This market assessment and launch plan was prepared for our client Tata Group to advise them on their plans to launch Ginger chain of value based business hotels in Canada. The launch is planned jointly with Marriott, a global operator and franchiser of hotels. The first two locations are planned for Toronto and Montreal. After analyzing and assessing numerous secondary researches about the Canadian hotel industry we strongly believe that the Indian business model of Ginger hotel will need to be tweaked to meet the Canadian market requirements. Our plan proposes launching a chain of hotels by the name of “Crimson by Marriott” with a customizable-limited-level of service. The project will provide Marriott with a Net Marketing Contribution of $4.4 million in the first year of its operation.

The Canadian Hotel & Motel Industry

The Canadian hotel and motel industry grew by 4.5% in 2007 to reach a value of C$ 16.0 billion (Datamonitor, 2007). We estimated the Toronto Downtown and Montreal Downtown hotel and motel market to be equal to 11% (City of Toronto, 2008) and 9.8% (OECD, 2003) respectively of the total Canadian market based on the gross domestic product of each city. This means that the Torontonian hotel & motel industry is a C$ 1.76 billion industry, while its Montrealer counterpart is C$ 1.57 billion.

We estimate that at the national level the business segment of that market accounts for around 13.30% – 20% based on information gathered from Datamonitor and Stats Canada. Since Toronto Downtown and Montreal Downtown are business centers their business segment share is much greater than that of the country wide business segment. According to the Greater Toronto Hotel Industry 2004 Economic Impact Analysis 40.7% of the rooms in Toronto were sold to the corporate/commercial sector. In this report we will assume that the Montreal Downtown business segment share is equivalent to that of Toronto Downtown.  This nets the value of that segment in the Toronto Downtown and Montreal Downtown to be equal to CA$700 million and $620 million respectively.

The industry is generally mature although there are opportunities in the limited service market which is more fragmented (Datamonitor, 2007). The Canadian hotel and motel industry as a whole is expected to grow at a slow rate in the single digits. With the looming economic slowdown the business traveler segment is expected to remain flat or to shrink. The flip side of the economic slowdown is that corporations’ travel departments are trying to “get more travel out of fewer travel dollars” (Habib, 2008). This means that business travelers will be forced to look for cheaper hotels that offer a great value for their dollar.

The Marriott Brand Line

Marriott uses a mix of extending its product platform and brand platform to deliver its services to a variety of Canadian customers in different business divisions: full-service lodging, limited-service lodging, and long-term lodging. Marriott Canadian brand line is a limited subset of their global offering.

Its full-service Canadian lodging brands are Marriott Hotels, The Ritz-Carlton, and Renaissance Hotels & Resorts. These brands are Marriott’s flagship brands and are located in downtown, urban and suburban areas.  They also provide a full line of service to its customers such as Internet access, swimming pools, room service, gift shops, and bellmen.

Their limited-service Canadian brands include Courtyard, SpringHill Suites and Fairfield Inn. Courtyard is Marriott’s upper to moderate price brand, which offers select-service. SpringHill Suites is Marriott’s all suites brand with upper to moderate price. Fairfield is Marriott’s lower to moderate price brand, which offers limited-service. Courtyard, SpringHill and Fairfield Inn leverage the strong Marriott brand by appending it. For example, Courtyard is typically referred to as Courtyard by Marriott.

Their only extended-stay Canadian lodging brand is Residence Inn.

Market Segmentation

The segmentation of both the Torontonian and Montrealer hotel markets are relatively similar. These markets currently have three distinct segments: Limited-service, Full-Service and Luxury. Both the full-service and luxury segments cater to business travelers. Aside from the independent boutique hotels, almost all hotel brand names are present in both markets. The quality and relative price of the hotels are perceived to be the same in both markets. That said a hotel in Toronto is typically 20%-30% more expensive than a comparable hotel in Montreal.

Marriott brands target all three different segments (note: the Marriott hotels are identified by their red color in the STP diagram).

Crimson by Marriott

After analyzing the Canadian hotel and motel market, we notice a great opportunity for Marriott to expand by targeting a limited-service niche segment. The “Road Warrior on Budget” niche segment is typically overlooked by the industry.  Crimson by Marriott will bring Ginger’s smart basics concept to the Canadian market. Crimson by Marriott should position itself between Courtyard and Fairfield offering customizable-service at a lower to moderate price targeting to the value conscious road warriors on budget business travelers. We selected the name Crimson to signify simplicity and to play on Marriott’s corporate colors. Extending the brand by include “by Marriott” is extremely important as a strong brand image, such as Marriott, helps to attract first-time customers and also repeat business (Datamonitor, 2007).

The Crimson by Marriott Experience

The Crimson hotel concept will revolutionize the limited-service segment by bringing a consistent customizable experience to the budget business traveler while meeting their key needs.  The customer should experience a comfortable, simple three star experience at a two star price. Amenities are broken down to three different categories: “Amenities included with each room”, “Optional Amenities for a Price”, “Amenities Never to be Included”. This breakdown enables us to break free from the product lifecycle by stripping and unbundling services that typically come with hotel rooms enabling Crimson to provide basic service at a low cost, while enabling each customer to personalize his/her experience at an additional cost. To reduce the number of full-time employees, all labor intensive optional amenities such as room cleaners, laundry service, and restaurant will be contracted to outside vendors. This will reduce the hotel’s operating costs significantly. When reserving either online or by phone, the customer has to specify if they to order the room cleaning package for an extra cost. A fee will be levied on customers that do not order the room cleaning package when reserving the room and instead ask for the room to be cleaned during their stay. This fee will encourage customers to preorder the cleaning package. Since we are contracting labor intensive tasks, we estimate that the hotel can be run with a total of 10 fulltime employees.

The hotel should offer consistent transparent pricing communicated clearly on the hotel’s website with no discounts. The pricing schedule is available to right of this page. The pricing was determined based on the competition and taking into consideration the premium for the downtown location. To adjust to business travel demand there will be both off-peak (Dec-Feb) and peak (Mar-Nov) pricing.  To encourage customers to book early a 30% fee will be applied to any reservation that is not three weeks in advance. This three week lag time will enable contractors to forecast the necessary amount of contracted room cleaners.

The Crimson hotels in both Montreal and Toronto will have around 150 rooms based on the average hotel size. Since Crimson’s labor cost is going to be at minimum. We expect to replicate the margins of Tata’s Ginger and achieve margins of 55-65%. This means that our strategy will be modeled to maximize our Return on Sales or ROS. Also based on our 1-1 communication plan and our customer focused CRM system we expect occupancy to be at 70% which is 10 points above the average occupancy rate (Hotel Association of Canada, 2008).

Communication Plan

The communication plan will focus on targeting the “road warrior on budget”. The “road warrior on budget” is a frequent traveler that is value conscious who always makes an effort in getting the most out of his or her travel budget. We believe that that person would most probably be a loyal customer that flies low-cost airlines such as WestJet into Montreal and Toronto. To target our potential customer base we suggest purchasing data on from Air Miles, WestJet’s frequent flier program managers. Customers flying frequently (3 or more a year) into Montreal and Toronto on a Sunday afternoon or Monday morning and heading back to their destination on Thursday or Friday should be extracted from that data. Marriott’s CRM should then be used to identify frequent travelers that are already loyal to Marriott in both Montreal and Toronto (Target 1) from those that are not (Target 2). Each target will be communicated to differently by mail to introduce them to Crimson by Marriott. To be able to tag and track the success of the mail communication the potential customer will be invited to visit Crimson’s Website to learn more about the hotel chain using a personalized URL. Being part of Marriott Reward will enable us to track the success of turning our potential clients into an actual client.

WestJet’s frequent flier data should be purchased twice a year. We assumed that the data will cost us $400,000 each time. This data will not only help us communicate with potential customers but it will also help us to track defectors. Defectors are those who once used Crimson and are still flying to Toronto and Montreal, but are no longer staying at Crimson. These customers should be reached out to by phone and Marriott customer service representatives should understand the reason why they have defected and what they can do to win them back.

Distribution Channels

Since we are adopting a strategy that focuses on consistent pricing, selecting the correct distribution channel selection is an important one. The biggest focus should be selling reservations via Crimson’s Website. This will help us tag and track our customers and will help us control our pricing. Our second main distribution channel should be Websites that tailor to corporate travel planning such as American Express travel. These channels are specialized in business travel and would help drive a lot of traffic to the hotel. Our third main distribution channel should be Marriott’s 1-800, and the hotel’s direct telephone line since 42% of Canadian business travelers reserve by phone (2007 Canadian Travel Intentions). Internet based travel agencies should be avoided as they will heavily impact our margins, further more they might force Crimson to sell their inventory of hotel rooms at a discount. Bargain hunters discount sites such as priceline and hotwire should be ignored as they will undermine our consistent pricing policy.

Net Marketing Contribution

We estimate the Net Marketing Contribution for each location to be $2.2 million for the first year. We expect the Net Marketing Contribution to increase in the years to follow.