ASSIGNMENT 3

BRANDING CHALLENGE
The case is about the choice that has to be made by Irene regarding her Hotel Airotel. After
the attacks, the business is not doing so good and termination of swissairs service has
increased the obstacles for her. The major challenge for Irene is to increase the business of
Airotel and make it profitable. For that, she can either be an independent brand or become a
franchise of an existing brand.
After reviewing the results of conjoint analysis, she has three options to choose from
I.

Default Franchise contract in the US, paying a fee of 10% of net revenues and
sign up of $50K

II.
III.

Keep her own brand of Airotel, and work towards the new strategies
Accept the brand name of Choice Hotel, and capitalize on the brand name

If we review the given options, the option of going with default franchise in the US is automatic
elimination as it is clearly given in the case that if Irene decides to go for this option she will have to
shell out almost double of what choice hotel is asking. So, it will be better for Irene to go for option I
in comparison to option III.
If we consider option I, we can see from the exhibit 2
2002

2002

2002

2002

2002

2002

2003

2003

2003

2003

2003

2003

All
numbers in
SFR
revenue
Hotel
Revenue
Apartments
total
revenue
Direct cost
hotel
Direct cost
apartment
Net
contribution
Salaries

July

Aug

Sept

Oct

Nov

Dec

Jan

Feb

March

April

May

June

total

44268

67116

99960

101388

99960

72828

72828

97104

95676

94248

101388

85680

1032444

16000

16000

16000

16000

16000

16000

16000

16000

16000

16000

16000

16000

192000

60268

83116

117388

88828

113104

111676

110248

117388

101680

1224444

-6712

-10139

11596
0
-9996

88828

-4427

11596
0
-9996

-7283

-7283

-9710

-9568

-9425

-10139

-8568

-103246

-1333

-1333

-1333

-1333

-1333

-1333

-1333

-1333

-1333

-1333

-1333

-1333

-15996

54508

75071

105916

80212

102061

100775

99490

105916

91779

1105202

-35300

-35300

10463
1
-35300

80212

-35300

10463
1
-35300

-35300

-35300

-35300

-35300

-35300

-35300

-35300

-423600

Other fixed
cost
Mortgage
interest

-25000

-25000

-25000

-25000

-25000

-25000

-25000

-25000

-25000

-25000

-25000

-25000

-300000

-16850

-16850

-16850

-16850

-16850

-16850

-16850

-16850

-16850

-16850

-16850

-16850

-202200

Deprication

-10000

-10000

-10000

-10000

-10000

-10000

-10000

-10000

-10000

-10000

-10000

-10000

-120000

Profit and
loss
account

-32642

-12079

17481

18766

17481

-6938

-6938

14911

13625

12340

18766

4629

59402

The Profit and loss column shows negative value in July, August and December in 2002 and January
in 2003 which indicates that hotel will make loss in those particular months. Also, there is a dip of
almost 75% in June 2003. In all the variance in the Profit and loss is very high which might not be
good for business and brand name for the Airotel and it might hamper the growth of the brand also. So
this option can only be considered, if by going for option III, the Airotel may lose more revenue and
generate less profit.
If Irene decides to go for franchise of Choice hotel, she will have to pay certain fees as royalty,
marketing and upgrading the hotel as per the choice hotels standard. Also, there will be sign up fee as
a part of agreement.
Lets evaluate this option, If Irene decides to rebrand the hotel then apart from using the brand name,
it will also be benefitted by the increase in room rent from SRF140 to SRF160.
Considering the utility of holiday Inn form the graph

And utility for the price of SRF160 form the conjoint analysis

Calculating the inflow of customers because of the brand name, will require the utilities of the Holiday Inn
and SRF160, The increase in customers will help in generating more revenue and more profits.

All numbers
in SFR
revenue
Hotel
No. of
customers
No. of
customers
after
branding
New
Revenue
Hotel
Revenue
Apartments
total
revenue
Direct cost
hotel
Direct cost
apartment
Net
contribution
Salaries

2002

2002

2002

2002

2002

2002

2003

2003

2003

2003

2003

2003

July

Aug

Sept

Oct

Nov

Dec

Feb

March

April

May

June

44268

67116

99960

101388

99960

72828

Januar
y
72828

97104

95676

94248

101388

85680

316

479

714

724

714

520

520

693

683

673

724

612

563

853

1271

1289

1271

926

926

1234

1216

1198

1289

1090

90080

136480

203360

206240

203360

148160

148160

197440

194560

191680

206240

174400

16000

16000

16000

16000

16000

16000

16000

16000

16000

16000

16000

16000

106080

152480

219360

222240

219360

164160

164160

213440

210560

207680

222240

190400

-4427

-6712

-9996

-10139

-9996

-7283

-7283

-9710

-9568

-9425

-10139

-8568

-1333

-1333

-1333

-1333

-1333

-1333

-1333

-1333

-1333

-1333

-1333

-1333

100320

144435

208031

210768

208031

155544

155544

202397

199659

196922

210768

180499

-35300

-35300

-35300

-35300

-35300

-35300

-35300

-35300

-35300

-35300

-35300

-35300

Other fixed
cost
Mortgage
interest
signup fee

-25000

-25000

-25000

-25000

-25000

-25000

-25000

-25000

-25000

-25000

-25000

-25000

-16850

-16850

-16850

-16850

-16850

-16850

-16850

-16850

-16850

-16850

-16850

-16850

Royalities

-1801.6

-2729.6

-4124.8

-2963.2

-3948.8

-3891.2

-3833.6

-4124.8

-3488

-900.8

-1364.8

-1481.6

-1481.6

-1974.4

-1945.6

-1916.8

-2062.4

-1744

payment

-2371.2

-3590.4

4067.2
2033.6
5347.2

-2963.2

Marketing

4067.2
2033.6
5347.2

-3897.6

-3897.6

-5193.6

-5116.8

-5040

-5424

-4588.8

Investment

-24000

Feller
training
Deprication

-3000

Profit and
loss account

-12000

-2062.4
-5424

-10000

-10000

-10000

-10000

-10000

-10000

-10000

-10000

-10000

-10000

-10000

-10000

-30903.6

49600.
2

109433

112006.8

109433

60051.
6

60051.6

104130.
2

101555.4

98981.
6

112006.8

83528.2

Looking at the forecast table by using the brand name we can analyze, And see that, in the initial
month the hotel is making losses because of high investment, but from the very next month onwards,
it has started making stable profits and doing good business in the holiday seasons also. Number of
customers, has increased tremendously, which has helped in generating high profits.
So, it is quite clear that for Irene, it is better if she will go with the Choice hotel brand to rejuvenate its
brand.
Submitted by
Aakash Sharma
Roll no. 402