MGMT 471 Study Guide (Midterm)

Definition of Goods

Physical items that include raw materials, parts, subassemblies, and final products.

Definition of Services

Activities that provide some combination of time, location, form, or psychological value.

Manufacturing vs. Service Employment Level

DECREASE in Manufacturing Employment:

• Technological Advancements

• Globalization

INCREASE in Service Employment

• Consumer Behavior

Four Characteristics of Service

Intangibility, inseparability, variability, perishability.

Definition for Intangibility

Services cannot be seen, tasted, felt, heard, or smelled before being purchased

Definition of Inseparability

• Customers and employees co-produce the service

• Services are produced and consumed at the same time

Definition of Variability

Quality depends on who provides them and when, and where they are provided

Definition of Perishability

• Services can’t be saved, stored, returned, or resold

Characteristics of Service vs. Goods

Planning (Definition)

 The process of determining how the organization can get where it wants to go and what it will do to accomplish its objectives (with a clear mission, vision, and goals)

Innovation (Definition)

• Sustaining long-term innovation strategies

• Creating competitive advantage and value for customers and the organization

Three Types of Innovation

Transformational, Substantial, Incremental.

Transformational Innovation Definition

Products that are radically new

Substantial Innovation Definition

Products that are significantly new

Incremental Innovation Definition

New products that provide improved performance or greater perceived value (or lower cost)

Product-Market Expansion/Growth Strategy

In order to be successful, Companies must identify, evaluate, and select opportunities then develop strategies to capture them

Four Types of Corporate Strategies

Concentration, Vertical Integration, Concentric Diversification, Conglomerate Diversification

Concentration Strategy Definition

A strategy employed for an organization that operates a single business and competes in a single industry.

Vertical Integration Strategy Definition

Expanding the domain of the organization into supply channels or to distributors within the same industry.

Concentric Diversifcation Strategy Definition

Moving into new businesses that are related to the company’s original core business.

Conglomerate Diversification Strategy Definition

A strategy that involves expansion into unrelated businesses by producing unrelated products.

SWOT Analysis Definition

A strategic development tool that matches internal organizational strengths and weaknesses with external opportunities and threats.

SWOT Analysis

• Strengths (Internal)

  • Skilled management, positive cash flow, positive brand image, etc.

• Weaknesses (Internal)

  • Lack of production capacity, no reliable suppliers

• Opportunities (External)

  • New technology, increasing global demand

• Threats (External)

  • New Competitors Entering the market

Customer Needs Definition

Provide critical information for determining value opportunities.

Customer Value Definition

Customer Value = Benefits - Cost

= Benefits Provided by a Product/Service - All of the Costs Incurred by the Buyer

Customer Satisfaction Definition

A measure of how products and services meet or exceed customer expectations.

Market Segment Analysis

Research of existing and potential customers (i.e. - Aging Baby Boomers)

Challenges associated with Innovation

Transformational Innovations

• Customers may not be good guides to new product ideas

• Potential customers may not understand how the new product will replace existing products

• Management’s vision may be faulty

Challenges of New Product Development

All New Products

• Potential of disrupting existing/sustaining products

• Potential negative impacts on leading products

• Cannibalization

Franchising Basic Concept

Primary growth strategy of hotels/motels during 1960s, 70s, and 80s

• One of the driving forces of the hotel business

Management Contracts Basic Concept

Developers/owners = Usually no desire/ability to operate

Real estate and physical plant can be owned by different entities 

• One of the driving forces of the hotel business

Franchising - History in the U.S.

• Began in 1907 when the Ritz Development Company franchised the Ritz-Carlton name in NYC

• Holiday Inn grew through the strategy of franchising

Management Contracts - History in the U.S.

• The Hotel Industry’s rapid boom since the 1970s

• Hotel management companies = Little or no up-front financing

Franchising (Benefits)

• Plans and Specifications

• National and International Advertising

• Central Reservation System (CRS)

• Volume discounts (furnishings, fixtures, equipment, etc.)

• Low fee % charged by credit card companies

• Less risky than starting your own business

Franchsing (Drawbacks)

• High fees (typicaly 3-4% of room revenue)

• Franchisor’s agreement

  • Lack of freedom (standards set by the franchisor)

  • Failure to follow the standards: Termination of contract

• Franchisor - Direct influence on business

Two Types of Management Companies

1st Tier & 2nd Tier

1st Tier Management Companies Definition

Management companies that operate hotels for owners using the management company’s trade name as the hotel brand

2nd Tier Management Companies Definition

Management companies that operate hotels for owners and do not use the management company name as part of the hotel name

Hotel Classifaction/Types

Diamond Rating (AAA) & Star Rating (Forbes Travel Guide)

Room Rates - The Four Types of Plans

American Plan (AP), MAP (Modfiied American Plan), European Plan (EP), and Continental Plan (CP)

Definitions of the Four Types of Plans

• American Plan (AP) - Room and three meals a day

• MAP (Modified American Plan) - Room plus two meals

  • Breakfast + Lunch or Dinner

• European Plan (EP) - Room only, meals extra

• Continental Plan (CP) - Room plus (continental) breakfast

Rack Rate Definition

• Full price at which rooms are sold to customers before discounts

• Can be the highest rate quoted for a guest room

Revenue Management Definition

A demand forecasting technique used to maximize revenue per available room. Based on principles of supply and demand.

Law of Supply Definition + Concept

• The concept of economics that recognizes:

  • When demand is held constant, an increase in supply leads to a decreased selling price

  • With demand held constant, a decrease in supply leads to an increased selling price

Law of Demand Definition + Concept

• The concept of economics that recognizes:

  • When supply is held constant, an increase in demand results in a rise in the selling price.

  • With supply held constant, a decrease in demand results in a lower selling price.

ADR (Average Daily Rate) Calculation

Total Revenue from Room Sales / Total # of Room Sales

Occupany Rate Calculation

Total Rooms Sold / Total Rooms Available

RevPAR Calculation

Total Revenue from Room Sales / Total Rooms Available

GOPPAR Calculation

Total Gross Operating Profit / Total Rooms Available

Room Achievement Factor Calculation

ADR / Rack Rate

Yield % Calculation

OCC% * Rate Achievement Factor

PMS Definition

Computer-based lodging information system that relates to both the front and back office activities (Reservation, Room Control and Management, Cashiering, Reporting)

CRS Definition

Allows operators to access the inventory of room availability of each hotel in the chain. Interfaces with hotel’s inventory and simultaneously deducts from the inventory of rooms once a reservation is made.

CRO Definition

Hotels provide rates and available information to the CRO by data communication lines. Automatically updates the CRS so that guests can get the best available rates when they book through the central reservation office.

Housekeeping Facts

• Largest department (# of employees)

• Up to 50% of employees work in Housekeeping

• Hard work + low pay

• Highest turnover rate

Outsourcing Staff

• Functions most likely to be outsourced:

  • Pool maintenance

  • Equipment maintenance

  • Security

  • Floral arrangements

  • Landscape management

  • Valet parking

• Functions least likely to be outsourced:

  • Front desk

  • Bell staff

  • Housekeeping

  • Concierge

Hotel F&B Facts

F&B Divison is generally the 2nd largest operating division (behind Rooms Division).

Hotel F&B Changing Trend

• Traditionally: 20% of the hotel’s profit

  • Operated strictly as an amenity - not a profit generator

  • Focused more on in-house guests

• Now: 25-30% of the hotel’s profit

  • Attracting more local guests + catering (events)

  • Hotel restaurants now generate substantial profit

• Hotel restaurants vs. Other restaurants

  • Labor costs = 40%

  • Labor costs = 30%

  • Hotel restaurants have a 10% loss of profit compared to other restaurants

Hotel F&B Challenges

• Hotel (in-house) guests are not always predictable

  • Difficult to predict # of expected covers

    • Too Many -> Delays & poor service

    • Too few -> Employees underutilized (labor costs) 

  • Capture rate: # of in-house guests who dine in the hotel restaurants

F&B RevPAR vs. Rooms RevPAR

• F&B RevPAR is more stable than Rooms RevPAR

  • Ability of hotels to attract local patrons to their restaurants, lounges, and catering facilities

  • Especially evident during recessionary years (i.e. 2009): Declines in F&B revenue were less than the decreases observed in rooms revenue

F&B Division - Catering

• Banquet related revenue is greatest source of F&B revenue:

  • Catering Revenue: 55.5% (includes room rental, audio visual fees, service changes, etc.)

  • Restaurants: 30.2%

  • Lounges: 5.6%

  • Room Service: 4.4%

• Linear trend of banquet and catering RevPAR increasing as the total amount of meeting space increases

F&B Divison - Room Service

• Doesn’t generate enough profit

• Needs to operate 16-24 hours/day

• Other challenges:

  • Delivering orders on time

  • Avoiding complaints of excessive charges

Food Cost Calculation(s)

Food Cost / Menu

Or

Foost Costs / Food Sales

Labor Cost % Calculation

Labor Cost / Food Sales

Prime Costs Calculation

Food Costs + Labor Costs

Prime Costs %

Food Costs % + Labor Costs %

Beverage/Bar Management

• Profit margin from beverage is higher than the food profit margin

• Beverages - Approximately 20-30% of total sales in a restaurant

Beverage/Bar Challenges

• Inventory control challenges:

  • Installing and ensuring responsible alcoholic beverage service

  • Pilferage

    • Employees stealing liquor

    • Overcharging or mischarging

    • Overpouring or giving away drinks to receive larger tips

Restaurant Forecasting

• Most business (including restaurants) operate by formulating a budget

  • Forecasting Restaurants sales: Restaurant forecasting is used not only to calculate sales projections but also to predict staffing levels

• Two Components:

  • Guest Counts (# of covers): # of guests patronizing the restaurant over a given time period

  • Average guest check: Total sales / # of guests

Pricing Strategy

• Cost-based Pricing (Lower Limit)

  • Food Cost %

  • Labor Cost %

  • Profit (BEP)

  • Contribution Margin

• Demand-based Pricing (Upper Limit)

  • Quality & Positioning

  • Competition Prices

Technology Accept (Conflicting View)

• High level of security

• Reduced cost

• Increased acceptance

Technology Reject (Conflicting view)

• Privacy issues

• Interpersonal service

• Technology anxiety

Biometrics Definition

To describe measurable physiological and/or behavioral characteristics that are unique to the individual and can be used to verify the identity.

Biometrics - Physiological Measures

• Fingerprinting

• Iris Scans

• Retina Analysis (Blood Vessels)

• Face Recognition

• Hand-Line Patterns

Biometrics - Behavioral Measures

• Hand-Written Signature Verification

• Voice Recognition

• Gait Analysis (walking)

Biometrics - Pros (Fingerprint, Iris-Scan, Voice Scan)

• Fingerprint

  • Ease of use

  • Multiple Finger Enrollment

• Iris-Scan

  • High Level of Accuracy

• Voice Scan

  • No Negative Perception

Biometrics - Cons (Fingerprint, Iris-Scan, Voice Scan)

• Fingerprint

  • Some failure to enroll

• Iris-Scan

  • Requests User Training

  • High False Rejection

• Voice-Scan

  • Low Quality Capture

  • Problem with Noise

Self-Service Technology (SST) Definition + Example

• Any facility that enables consumers to produce services for themselves without assistance from employees 

  • Ex: Self-Serve Restaurant with Cubby System

Self-Service Technology (SST) Positive Aspects (Management + Customer Perspectives)

• Management Perspective

  • Reduced labor cost

  • Increased productivity (e.g. - service delivery speed)

  • Increased customer satisfaction

• Customer Perspective

  • Greater Control

  • Convenience + Speed

  • Enjoyment from using the technology

Self-Service Technology (SST) Negative Aspects (Management + Customer Perspectives)

• Management Perspective

  • Initial installation cost

  • Potential loss of interpersonal contact

  • Difficulties in service recovery

  • Loss of up-selling opportunities

  • Reliability (technology failure)

  • Maintenance

• Customer Perspective

  • Technology anxiety

  • Loss of personal interaction

Self-Service Technology (SST) - Conflicting Views

• Is it just a shift of service deliver with the same level of service quality?

• Or is it taking away the memorable experience (human interaction)?

Corporate Citizenship Concepts

Corporate social RESPONSIBILITY, Corporate social RESPONSIVENESS, Corporate social PERFORMANCE

Corporate social RESPONSIBILITY Definition

Emphasizes obligation and accountability to society.

Corporate social RESPONSIVENESS Definition

Emphasizes actions and activities.

Corporate social PERFORMANCE Definition

Emphasizes otucomes and results.

Corporate Social Responsibility (CSR) Definition

Managerial obligation to take actions to protect and improve both the welfare of society as a whole and the interests of organizations. A company’s obligation to exert its positive impact and minimize its negative impact on society.

Three Types of Corporate Social Responsibility (CSR)

Ethical, Altruistic, Strategic.

Ethical CSR Definition

Represents a minimal level of social responsibility.

Altruistic CSR Definition

Being a good corporate citizen by giving back to society.

Strategic CSR Definition

To accomplish strategic business goals.

Cause-related marketing (CRM) Definition + Example

• Definition: A particular marketing strategy that links product sales to the support of a charity to create and maintain favorable brand images

  • Ex: Both Starbucks (Ethos) and Happy Meal donations

Green Hotels Information (Going Green)

• Commercial buildings in general

  • Produce 38% of all carbon dioxide emissions

  • Consume 40% of total energy consumption

  • Use 68% of all electricity

• Hotel Industry: 4th most intensive energy user in the US Business Sector

• Why - Operators 24/7 non stop -> Water, energy use, waste, etc.

  • Ex: DO not change my towels movement

Leadership in Energy and Environmental Design (LEED) Definition

An internationally recognized green building certification system.

Managerial Approach to Tipping

• Motivate servers to deliver good service

• Measure server performance

• Identify dissatisfied customers

What Affects Tip Size?

• Selling (Based on total check amount)

• Personalized Apperances

• Entertaining Customers

• Personal Interactions

• Adding Personal Touches to the Check

Definition of a Tipped Employee

Under the FLSA, a tipped employee is one who customarily and regularly receives more than $30 a month in tips.

Tip Credits Definition

A provision under the Fair Labor Standards Act (FLSA) that allows employers to pay tipped employees less than the federal minimum wage, as long as the employees’ tips make up the difference.

Tip Credits (Federal Minimum Wage, Minimum Cash wage for Tipped Employees, Tip Credit & Earning Minimum Wage)

• Federal Minimum Wage: $7.25 per hour

• Minimum Cash Wage for Tipped Employees: $2.13 per hour

• Tip Credit: The Difference between the federal minimum wage and the minimum cash wage for tipped employees is $5.12 per hour. This $5.12 is considered the “tip credit.”

• Earning Minimum Wage: If an employee’s tips combined with the $2.13 cash wage don’t equal at least the federal minimum wage of $7.25 per hour, employer must make up the difference.

Tipflation Definition

Refers to the increasing expectation and size of tips over time, often without a corresponding increase in service quality.

Causes of Tipflation

• Cultural Shifts

• Technology Influence

• Economic Factors

• COVID-19 Impact