. In most cases the surge saw very prominent homes such as the Hilton come up (Balser & McClusky, 2005). With time, however, there has been an emergence of limited service hotels.

There are stark differences between budget hotels versus full service hotels (Savage, 1991). From history of the budget hotel, once opened, the rooms would fill up since the pricing fitted all unlike what happened in the conventional hotel that offered full service (Altinay (2006). Budget hotels have over the time proved to be a valuable alternative to the conventional full service hotels (Roh & Yoon, 2009).

Though budget hotels have been coming in various locations in UK, as time goes by, it has been seen they still experience some of the challenges that other full service hotels face (Mitchell & Wood, 1997). These challenges include changing customer tastes and likes. This is why the budget hotel industry was just a paltry 2.9 percent points above the full service ones in 2006 (Tri Hospitality Consulting, 2007). From the above description one should be able to figure out what constitutes a budget hotel (O’Neill & Mattila, 2010).

However, one should never confuse Budget hotels with the other emerging concept such as town house hotels (Chang & Singh, 2000). Though small, town house hotels have business services that are at par with the five star hotels; the major difference is that these types of hotels are usually managed by their owners (Corgel & deRoos, 1997).

There has been an increase in the variety of investment vehicles in the UK. These include franchises, leases, self ownership, contracts of management etc. (Capozza & Seguin, 1999). Any investor will choose the way to invest depending on the degree of risk associated with a particular vehicle of investment (Bejou & Palmer, 1998).

Thus, most of the leading brands in budget hotel industry have their different ownership and operational structures (Peršić & Janković, 2006). Like with other businesses, funding is an issue that major in the sector and determines the type of investment vehicle to be adopted (Horngren et al., 2003). One can decide to seek for funding from other sources including banks or even equity (Gallagher & Mansour, 2000).

Just like in niche markets, the budget hotel industry have is guided by several strategies. For example, according to Berkely (1996) locating the appropriate site for budget business is an issue that needs delicate and careful handling. Failure to locate an appropriate site can hinder market penetration (Bowman & Helfat 2001).Different entrepreneurs have different ways of approaching the issue of site (Hales & Van Hoof, 2005).

While some may be lucky and decide to find enough space to collocate their business, some manage to look for land and site their business in sites they never desired (Brown et al., 1993). However, there are various opportunities that can be exploited, for example, buying other business as going concerns (Ryan, 1995). All in all, different players in the market do have different growth strategies (Hudson & Shephard, 1998). It only calls for creativity when it comes to finding the appropriate sites for a business (Blair & Fottler, 1990).

There are so many other costs in the industry (Hall, 1995). What is even more frustrating is the time it takes for a plan to be approved by the relevant authorities. Other costs may arise out construction (Rizzuto, 2006). But these could only succeed if the players may lobby the governments responsible to at least lower the construction costs for investors.

But several players may opt for cost saving strategies as some players do (Roquebert et al., 1996). For example, according to a survey on budget hotels, such as easyHotel, nitenite and even Yotel, there is use of windowless rooms. These types of rooms can be put anywhere, including in basements and other unused spaces, thus maximizing on space utilization (Jambulingham & Nevin, 1999).

Methodology

Qualitative research

This research seeks to employ qualitative approach to establish the variable brands of existing budget hotels around London area and determine their respective strategic management approaches (Pfeffer, & Salancik, 1978). Qualitative research approaches are made based upon construction activists’ perspectives and even participatory ones or both (Perry & Coote, 1994). In this kind of approach the researcher is faced with the task of collecting primary data with a wider intention of drawing or developing themes out of this data collected (Saunders et al., 2009). In this case also, the research will look for the views of top management about all the aspects concerning budget hotels and also see how the strategies or views employed do affect the general performance of the budget hotels. In a nutshell, the researcher will be looking for answers to the set research questions in the dissertation. As earlier said, the informants for this research will be top management of the budget hotels in London. These could include general managers, human resources managers, financial managers etc. of several budget hotels around London.

Case study approach

The strategy that will be used is that of case study. This strategy is useful to this study since it greatly highlights the context (Prideaux, 2000). Further, it is important since it is going to help us gain a deeper and richer understanding of the context that is being researched (Saunders et al., 2009).

According to Saunders et al., (2009) case study clearly answers the questions ‘why’, ‘what’ and ‘how’ effectively. In our research, we will choose three of the various budget hotels in London. The reason why we will use three instead of a single case is for validation of the information we will draw from the informants. Using the three cases will enable us to compare the information collected (Crossland & Hambrick, 2007).

Another advantage of picking three is to ascertain whether the findings that apply to one case can also occur in other cases (Mintzberg, 1990). This is crucial since we can easily establish whether whatever we established can be generalized for other cases. In fact Yin (2003) concurs that multiple case studies are far much better than a single case. Choice of one case study usually requires strong justification for that choice.

However, this choice of case study has its flaws (Gannon & Doherty, 2010). For example, the case study approach brings about an “unscientific feel”. All in all a case study is crucial to this study since it is exploratory in nature. Thus, it may be one way generating new knowledge since cases are usually peculiar in themselves (Garrison & Noreen, 1997).

Sampling

Sampling acts as the process selecting the required number of the informants. In our case the purposive sampling will be used since the information we intend to collect will be provided by the line managers of the establishments. The researcher will therefore look for the managers who will be willing to give the information that is crucial to this research.

Development of the research instrument

The instrument that will be used in the research will be one developed based on the research questions. This instrument will be written in an interview form. The researcher aims at conducting about 3 interviews and analyzing 17 questionnaires. Managers from the three selected establishments will be interviewed while the other questionnaires will be sent to the other budget establishments by post.

However, it is hoped that questionnaires will be sent to more establishments considering that some establishments may decline to respond. To make sure that the questionnaires are returned, an empty envelope and stamp will accompany each questionnaire. All in all, all research questions will be represented on the questionnaire. The interview has several advantages to this study. First, it will enable the researcher to reach as many respondents as possible, especially since here we will use a postal questionnaire.

It is also easy to standardize the questionnaire, hence making sure that the responses can easily be gauged on a standard scale (Gummesson, 1993). Since they stress anonymity, they may lead to many answering the questions more anonymously (O’Neill, 2004).

However, there are notable weaknesses of this instrument (Rumelt, 1991). One is that it will not be easy to tell where the person who filled the questions was the one targeted. Another issue is that the researcher’s absence may mean that there will be no clarification, especially in cases where a question is not well understood.

The interview method will be employed in this research as stated earlier. Interviews form a face to face kind of interaction with the informant (Yin, 1994). This encounter has several advantages since in-depth data may be collected (Weissinger et al., 1997). However, this method may come with its own disadvantages too.

For instance, the presence of the researcher may create some form of bias (Riley & Love, 2000). Also in cases where the interviewer is not articulate enough, this may elicit negative response from the respondent (Ramaswamy, 1996).

The use of both interviews and questionnaires pose a great challenge as it becomes a bit complicated to compare the responses. For instance to answer the first research question it will be difficult for an interview to do this.Secondary data collected will prove handy in answering this question.To avoid this, there is need for the interview to be structured in such a way that it aligns to the questionnaire (Gummesson, 1991).

Data collection

The researcher will solely collect the data of this research. He will interview at least 3 informants in the research. Other data will be obtained from questionnaires sent out. The managers of the budget hotels will be the ones to answer the fill questionnaires.

Data analysis

Data analysis is a crucial component of this research since it will allow the researcher to reflect the findings thereby aiding in the drawing of the conclusion. The data analysis will be done immediately when the information gathered is still fresh. To this effect, a qualitative analysis will be employed.

Validation and reliability

To guarantee reliability, the information in my research is carefully collected and verified, analyze and also interpreted. For example when collecting data on the three budget hotels I looked at information and made sure that it was true.

To come up with the correct information, the researcher has chosen to interview the line managers who have actively and closely steered the establishments. So they are the best placed people to give the information. Validity in qualitative research involves use of the right methods to analyze and interpret the data used. To achieve this I have collected information from different budget hotels in the UK.

Sometimes, the informants may want to give a ‘feel good’ picture about the establishments they are in. To mitigate this, the description of each item by an informant will be compared to the response given by other respondents. Further, the format of the same question may be changed to confirm the response previously given.

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