2 Ramon Silva is a Spanish property developer, who has made a considerable fortune from the increasing numbers of
Europeans looking to buy new homes and apartments in the coastal regions of Mediterranean Spain. His frequent
contact with property buyers has made him aware of their need for low cost hotel accommodation during the lengthy
period between finding a property to buy and when they actually move into their new home. These would-be property
owners are looking for inexpensive hotels in the same locations as tourists looking for cheap holiday accommodation.
Closer investigation of the market for inexpensive or budget hotel accommodation has convinced Ramon of the
opportunity to offer something really different to his potential customers. He has the advantage of having no
preconceived idea of what his chain of hotels might look like. The overall picture for the budget hotel industry is not
encouraging with the industry suffering from low growth and consequent overcapacity. There are two distinct market
segments in the budget hotel industry; firstly, no-star and one-star hotels, whose average price per room is between
30 and 45 euros. Customers are simply attracted by the low price. The second segment is the service provided by
two-star hotels with an average price of 100 euros a night. These more expensive hotels attract customers by offering
a better sleeping environment than the no-star and one-star hotels. Customers therefore have to choose between low
prices and getting a poor night’s sleep owing to noise and inferior beds or paying more for an untroubled night’s sleep.
Ramon quickly deduced that a hotel chain that can offer a better price/quality combination could be a winner.
The two-star hotels typically offer a full range of services including restaurants, bars and lounges, all of which are
costly to operate. The low price budget hotels offer simple overnight accommodation with cheaply furnished rooms
and staffed by part-time receptionists. Ramon is convinced that considerable cost savings are available through better
room design, construction and furniture and a more effective use of hotel staff. He feels that through offering hotel
franchises under the ‘La Familia Amable’ (‘The Friendly Family’) group name, he could recruit husband and wife teams
to own and operate them. The couples, with suitable training, could offer most of the services provided in a two-star
hotel, and create a friendly, family atmosphere – hence the company name. He is sure he can offer the customer twostar
hotel value at budget prices. He is confident that the value-for-money option he offers would need little marketing
promotion to launch it and achieve rapid growth.
Required:
(a) Provide Ramon with a brief report, using strategic models where appropriate, showing where his proposed
hotel service can add value to the customer’s experience. (12 marks)
