In today’s era where there is intense competition in hospitality sector as well as increasing profit is the key goal for shareholders, it is significant for managers to give due emphasis on management of operations. However, operations management in hospitality sector varies in each firm due to different aspects like size of business, processes running and the organisational strategies (Hospitality Operations Management, 2018). In the present report, a 5 star hotel i.e. IHG (InterContinental Hotels Group) has been chosen which is a British multinational hospitality company based in the UK (InterContinental Hotels Group PLC, 2018). There will be discussion on understanding the operational and economic characteristics of hospitality operations. Further, product development within hospitality environments will be studied. Also, the pricing and profitability concepts within hospitality operations will be understood along with focusing on using appraisal techniques to analyse and improve operational performance.
1.1 Nature of product and service areas offered by IHG
With reference to IHG, if talk about products, foods and beverages are the main. On the other hand, services include accommodation, conference and banqueting, etc. On the basis of different criteria, nature of these products and services offered by IHG is stated as below:
- Perishable – As durability of food items and beverages is not very much and they get spoiled if kept for long so, these products are known to be perishable.
- Tangible/intangible – In IHG like any other hotel, quality of services has two aspects in which the strengths and weaknesses of same are also involved. Under tangible services, hotel’s interior ambience and exterior design are included. Further, the equipment used for serving people are also involved (Sheehan, Grant and Garavan, 2018). Tangible services are those which can be seen and touched by users. While, on the other hand, services are mainly intangible and with respect to IHG, these are like responses of customers, empathy and trust which can neither be seen nor touched.
- Inseparable elements of hospitality products and services – Hotels also offers some products and services that cannot be separated with each other like swimming pools, housekeeping services, etc.
- Service areas of hotel – In IHG, the major service areas which are used for serving people are like rooms division, food and beverage, conference and banqueting, etc. which are booked by customers for the purpose of arranging lunch and dinner for occasions like birthday parties, wedding, business meetings, etc. (Kandampully, Zhang and Jaakkola, 2018).
1.2 Evaluating impact of different factors on patterns of demand within hospitality operations
The demand of customers in Intercontinental Group Hotels is not same in the entire year and gets fluctuated on the basis of different factors which are like:
- Seasonality – Major customers of IHG are businessmen and students or scholars. Thus, mainly in summer season when school and colleges are closed as well as business meetings are to be held based on financial year closing, people visit there. This is the reason; in comparison to other seasons, demand in summers is higher.
- Time of day/week – Another factor on which the demand fluctuates is visit of families and couple who come for visiting UK and spending their weekends in the form of any kind of vacation (Altin and et.al., 2018). Thus, in weekends, demand of hospitality operations in IHG is high. Further, in nights especially, crowd is more in comparison to day as people mainly for the purpose of having dinner visit IHG.
- Economic factors – As IHG operates in many nations other than UK like in Greater China, in case of economy crisis occurs nationally or at the regional level, demand of market gets reduced. Along with that, if spending power customers decreases due to factor like inflation, then too demand of IHG services goes down.
- Healthy living – One more very important factor is there i.e. healthy living which affects the demand of customers to a high extent. In the present era, people have become highly conscious regarding their health and prefer those hotels only where they get high level of hygiene (Secchi, Roth and Verma, 2018). This is the reason, demand of IHG is higher than other hotels as it follows high standards of sanitation.
- Cultural, regional and ethnic influences – On the basis of culture or region to which a customer belongs, demand of products and services of customers fluctuates. In the festive season of customers, their demand is high as well as if hotel offers products and services as per their ethnicity, they will have more desire to avail the same.
1.3 Comparing the customer profiles and their differing expectations and requirements
All customers are different from each other and so as their expectations and requirements. Thus, they are different on the basis of their profile depending on the hotel. The profiles of customers can be compared with the help of their different expectations and needs like:
- Spending power – IHG is having group of customers which is having high spending power. Their profile is based on the expenses they can made and for them, hotel is required to offer high quality and luxury services (Stylos and et.al., 2018).
- Menu/accommodation range – Every customer will afford highly expensive services is not possible. Thus, hotel is having those customers also who can offer reasonable rates for accommodation and menu.
- Expectations and requirements – IHG is a very big brand and therefore, the types of customers it has are also in large number that come here for different purposes and fulfilling distinct requirements. Hotel offers services to customers as per their differing expectations like to stay for business purpose.
- The meal experience – Another profile of customers is that group that usually visit hotel just to have lunch or dinner as IHG is offering high standard of meal and according to special cases like for sportsmen, health conscious or old age people, they have likely menu that is not so heavy as well as healthy (Ali and et.al., 2018).
- Pricing considerations – One profile of customers for IHG is that of families and couples who are not conscious for the price of services they avail but their major emphasis is on the quality hotel is providing. So, for them, hotel charges relatively high prices against quality it is offering.
- Type of hospitality business – Hospitality business is divided into basically three types i.e. accommodation, travel and tourism and the most common, food and beverages. InterContinental Group Hotels is known for its accommodation services mainly and thus, one profile of customers for this firm is of those who visit here just to meet their accommodation requirement (Ogbeide and et.al., 2017).
1.4 Factors affecting average spending power (ASP) in IHG
In IHG, people spend their money for availing different kinds of services the firm is offering. However, their average spending power gets affected through some factors like:
- Economic situation – Economic condition of a nation is always on the above of customers’ expectations and with same, ASP gets affected to a high extent. In case if economic condition of a nation is not sound then customer of that respective country will not be able to spend more as his earning will be less.
- Size of income – If customers of IHG are earning high then there is no doubt that they will having high average spending power. There direct relation in the income and spending power of customers (Davis and et.al., 2018).
- Social/cultural influences – Further, there is one more factor which affects the average spending power of customers of IHG to a high extent i.e. social or cultural influences. In case if there some special occasion like wedding or birthday anniversary or main festival of the customer, then he will likely spend more and thus, his ASP will be higher.
- Status – Status of customer is that factor on which his average spending power depends a lot as in case if the person belongs to some royal family, he will not cut down his expenses rather spend more to avail the highest level of quality to meet his requirement (Schmitt and et.al., 2018). Thus, ultimately the ASP of that customer is very high.
2.1 Assessing the key stages in product and service development applied in operations of IHG
Being the Assistant Operations Manager in IHG, at the time when hotel initiated a plan for developing a product i.e. Sea Food in its menu, I followed different key stages which are given as below:
- Idea generation – At first, the idea was generated regarding what kind of product or service was required by the customers and hotel needed to offer to satisfy them.
- Idea screening – Next stage is to screen all ideas generated to get the best one as per which operations took place. After assessing the pros and cons of all ideas, the best suitable one was decided to be continued by IHG that was to offer Sea Food as per the rising demand of people for same (The product development process, 2018).
- Concept development and testing – After deciding the final product that is to be launched i.e. Sea Food, a sample was tested first on a very small scale that is with few customers only to check whether it is suitable or not.
- Business analysis – Then, an analysis was made based on test conducted in previous stage to check whether it proved to be suitable for organisation or not.
- Product/service development – After making the analysis, as positive results were gained, product was developed by IHG as per the demand in market.
- Test marketing – After its development, on a particular segment that was decided under the plan based on psychographic segmentation, product was tested (The product development process, 2018). Segmentation of customers was done on the basis of price that could afford as Sea Food is quiet expensive.
- Commercialisation and launch – The test conducted in previous step was successful and the product was liked by customers so, finally it was launched as per the plan.
2.2 Features contributing towards the customers’ perception of products and services
Customer’s perception regarding products and services offered by IHG gets influenced with various features like:
- Brand image – IHG is having a strong brand image in the market, known for its quality and luxury services with high market share and goodwill which creates a positive perception of customers regarding products and services.
- Nutrition and dietary requirement – Hotel is offering nutritious, dietary and highly delicious food which increases the interest of customers to have the same. Nutritional value of products creates a positive perception of customers towards products (Lugosi and Jameson, 2017).
- Standardisation and space utilisation – High quality and health standards are being followed by IHG as well as it has utilised the space available in its restaurants and rooms in such a way that is liked by the customers. Therefore, this feature has high contribution in creating perception of customers positive.
2.3 Assessing impact of opportunities and constraints on product and/or service development
There are many opportunities and constraints that IHG is having. Some of them are given as below along with their impact on product or service development:
- Disabled access and provision – IHG has special facilities for disabled people with required arrangements which has made it highly popular and created a positive perception of customers. It has the provision for these kinds of customers to have special sitting in restaurants and facilities in accommodation as well. For examples: Beds in rooms that can be shifted as per comfort of the customer and chairs in restaurants that are movable as well as adjustable. This provides opportunity to IHG to gain more profits and so, development in products and services can easily be done (Hayes, Ninemeier and Miller, 2016).
- Availability of resources – It is important for the organisation to have adequate availability of human, financial and physical resources so that product or service development would not get hamper. IHG is having a large workforce, enough finance to invest and advanced techniques, tools, infrastructure, etc. which is leading it to gain a large customer base. However inadequacy of same may create threat for firm in the form of loss of productivity and inefficiency in the work of team.
- Style of service – In case if IHG will provide separate services for males, females and families, then it will gain the opportunity to capture the attention of more customers (Gibson and Parkman, 2018). However, there might be constraint associated that separate service holders will find other’s services to be more attractive that may lead to reduce the customer base. As per this, developing products and services as per the bifurcations will become easy but time consuming.
2.4 Evaluating different merchandising opportunities for products and services of IHG
Merchandising can be referred as the process in which promotion of sale of goods is done through giving presentations to the ultimate and potential customers. It is all about doing marketing of right products and services at the correct place and time whenever required as well as in desired quantity and price. For InterContinental Hotels Group, there are many merchandising opportunities for products and services in which the first one is related to high quality of services.
- Quality of services – In most of the cases, it has been noticed that travellers mainly expect the quality of services based on their capacity to spend. Thus, with charging the prices accordingly, hotel can grab large customer base (Legrand, Sloan and Chen, 2016). It can have opportunity to create higher value with the help of charging premium prices. However, charging similar price from all customers may result in losing them as everyone cannot afford higher prices.
- Economic condition – Along with that, another opportunity that IHG can gain through merchandising is when the economic condition of nation where it is operating is sound as with same, condition of traveller also gets improved that in turn provides a good merchandising advantage to the firm (Chibili, 2017). However, in case of poor economic condition, to earn profits and survive in the long run will become a challenge for the hotel.
3.1 Assessing different methods of pricing considering additional pricing considerations
(a) Hospitality businesses use many providing methods depending on the factors like competition, quality they offer, etc. InterContinental Hotels Group is majorly using three kinds of pricing methods to charge cost from customers which are given as below:
- Cover charge – IHG is taking cover charge from customers to have control on the crowd as it is big brand and on daily basis, a large number of people visit there.
- Marketing oriented pricing – One way of charging prices is set by IHG with the help of marketing oriented pricing in which they first conduct market research and after understanding the competitor’s pricing strategy, set cost of their products and services to grab the customer base at large (Sheehan, Grant and Garavan, 2018).
- Service charge – As hotel’s staff offers additional quality services in restaurants rooms, thus IHG adds service charges in the bill of customers which is actually worth.
(b) Cost oriented pricing and minimum charges are not used by the hotel as they do not consider them to be suitable for their firm. As they are having different customer profiles, charging prices as per production cost or taking minimum charges are not profitable for them and may lead to reduce the customer base. Their main concern is to offer high quality services and retain the customers in long run for which they are charging as per their profile (Kandampully, Zhang and Jaakkola, 2018).
3.2 Evaluating factors which affect revenue generation and profitability in operations of IHG
Many factors are there by which revenue generation and profitability in operations of hospitality businesses get affected. In IHG, these factors are like:
Factors to be considered
Affecting revenue generation
Revenue gets affected as amount is spent on labour and capital both.
As capital used in hotel industry is more than that of spending on labour, thus, profits get affected and sector is known as labour intensive.
Revenue increases if management takes positive initiatives to enhance the brand value and customer base.
Profits can be increased by adopting a good product development plan and providing high customer satisfaction.
Elasticity of demand
Demand of products and services along with price for same affects the revenue (Altin and et.al., 2018).
High elasticity is there in the demand of customers which affects profitability as in comparison to the change in price of products and services, change in demand of customers is more.
Revenue of IHG is high as many customers of it are from royal families for whom it offers high quality and standardised services with special menu.
Hotel follows high standards related to food, safety and hygiene of stakeholders which increases trust of customers and so as their repeat purchase which in turn leads to rise in the profitability (Secchi, Roth and Verma, 2018).
The amount of ingredients used in particular dishes affects the revenue of hotel.
Some of the dishes require highly expensive ingredients which affects the profits of company as they cannot charge large amount for same but it costs high.
With marketing oriented pricing, company is maintaining its revenues as it is helping in earning more with grabbing attention of large customer base (Stylos and et.al., 2018).
Profit from marketing oriented pricing is increasing in IHG.
Proper management of food and beverages through effectually managing the supply orders and interactions increases revenue of IHG.
Profitability of hotel increases as it is using an effective and efficient procurement system.
4.1 Applying a range of performance measures and appraisal techniques
Performance measures are those techniques which help a business in assessing the current situation that whether it is appropriate in terms of productivity and profits or requires improvement. Appraisal techniques are those methods which help an organisation to estimate the market value of business. In IHG, performance measures and appraisal techniques used are:
- Quality management – In this, management analyses the overall quality of offered products and services with determining the ways to improve same.
- Speed of delivery/customer service – As per this, management of IHG measures the time of delivering customer orders and if any amendments are required, does the same.
- Developing qualitative and quantitative data – For accomplishing the appraisal in hotel, qualitative factors like customer satisfaction, their reliability and service quality are measured along with quantitative factors like price of product in relation with competitor, customers per week, etc. (Ali and et.al., 2018).
- Data analysis and evaluation – The collected qualitative and quantitative data is compared with the expected performance to assess the present performance of IHG.
- External comparison – Benchmarks are set by firm by keeping related peer hotel and factors like service quality and pricing are compared.
- Sales performance/gross profit/net profit – Further, to measure the sales performance, increase or decrease in the gross and net profit of business is checked (Ogbeide and et.al., 2017).
4.2 Usefulness and limitations of various quantitative and qualitative appraisal techniques
Quantitative appraisal techniques help organisation to check how buyers really act if some adjustments are made in the selling prices. While, qualitative appraisal techniques include communicating and reacting to stakeholders to analyse their satisfaction level. However, along with so many benefits, various limitations are also associated with these techniques. Quantitative methods of appraisal are based on sample data majorly which includes chances of wrong performance measurements as a sample cannot be considered as a true fact for entire population. However, on the other hand, these methods are useful for applying on a wider population through using tools like interviews, surveys and questionnaires (Davis and et.al., 2018). On the contrary, qualitative approach cannot be applied on large population which is the major drawback but it is useful for assessing the factors like customer satisfaction and quality of services which leads firm to gain sustainability in the long run with competitive edge over others.
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4.3 Applying approaches to business analysis, evaluation and planning appropriate to make proposals for action
Business analysis – It is a kind of practice that helps firms to bring changes at workplace by analysing the needs of business and providing solutions accordingly to make stakeholders satisfied by offering value to them.
Business evaluation – Assessing economic value of interest of the owner and worth of business with the use of various processes is known as business evaluation.
Business planning – It refers to making of a plan for achieving the set goals of business and analysing methods to attain them with specifying timeframe for each activity to be conducted.
When approaches to business analysis, evaluation and planning are applied in IHG, to consider which one is appropriate becomes difficult as a lot of services facilities are offered by the firm like catering and accommodation. Earlier, IHG was making analysis, evaluation and planning in business on the basis of lodging facilities only but now, it is taking catering services in consideration as well (Schmitt and et.al., 2018). Presently, there are three categories which are generating profits for business i.e. organised groups, house guests as well as the non-residents. Further, market demand of IHG is assessed on the basis of recreational, institutional and transit. Thus, for further expansion of this hotel, all these additional services can be used.
From the above report, it can be concluded that with increase in the level of competition in hospitality (hotel) industry of UK, it is necessary to bring improvement in services on continuous basis so that excellence in operations can be achieved by the business and a competitive edge over others can be gained. As per today’s scenario, this is the only way IHG can sustain its position in the long run with gaining higher growth and market share. It is the responsibility of managers over there to improve the learning and encourage job so that issues prevailing in business environment can be solved easily. Further, to retain customers in the long run and providing high level of satisfaction to them, effective management of operations is of utmost importance