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Case Study – City Lodge Hotel Group: Redefining Segments and Brands.

New Segment.

“The deal gave City Lodge 100% control of the Courtyard management company, as our business model is to own the property and manage the hotel as well,” said Ross. He added that the City Lodge Hotel Group subsequently bought out the AECI Pension Fund’s half share in the Courtyard chain in May 2015.

The acquisition of the Courtyard, coupled with the opening of the Road Lodge and Town Lodge chains, gave the group coverage in the one- to four-star accommodation segments in which it wanted to operate. “We are not interested in sub one-star accommodation, as our focus is on the business traveller. At the other end, the five-star market has onerous grading criteria, requires massive capital investment averaging R4 million per room to build, and is very fickle, being almost entirely dependent on international travellers for its custom,” said Ross.

Ross explained that the group “commissioned detailed market research biannually to identify shifts in customer requirements and tastes, as each target market is different in terms of products, services, guest experiences and value-adds”. Furthermore: “It’s about prioritizing and focusing on what guests value, and cutting back on the unnecessary frills that drive costs up – so that we can keep hotel travel affordable for South Africans and give access to a wider variety of travelers,” he said.

The Select Service Concept.

Target market.

The group’s primary target market from the start had been, and remained, business travelers. They accounted for 70% of the group’s guests, with 80% of these travelers residing in South Africa. Leisure travelers, who constituted the balance of the guests, generally used the group’s establishments at weekends.

Ross explained: “City Lodge and the Courtyard are positioned to attract corporate travelers. Although Town Lodges also attract some corporate travelers, their primary targets are government and parastatal travelers and company representatives. In most cases, the employer is paying for the accommodation in these two categories, and the patrons know that they will have a great experience and a good night’s sleep on a comfortable bed with clean linen.”25 He added, however, that the group had positioned Road Lodges to attract businesspeople who paid their own accounts. They tended to be very careful about protecting the value of money when it came out of their own pockets.

Location.

Great care went into choosing hotel sites and the type of hotel suitable for each location. That effectively restricted the potential for City Lodges to South Africa’s main business centres such as Bloemfontein, Cape Town, Durban, Johannesburg, Pretoria and Sandton.

In contrast, Ross said, Town Lodges were smaller, with a minimum of just over 100 rooms. Ross added that in addition to ensuring that the hotels were in viable catchment areas, it was also important to ensure that they were easily accessible from the main transport routes and highly visible on these routes. “We are talking about easy to see from the highway, station or airport, and just as easy to get to,” said Ross.

The minimum sizes of the various hotels had changed over the past 30 years, in response to market needs. “Typically, the size of City Lodge hotels has risen progressively from 120 rooms in the 1980s to 160-room establishments, and then the last seven hotels have all exceeded 200 rooms. The biggest to date is our 303- bedroomed Oliver Tambo International Airport flagship City Lodge hotel,” said Ross.

Although there had to be sufficient patronage to support increased size, if the occupancies were attainable, size actually helped reduce costs through economies of scale. “Of all the segments, City Lodge hotels bring in the most revenue because of the size of the hotels. Thus, the economies of scale are huge – one general manager, an assistant manager and four receptionists running a 300-bed hotel is far more cost-effective than the same team in charge of a 90-room establishment,” said Ross.

Tariffs and occupancies.

The City Lodge Hotel Group generally pitched tariffs at about 20% below those of its competitors in the one-, two-, three- and four-star markets. Ross maintained that this system had served the organisation well. “Over the past 30 years, our occupancy levels have averaged about 74%. We peaked in 2007/8 with 83% occupancy, just before the 2008 global stock market crash. He added that there had been a temporary improvement in occupancy rates during the 2010 FIFA World Cup soccer tournament, held in South Africa. “Occupancies, however, continued their downward trajectory from the day after the World Cup final (23 July 2010) and bottomed out at 56% in 2011, The breakeven point would, he believed, be in the region of a 40% occupancy level.

Competing in a market where occupancies had been declining constituted a challenge, as many competitors discounted room rates to boost business. Ross explained: “We do not believe discounting is good business practice. Our board reviews our rates half-yearly, in contrast to most hotel groups which review their rates annually.

Some competitors had discounted room rates by up to 40%. Ross maintained: “Discounting does not boost occupancies, but simply moves existing business from one point to another for a short-term gain. It also means more rooms have to be filled to produce the same revenue as that generated without discounting. Furthermore, bigger increases were needed to restore normal rates once demand recovers.” As a result of extensive discounting, the South African hotel industry as a whole only got back to pre-2008 room rate levels in mid-2015. “It has taken seven years to repair the damage caused by short-term philosophies. Adding to this problem, hoteliers who introduced big discounts now needed big increases – 10% to 12% – to get back to normal now that occupancies are improving. The trouble is that customers see these increases as excessive. They aren’t interested in the fact that these increases are from a discounted base,” said Ross.

Threats.

According to Ross, the organisation had to be wary of external threats to the hotel industry in general, and the City Lodge Hotel Group in particular. Such threats could stem from misinformation and misconceptions about Africa that discouraged international travel to southern Africa. He cited the Ebola epidemic as having frightened away many potential travelers to South Africa, even though the nearest outbreak was 8 000 kilometers away.

Furthermore, ill-considered comments made by South African business and political leaders constituted a potential threat if they alarmed travelers. Legislation that failed to address the realities of travel and tourism had also become a threat. Ross cited, as an example, the new visa regulations introduced on 1 June 2015, which stipulated that foreigners who wanted to visit South Africa had to apply for visas and have their biometric data, digital facial photographs and fingerprints captured in person at South African embassies abroad. In addition, parents and guardians travelling in or out of the country with minors (under 18 years of age) also had to produce an unabridged birth certificate for the minor that showed both parents’ details.

In terms of internal threats, direct competition had to be monitored, particularly other hotel chains such as the Tsogo Sun Hotel and Leisure Group and Protea Hotels, owned by Marriott International. Tsogo Sun had 90 hotels across all segments – one to five star – in South Africa, Kenya, Mozambique, Seychelles, Tanzania and Zambia. Tsogo Sun brands included Southern Sun Hotels, Sun Square, Garden Court, Stay-Easy, Southern Sun Resorts, Intercontinental Hotels and Resorts and SUN1 (previously known as Formula 1).

Protea Hotels had 116 hotels in South Africa, Ghana, Malawi, Namibia, Nigeria, Tanzania, Uganda and Zambia. Protea Hotels brands included African Pride Hotels, Protea Hotels and Protea Hotels Fire & Ice!. Protea Hotels only competed directly with the City Lodge Hotel Group in the three- and four-star markets.

However, Ross added that all organisations that sold beds in the short-term accommodation market – even bed and breakfast, self-catering rentals and timeshare – had to be monitored, because they all had an impact on occupancy rates.

Market Research.

According to Ross: “Projecting the right image in the right place is just as important as correctly pitched tariffs and although there are a variety of aspects to marketing the different hotel offerings, they all depend on one fundamental, which is good market intelligence. We must know what our guests want so that we can respond to those needs.” The City Lodge Hotel Group used different methods to tap into customer trends. “This starts with overarching market research carried out every two years to determine trends in the hospitality industry. These trends tend to be gradual, so there would be no benefit in doing them more frequently,” said Ross.

All of the group’s hotels invited guests to communicate their views, through an online “Rate Us” facility, Ross said. “We have many loyal customers who contribute willingly and frankly to this questionnaire. What they say makes a significant contribution to helping us determine where the market is moving, and what we need to do to address these trends.” The group also conducted a SurveyMonkey poll, specifically relating to Wi-Fi and expectations thereof, which was sent via e-mail to guests. i Similar polls would be conducted in the future to remain on top of market trends, and would also allow management to gauge customer reactions to new ideas. Ross explained: “These surveys ask how people would react if we did this or made that change, and whether they would support the change even if it meant an additional cost.”

The group also used mystery guests to ensure that the hotels delivered the quality of services they advertised. To do this, Ross said, the group employed an independent agency to send mystery guests into the hotels. “The mystery guest has a template of about 225 questions related to service delivery and the customer experience. These cover areas like making reservations, hotel adherence to the three-ring telephone answering policy, staff helpfulness and friendliness, quality and cleanliness of accommodation, and even the efficiency of the checkout process. Some of these mystery guest exercises are also videoed and used for training purposes.”45 The group also monitored posts on various social media platforms including HelloPeter.com , TripAdvisor, Facebook and Twitter.

Other changes introduced over the years based on market research findings included: the addition of small meeting rooms and mini-gyms in City Lodges; the introduction of twin and double bed combinations, as well as interleading rooms, across all brands ; the separation of baths and showers in City Lodges; and providing room options with baths and showers, or rooms that just offered en-suite showers. Thus, 70% of rooms at the recently completed Waterfall City Lodge in Midrand and the refurbished Bryanston, Pinelands and Bloemfontein City Lodges only had showers, and 30% of rooms had baths and showers.

Promotion and Rebranding.

Ross said that the group had adopted a targeted approach to driving customer awareness. “In the case of City Lodge, 42% of our business is channeled through agencies and the travel trade, so we want to be top of mind in their space. Most of our business in this sector comes from corporates, so we also have sales executives who sell our products to corporates, offering a spectrum of options to suit their needs. Typically, they could put together a package where an organization’s reps stay in Road Lodges, their middle management in Town and City Lodges and senior executives in the Courtyard,” said Ross.

He added that the group had launched an online hotel room auction site in 1999. It had also done a limited amount of advertising to promote group products to the broader public. “For City Lodge, for example, we have run television advertising campaigns that challenge the viewer’s thinking and use humour to promote our establishments as a home from home for businessmen.

Thus, it had become critical to change this. One of the challenges had been the similarity of the original logos for the different chains. The logos were all the same colour, featured the same typeface and even the same image of a tree in the centre of the logo. According to Ross: “The result was that people were confused about where they were staying. Part of the solution was to launch a rebranding exercise.” Design formed a large part of the refreshing of the brand, with the focus being on modernizing the identity of the group. After the rebranding exercise, research conducted by Yellowwood indicated that people intuitively ranked the four updated logos in terms of quality and affordability, making it easier to understand the range of offerings and thus select the right brand for their accommodation needs.

Yellowwood described the new branding as “crisp, clean and uncluttered… [reflecting] the brand essence of ‘we value what counts’ – giving guests more of what they value and less of what they don’t.” Ross maintained that the “new brands are now all quite different and distinctive. Our new Road Lodge logo, for example, is completely new, different, fresh and appeals particularly to the younger business traveler. It still includes a City Lodge Hotel Group endorsement, but makes it quite clear that it is not a City Lodge.”

Questions:

1. Perform A SWOT Analysis For City Lodge Hotel Group (10 marks)

2. Assume You Have Been Engaged As the Marketing Consultant at City Lodge Hotel Group in 2016. Recommend future strategies for (after the rebrand) for ONLY City Lodge, by outlining Target Markets and Positioning, Product, Promotion, Price and Place strategies beyond 2016. (20 marks).

3. Assume You Have Been Engaged As the Marketing Consultant at City Lodge Hotel Group in 2017. Make recommendations to the Sales Director to increase sales for Courtyard group of hotels (10 marks).

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The Yorktown Company manages approximately $15 million for clients. For each client,
Yorktown chooses a mix of three investment vehicles: a growth stock fund, an income fund, and a
money market fund. Each client has dierent investment objectives and dierent tolerances for risk. To
accommodate these dierences, Pfeier places limits on the percentage of each portfolio that may be
invested in the three funds and assigns a portfolio risk index to each client.
Here’s how the system works for Mikayla Doucet, one of Yorktown’s clients. Based on an evaluation of
Mikayla’s risk tolerance, Yorktown has assigned Mikayla’s portfolio a risk index of 0.1. Furthermore,
to maintain diversity, the fraction of Mikayla’s portfolio invested in the growth must be atleast 10%,
income funds must be at least 15% and at least 20% must be in the money market fund.
The risk ratings for the growth, income, and money market funds are 0.10, 0.05, and 0.01, respectively.
A portfolio risk index is computed as a weighted average of the risk ratings for the three funds, where
the weights are the fraction of the portfolio invested in each of the funds. Mikayla has given Yorktown
$350,000 to manage. Yorktown is currently forecasting a yield of 15% on the growth fund, 10% on the
income fund, and 6% on the money market fund.

1. Develop a linear programming model to select the best mix of investments for Mikayla’s portfolio.
2. Solve the model you developed in part (1). In other words, nd the optimal solution, objective
function and sensitivity report.
3. How much may the yields on the three funds vary before it will be necessary for Yorktown to modify
Mikayla’s portfolio?
4. If Mikayla were more risk-tolerant, how much of a yield increase could he expect? For instance,
what if his portfolio risk index is increased to 0.11?
5. If Yorktown revised the yield estimate for the growth fund downward to 0.09, how would you
recommend modifying Mikayla’s portfolio?

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Conflict is a phenomenon of our everyday lives, both personally and professionally.

On a personal basis in our daily interactions with other human beings, we find that differences of perspective and perceptions require working through situations to achieve agreement or resolution for issues as simple as what to eat for dinner.

In our professional roles at work, the same differences in human beings can result in disagreements and conflict about values, tasks and task interdependence, relationships, information, process, and various conflicts of interests.

Explore a conflict on your own and share your insights with your classmates so we can all enrich our understanding of this daily and often vexing phenomenon of conflict?

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Economics
A not-so-popular Nordic bridge

It was not quite what the planners had in mind when Sweden and Denmark opened their expensive bridge across the Oresund strait in July. After an early boost from summer tourism, car crossings have fallen sharply, while trains now connecting Copenhagen, the Danish capital, and Malmo, Sweden’s third city, are struggling to run on time. Many people think the costs of using the bridge are simply too high. And, from the point of view of Scandinavian solidarity, the traffic is embarrassingly one-sided: far more Swedes are going to Denmark than vice versa. So last week the authorities decided to knock almost 50% off the price of a one-way crossing for the last three months of this year. The two governments, which paid nearly $2 billion for the 16km (10-mile) state-owned bridge-cumtunnel, reckoned that, above all, it would strengthen economic ties across the strait and create, within a few years, one of the fastest-growing and richest regions in Europe. But ministers on both sides of the water, especially in Sweden, have been getting edgy about the bridge’s teething problems. Last month Leif Pagrotsky, Sweden’s trade minister, called for a tariff review: the cost of driving over the bridge, at SKr255 ($26.40) each way, was too high to help integrate the region’s two bits. Businessmen have been complaining too. Novo Nordisk, a Danish drug firm which moved its Scandinavian marketing activities to Malmo to take advantage of ‘the bridge effect’, has been urging Danish staff to limit their trips to Malmo by working more from home. Ikea, a Swedish furniture chain with headquarters in Denmark, has banned its employees from using the bridge altogether when travelling on company business, and has told them to make their crossings – more cheaply if a lot more slowly – by ferry. The people managing the bridge consortium say they always expected a dip in car traffic from a Demand theory 115 summer peak of 20,000 vehicles a day. But they admit that the current daily flow of 6,000 vehicles or so must increase if the bridge is to pay its way in the long run. So they are about to launch a new advertising campaign. And they are still upbeat about the overall trend: commercial traffic is indeed going up. The trains have carried more than 1m passengers since the service began in July. Certainly, the bridge is having some effect. Many more Swedes are visiting the art galleries and cafe´ s of Copenhagen; more Danes are nipping northwards over the strait. Some 75% more people crossed the strait in the first two months after the bridge’s opening than during the same period a year before. Other links are being forged too. Malmo’s Sydsvenska Dagbladet and Copenhagen’s Berlingske Tidende newspapers now produce a joint Oresund supplement every day, while cross-border ventures in health, education and information technology have begun to bear fruit. Joint cultural ventures are also under way. And how about linking eastern Denmark more directly with Germany’s Baltic Sea coastline, enabling Danes to go by train from their capital to Berlin in, say, three hours? Despite the Danes’ nej to the euro, it is still a fair bet that this last much-talked-about project will, within ten years or so, be undertaken.

Questions

1 Explain why the demand for the bridge is likely to be price-elastic.

2 If the Swedish government estimates that the price elasticity is -1.4, calculate the effect on traffic using the bridge, stating any assumptions.

3 Why is the calculation above not likely to give an accurate forecast for the long term?

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Management
Universal Petroleum Ltd (Universal Petroleum) is a large petroleum company that distributes diesel. They have been operating for over 30 years.

You are currently employed at Universal Petroleum as an accountant. During your studies you did a course in internal auditing which dealt with ethics and corporate governance. This is currently very beneficial because the CEO asked for your assistance as he has a couple of concerns in relation to the company’s corporate governance.

Universal Petroleum was established by Jason Philander. He listed the company 10 years ago on the JSE.

The company has 100 000 authorised shares which are issued and valued at R50 per share. The Shareholdings and respective shareholders of Unite Petroleum are

: ? 35% by Blues Capital (Pty) Ltd

? 10% by Reds Funding (Pty) Ltd

? 28% by Rational Finance (Pty) Ltd ? 13% by Lucrative Funding (Pty) Ltd

? 14% by Creative Money (Pty) Ltd

The composition of the Board is as follows:

Executive Directors:

? Jason Philander, Executive Chairman, B Com (Actuarial Science), member of the risk committee.

? Chantel Jansen, Chief Executive Officer, B Com (Financial Accounting).

? Roberto Pick, Finance Director CA(SA).

? Johan Frits, Operation Director, MBA, member of the risk committee.

? Jan Wentzel, Human Resources Director, B Com (Management Accounting).

? Jacque Scholtz, Marketing Director, MBA. Non-Executive Directors

? Diderik Samuels CA(SA), member of the risk committee.

? Hendrick Deniker CA(SA), member of the risk committee.

The board of directors, with the help of the risk committee, is responsible for the implementation and ex*****on of effective risk management and keeps a risk register, in which they have already recorded the key risks relating to compliance and the business’s reputation.

After the directors identify key risks, a risk rating is allocated to each risk in the risk register and the risks are prioritised according to this rating. The risk committee determines Universal Petroleum’s risk tolerance levels at their annual meeting in order to focus the directors’ attention on the identified risks which exceed the company’s risk tolerance levels.

You have recently been appointed as the Controls Compliance Officer of Universal Petroleum. On your first day at work you had an introductory meeting with Jason Philander. During your meeting with him, you made the following notes listed below:

1. Jason Philander stepped down as CEO two years ago after 25 years of services as the CEO. Immediately after this, he assumed the role as Executive Chairman.

2. The company does not have a company secretary and this position has been vacant for a few years. Jason Philander will make an appointment in the upcoming financial year. He is also planning on appointing two more nonexecutive directors.

3. Diderik Samuels was, for a number of years, the Financial Director of Universal Petroleum. However he retired 5 years ago. He re-joined the Board at Jason’s request when Jason became a Chairman. Jason has always taken responsibility for recommending directors and getting directors appointed by the shareholders or appointing them himself. Jason has always relied on Diderik for financial assistance/advice. Diderik not really interested in financial matters.

4. The board of directors meets every quarter, but Jacque often misses these meetings and is forced to send in apologies. He often travels due to the fact that he holds the appointment of non-executive director in a number of other companies. ANNEXURE F: FORMATIVE ASSESSMENT 1 58 HCGA232-1-Jul-Dec2021-FA1-MS-V2-19032021

5. The company has three board committees, namely a risk committee, audit committee and a remuneration committee. Risk and audit committees are chaired by Jason Philander. Jacque and Diderik serves on both committees. Both committees generally meet a few weeks, once a year, after the financial year-end to discuss the completed audit and consider the remuneration of personnel for the upcoming year.

6. Universal Petroleum’s management approves the risk policy, which includes the risk appetite of the company. On an annual basis the risk committee assists management in the management of remuneration.

7. Universal Petroleum’s remuneration policy was approved by 5 of the 6 directors and 51% of the shareholders on 1 December 2020. This policy is focussed on contributing to the low overhead costs for Universal Petroleum. The policy includes directors’ remuneration and reaching strategic objectives within Universal Petroleum’s risk appetite. Universal Petroleum’s risk and remuneration policies assist management in executing sufficient oversight over achieving proper integration between risk management, business activities and the culture of the company. Remuneration of directors in the remuneration report is disclosed as a whole.

Required:

Identify and discuss the contraventions committed by Universal Petroleum in terms of King IV, based on the above information and the information that you gathered from your meeting with Jason Philander.

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Management
According to Fortune.com’s report in 2015, mean starting base salary for MBA graduates is more than the amount that the graduates with bachelor’ s degree earn. The study reports that the mean salary is $100,000 for graduates with an MBA degree. Assuming that starting salaries, are normally distributed and the standard deviation is $20,000, what is the probability that a random sample of 100 MBA graduates will have a mean starting salary of $96,000 or less? (https://fortune.com/2015/05/19/mba-graduates-starting-salary/)
2. Amazon executives believe that at least 70% of customers would return a product 2 days after it arrives at their home. A sample of 500 customers found 68% returned the product they purchased prior to the third day. Given the executives’ estimate, what would be the probability of a sample result with 68% or fewer returns prior to the third day?

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