Marketing report: Sikaa Hotel
Marketing a Small High Quality Hotel
Villa Sikaa: A Tiny Jewel
The marketing of leisure destinations for the most part is boringly similar. The web pages and printed brochures all have photos of elaborate dining rooms with sumptuous buffets and huge balcony rooms with stunning views. This is usually backed up with photos of almost empty swimming pools behind a bikini clad young woman with a stunning figure. They will then explain you can get six day and five nights at a bargain price.
This project is based on how to use the same basic tools, the internet and print brochures, to market a company that offers a variety of services that is anchored by a relatively tiny but four star hotel located in a medieval village almost no one has ever heard of. The hotel building is more than three centuries old, and the rooms are perforce relatively small, but totally remodelled and very comfortable and well equipped. There is no dining room, only a room where the complementary breakfast is served. Off the small lobby there is a charming coffee bar offering both typical Croatian coffee (a national ritual) and alcohol based on the tastes of the client.
As a note of explanation concerning what constitutes a four start hotel in Croatia. A well-respected site for Croatian travel information site, Croatian Traveller, defines the Croatian Star systems as follows for four and five star hotels. “Five-star service is the best available, the furnishings lavish, the in-house restaurants first-rate and you may even avail yourself of an indoor or outdoor swimming pool or sauna or keep in shape at the hotel “trim room”. The morning buffet breakfast is a feast and will include fresh fruit, fruit salad, fresh fruit juice, eggs prepared as you like, freshly baked pastries, a full array of cheese and cold cuts and memorable coffee. There will be non-smoking rooms and facilities for the disabled.
Four-star hotels also offer an extremely high level of comfort on a slightly less exalted level. You will still have an excellent buffet breakfast but the hotel will be smaller and lack some of the amenities of the five star establishments. The rooms will still be very comfortable, well furnished and equipped.” (Croatian Traveller, 2011)
The problem from a marketing standpoint is that a hotel room is basically a place to sleep and change clothes. They are actually fungible, and the traveller does not go thousands of miles to go to bed bathe and change clothes. A luxury hotel room is more important to the traveller than a luxury airline seat, but they have more in common than the hotelier would like to admit. The amenities of the five star hotels, such as swimming pools, are certainly attractive to visitors, but not critical in most cases. Even less than luxury hotels can offer comfortable beds, hot water for bathing and cleanliness just as the seats in the back of the airplane get there just as quickly as those in front. The difference in leisure hotels is what the traveller can do outside the hotel. Given these problem if the hotelier wants to market based on a differentiated product how can this be accomplished?
In a study entitled “What is Strategy?” Michael Porter uses the relationship between various types of “fits” to define strategic initiatives. In it he uses the relationship between “Neutrogena” a dermatologist recommend personal cleansing product line that it markets to hotels and the hotels reputation to being luxurious and interested in their guests well being. It is further described in part of a presentation of tailored activities designed to enhance it strategic position. (Porter, 1996)
In the case of the Sikaa hotel the products are external activities set up by the hotel and a group of sub-activities owned by the same family corporation to make the visit of the hotels guest both more enjoyable and more remunerative to the overall family corporation. The concept of moving toward integrating customer relationship management (CRM) and revenue management (RM) is widely accepted in the academic community as a valid and valuable business strategy. Unfortunately, there is little attention paid to the subject in academic relative to hotel management. The authors of “Integrating customer relationship management and revenue management: A hotel perspective” attempt to look at the relationship of CRM and RM in hotels specifically. Even so, the book published in 2003 focus first on the lifetime/profitability approach to customer segmentation as proposed by Reinartz and Kumar in 2002. They point out that the appropriate customer segments to target with CRM efforts are identified and a supporting RM strategy is developed for each segment. These include traditional RM, lifetime value-based pricing, availability guarantees and in the case of Villa Sikaa short-term and ad hoc promotions. The basic structure of the family corporation that is based on Villa Sikaa predates this by almost two decades. (Noone, Kimes, Renaghan, 2003)
In the case of Villa Sikaa the same family holding company has a an auto rental, a boat rental, motor scooter rentals and a travel agency that has the capability of organising a wide variety of local activities for the guest that include guided tours of the area and the Krka National Park, excursions to the Croatian islands on a day trip basis or overnight trips, multi-day cruises and a variety of other excursions in addition to the services normally offered by a travel agency such as airline reservations or reservations in hotels in other locations. The company also owns a foreign exchange office, which in addition to exchanging currency at competitive rates offers additional services to travellers as required. While many hotels will offer all these services, most will add a commission or surcharge, which obviously is not present in the case of Villa Sikaa. Rather, the services can be offered without commissions in most cases and at competitive rates as they are part of a package of services offered the customer/guest. The staff, which is either family or very well trained, is also difficult to duplicate. This is a form of product differentiation that most competitors are simply not in a position to offer because they do not own auto rental, travel agencies or the other activities of Villa Sikaa parent company.
A SWOT Analysis of the Villa Sikaa
The strengths of the Villa Sikaa are built around a three hundred plus year old hotel that has preserved much of its historic charm while being completely modernized. Its location on the harbour of Trogir, a medieval village with a thousand year plus history that still has the tiny streets with paving stones worn smooth by centuries of foot traffic and a medieval fort visible from the entrance to the hotel is a key part of its attraction. All vacation destination talk about charm, comfort, luxury and superb food. The Island of Ciovo and the town of Trogir is however almost unique in terms of beauty, charm, and climate. The entire Dalmatian coast was the playground of the Austro-Hungarian Empire and the Byzantine Empire for several hundred years, and the area around Split and Trogir one of the most popular areas even then.
The Weakness of the hotel is its relatively tiny size, only 10 guest rooms. This is at least partially offset by its desirability and high occupancy rate during the strong tourist seasons. It also lacks a restaurant and elevators that simply were not practical to install in a three hundred year old building with only two upper floors. Another problem common to all Dalmatian hotels is the relatively short tourist season.
The opportunities of the hotel lie in increasing the number of available rooms without loosing the charm of the existing operation. This could be accomplished by acquisition of adjacent building and incorporating them with the existing hotel. It would also, at least theoretically, be possible to add another story to the existing hotel. With an increased room count it would be easier to justify both elevators and a full service restaurant. Perhaps the greatest opportunity is the extension of the tourist season as occurred in Monaco and on the Cote D’Azur of France that saw their seasonality mitigated by high traffic even in winter months. The entrance of Croatia into the European Union, which is discussed below, is also a major opportunity
Threats involve the large number of existing hotels on the entire Dalmatian coast. The increasing popularity of the region for tourists from not only Europe but from as far as Japan and the United States will likely attract major hotel operations to build new modern properties with all the amenities traditional in first class resort destinations from swimming pools to Casinos. The first of these, the Le Méridien Lav, is already operational. More hotels of this class are likely in coming years, which clearly poses a threat to smaller establishments. They cannot however offer the offbeat charm and personal attention of the smaller hotel such as the Villa Sikaa. The growing number of tourists, particularly outside the traditional summer tourist season, which will foster such development, also has the potential in increase offseason occupancy of smaller installations.
PESTEL analysis of the small hotel market in Croatia
The political establishment of Croatia is fully aware of the importance of tourism to the Croatian economy in general and the economy of the Dalmatian coast in particular. While they have a long standing tradition of taxing tourist using a variety of devices while the tax rates are low enough to be negligible even to budget minded visitors. The licensing of tourist business is closely monitored to assure quality and protect visitors.
Far more important is the coming entrance into the European Union, which is imminent and is likely to occur early in 2013. (Croatian Times, 2010) There are two remaining elements areas, Judiciary and Fundamental Rights chapters to be concluded. A critical element in the membership in the Union is the Schengen Agreement that makes the borders between members of the Union effectively disappear in terms of travel between citizens of members of any signatory to the agreement which includes all of the member except the United Kingdom and Ireland in Europe’s borderless Schengen area. Two EU states, Romania and Bulgaria have been temporarily denied access to the Schengen privileges based on their problems with controlling corruption and crime. The Schengen area also includes Norway and Iceland. In effect Switzerland has agreements with the European Union that allows Swiss citizens most of the privileges of citizens of member states. Under EU legislative law Croatia will be included in the borderless EU shortly within a few years after accession to Union membership. (Croatian Times, 2011)
The economy of Croatia is built on two elements of foundation, tourism and the key position of Zagreb as a trading and transportation hub. The Croatian government maintains a highly effective television and print advertising program as well as a major Internet presence to support its tourist industry. The importance of destination hotels is not neglected in this campaign. While there is no direct connection of Villa Sikaa with government promotional programs it is listed on numerous Croatian tourism sites and it clearly benefits for efforts in this area.
The social element in Croatia that benefits the hotel industry the most is the educational system that places English as the almost universal business language at the very top of its priorities. A substantial proportion of Croatians speak English well enough for most practical purposes. As the segments of the population are measured by age it is clear to see that in a few years most young people will speak it at least fairly fluently. An interesting concern in the society is the fear that in a few generations English will have replaced Croatian as the language of the nation. The underlying culture is basically friendly and outgoing.
The technical sector of the nation is well advances with very widespread access to digital communications, Internet, and other advanced technical communications conduits. The balance of the infrastructure such as road and air travel is also rapidly being brought to developed nation levels. The Croatian Rail system is “adequate” but far below the standards of most of Western Europe.
The environmental situation is Croatia generally and on the Dalmatian cost in particular is very good. The country overall is very “clean” from trash collection to air pollution. Dalmatia is particularly clean as the level of industrialisation is relatively low. The levels of both air and water pollution are excellent. There are still environmental concerns from everything from effluents from metal processing to on going removal of land mines from both World War Two and the more recent wars for independence of 1991-95. (Flags of All Countries, 2008)
The Legal system in Croatia is changing rapidly as the nation strives to complete the final phases of the negotiations with the intergovernmental conference by June 2011. (Croatian Times, 2011) This coincides with the end of the Hungarian presidency of the conference. There are still questions however if this can be accomplished. (Croatian Times, 2011)
Summary and conclusions
The marketing of small hotels in leisure destination markets is obviously a highly specialised niche-marketing problem. There is no way that a physically small operations such as Villa Sikaa can offer such amenities as swimming pools, marina and casinos as peripheral features to gain occupancy. There are admittedly several other small and charming hotels in the Trogir market and numerous such establishments in Dalmatia. Differentiating the product comes back to the fundamental problem that a hotel room is in reality no more than a place to sleep, wash and change clothes. In any good hotel one can expect a clean comfortable bed and room with fresh towels and hot water in the bath. The reality is that one does not travel hundreds or thousands of kilometres to sleep or shower. The key to destination selection is what is available outside the hotel room.
The Villa Sikaa group has capitalised on this, and offers guests incremental services provided by other related companies. This allows them to control the quality of the services offered and to earn incremental profits from them. Even if competitors offer similar outside services and activities they are unable to control the cost or quality of the car or boat rentals or the excursions and tours offered because they are provided by outsiders that offer only a commission on sales.
The Villa Sikaa group not only controls the price and quality, but also earns a profit in each of the sister companies involved. The key is that it is a family owned and controlled enterprise than can provide a variety of services that produce a package that is relatively unique. As each individual activity within the group supports others, there is a good control of both revenues and profitability that competitors can only envy. The result is a collection of rather pedestrian services that support each other and, as a whole, produce a truly differentiated product.
Croatian Times (07/02/2011) “Croatia could be in the Schengen by 2015” Recovered 12/02/2011 from: http://www.croatiantimes.com/news/General_News/2011-02-07/16990/Croatia_could_be_in_Schengen_by_2015
Croatian Times (08/12/2010) “Croatia to close three EU chapters in December” Recovered 12/02/2011 from: http://www.croatiantimes.com/news/General_News/2010-12-08/15722/Croatia_to_close_three_EU_chapters_in_December
Croatian Times (07/01/2011) Hungarian PM wants to close Croatia’s EU negotiations” Recovered 12/02/2011 from: http://www.croatiantimes.com/news/General_News/2011-01-07/16269/Hungarian_PM_wants_to_close_Croatia%B4s_EU_negotiations
Croatian Times (11/02/2011) Swoboda criticises Hungarian PM’s premature optimism.” Recovered 12/02/2011 from: http://www.croatiantimes.com/news/General_News/2011-02-11/17121/Swoboda_criticizes_Hungarian_PM%B4s_premature_optimism
Croatian Traveller (2011) “Hotels in Croatia.” A hotel or private accommodation in Croatia. Recovered 09/02/2011 from: http://www.croatiatraveller.com/Hotels.htm
Flags of All Countries (2008) “Croatia Geography 2008” Recovered 12/02/2011 from: http://www.senojflags.com/geography/Croatia-geography
Noone, B.; Kimes, S.; Renaghan, L. (2003) “Integrating customer relationship management and revenue management: A hotel perspective.” New York, Palgrave Macmillan.
Porter, M. (1996) “What is Strategy?” Harvard Business Review, November-December 1996. Recovered 09/02/2011 from: http://www.ipocongress.ru/download/guide/article/what_is_strategy.pdf
Reinartz, W. & Kumar, V. (2002) “The mismanagement of Customer Loyalty” The Harvard Business Review, July 2002. Recovered 11/02/2011 from: http://www.iei.liu.se/fek/frist/722g34/forelasningsunderlag-och-material-2010/1.150189/TheMismanagementofCustomerLoyalty.pdf