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1、CASE 15ROYAL DINING MEMBERSHIP PROGRAM DILEMMAOVERVIEWThe Royal Dining membership program is highly popular with diners and generates significant revenues. However, it might be displacing regular, full-price paying customers and could have a negative effect on the painstakingly built and maintained
2、high-end luxury image of the Hong Kong Grand Hotel. In addition, quite a few managers and waiting staff expressed unhappiness with the program, the conflicts it creates with diners and the type of customers it attracts.TEACHING OBJECTIVES1. To understand the perspectives of the different managers in
3、 the case2. To consider the consequences of mixing a discount program with The Hong Kong Grands luxury image.3. To study whether negative comments from internal staff about a discount program are founded or if staff training is required instead4. To consider using different rules or discount program
4、 for different periods (economic downturn, peak vs non-peak)STUDY QUESTIONS1. In Erica Lius shoes, what would you present to the executive committee?2. As Erica Liu, what analyses would you run to assess the financial performance of the RD Membership Program?3. What effect does the RD membership pro
5、gram have on the brand and value perception of its local customers in Hong Kong and its full-paying hotel guests and diners? How could the hotel address these issues?4. Review the rules set for the RD program. How would you go about setting rules for the program that protected the hotel against abus
6、e, but does not make RD members feel that the program is unnecessarily restrictive and difficult to use?5. How could negative server attitudes toward RD customers be handled? 2012 by Sheryl E. Kimes, Rohit Verma, Christopher W. Hart, and Jochen WirtzSheryl E. Kimes, Rohit Verma and Christopher Hart
7、are with the Cornell University School of Hotel Management, and Jochen Wirtz is with the National University of Singapore. The names of the hotel, restaurants and membership program have been disguised.ANALYSISImpact on Brand ImageWhile the RD program is financially successful, the impact of a disco
8、unt program on the brand image of the Hong Kong Grand must be considered. A discount program does not necessarily go along with the image of a luxury hotel.Students may raise issues such as the presence of discount-seeking local guests in the same restaurant as full-paying regular guests and the imp
9、act that this might have on the attitudes of the latter. They may also be concerned about the impact on customer service.The main issue is whether a luxury brand such as the Hong Kong Grand should be associated with a discount program, and whether such a program detracts from the brands reputation.
10、There may be ways to reposition the program as more of a loyalty or rewards program (similar to a frequent flyer or guest program) or make the program more prestigious, perhaps by charging a higher fee or providing RD membership to only the very highest level credit card holders.The financial impact
11、 of any such repositioning would have to be considered. For example, if the program was reinstituted as more of a traditional loyalty program, the lost membership fee revenue would be $2.79 million. Or, if the program was made more prestigious, the number of members would drop and the amount spent i
12、n the restaurants would probably also decrease. Another way to reposition the RD program might be to associate it with other high prestige brands. The Hong Kong Grand has done this to an extent with their association with the credit card company, but there may be other credit card companies that mig
13、ht be seen as even more prestigious. An interesting question to pose would be whether Erica Liu should consider another less prestigious credit card company that is offering The Hong Kong Grand $500/member rather than the current $275/member.The image issue is a red herring. Students knee-jerk respo
14、nse likely will be that the problem is a serious one. Thoughtful analysis will make them realize, though, that the only restaurant that has much RD business is Kabuki, and that the image problem is mainly in the minds of the hotels employees. Incidents are few and far between and ordinarily can be h
15、andled discreetly by restaurant personnel.4. Review the rules set for the RD program. How would you go about setting rules for the program that protected the hotel against abuse, but does not make RD members feel that the program is unnecessarily restrictive and difficult to use?Refer to Exhibit 2 i
16、n the case study for the rules of the RD program.Brainstorm a list of problems that occur with RD customers with regards to the rules of the RD program. Then ask how might the problems be handled. Students will quickly realize that problems involving RD rules should be prevented, not handled by serv
17、ers in the restaurants. As a result of the confusing rules, servers can be put in very awkward positions and the situations must surely be as equally embarrassing for an overwhelming majority of customers.Consider how many customers would try to use two memberships at one table? Some customers will
18、say that they might try if they did not know the rules, but that if the rules were explained in a way that did not make them feel like cheapskates, they would never do so. This raises the question of how and when to inform RD guests about the rules. The answer “at the table” is too late.Some student
19、s will observe that the credit-card companys customers who did not pay fbr their memberships would be more likely to try to stretch the rules and make a scene than customers who have paid quite a bit for their memberships because they do not have the relationship that one might presume exists betwee
20、n the hotel and customers who bought their memberships directly from it.In addition, direct-purchase customers may have already received a much better explanation of the rules when they first became members. Pursuing this line of reasoning, students could be pushed to think about the option of dropp
21、ing the credit card company affiliation and the revenue associated with these customers. They contribute far less profit from their membership fees.The flipside is that sales volume from meals purchased by credit-card company customers is much greater. It can be recommended that The Hong Kong Grands
22、 direct-marketing efforts be stepped up to generate more memberships - and that the credit-card companys customers be dropped. Looking into the future - a prosperous one - the original need for the incremental revenue and profit generated by RD may diminish over time.In addition, there need not be a
23、ll that many rules. The ones described in the case study are the only ones needed. Other rules get put in place through the age-old process of a problem occurring and then responding with, “We cant have that! Weve got to make a rule. The resulting list turns off customers and servers and, most impor
24、tant, the situations where outlier events happen are few.In contrast, restaurant personnel can handle these situations through empowerment and basic training. They need re-training anyway, as so many of them have soured on the RD program. When one situation occurs, word spreads immediately throughou
25、t the restaurants, and another layer of negativity is layered on RD.Currently there are very few restrictions on when the RD card can be used. Consider if additional restrictions on time of usage should be imposed. For example, Kabuki gets over 60% of its business from RD members. It is possible tha
26、t they may be displacing full-paying guests during busy periods and it might be beneficial to restrict RD members during busy periods (i.e., weekend nights or during peak hours). Also, consider differentiated discounts offered at different times. For example, larger discount could be offered during
27、slow periods and smaller discounts during busy periods to possibly help smooth demand. Another possible suggestion is to limit the number of RD reservations per night. However, with every rule change, consider how would RD members?5. How could negative server attitudes toward RD customers be handled
28、?Servers would tend to be highly critical of RD because of reduced tips from discounted checks assuming that servers in Hong Kong are tipped. Negative server attitudes are very much at odds with the luxury ambiance management tries hard to create in this upscale hotel and its restaurants a “masked c
29、ost of the RD program. Students will say that servers regard RD members as 2nd-class citizens. The servers almost certainly dont share managements perspective of RD members as major contributors to gross profit margin. Interestingly, the overwhelming percentage of RD members probably are ideal custo
30、mers in terms of their behavior. It only takes a few cheapskates and people who try to circumvent the rules to create negative stories that servers love to tell each other.Operational IssuesLine staff and managers having a negative view of the program is a classic operations/marketing dilemma in tha
31、t while the program is financially successful, the operations people are charged with delivering the service without sharing in the financial benefits.It also seems that a number of the staff view RD members in a somewhat negative way and view them as different from regular customers. Management can
32、 do the following to change this perception:(a) show staff members the financial benefits of the RD program,(b) simplify the rules and make them easier to explain (alternatively, the students might suggest that Erica Liu clarify the rules in the membership material), and(c) allow the staff members t
33、o receive a small % of the incremental revenue generated by RD members.One of the key issues is that since staff never see or share in the financial benefits (in fact, assuming that there are tips in Hong Kong, their tips might be negatively affected since some customers may give them a lower tip si
34、nce their bills are 35% lower), they are unlikely to ever view the program positively. If they can share in the financial benefits, they are likely to have a more positive attitude.TEACHING SUGGESTIONSThis case has been successful used in a class on loyalty/membership programs, but could also be use
35、d in a class on revenue management.Four characters are presented in this case. Each has a different opinion about the program and is affected by the program in a different way. Erica Liu, the program manager, is of course interested in continuing the RD program, since without the RD program; her job
36、 would be in jeopardy! Jerome Tan, VP of Operations, is more concerned with the operational aspects of the program. He hears complaints from the staff on a regular basis. His bias would be to drop the program. Susan Li, VP of Finance, is mostly concerned with the programs financial impact and would
37、like to expand it! Carmen Teo, VP of Marketing, is concerned with the impact the RD program has on the hotels brand image. She is concerned, but is neither a fan nor a serious detractor. Understanding the case characters will enrich the class discussion by helping students to understand different fu
38、nctional managers views and biases.CONCLUDING COMMENTSThis case provides an interesting example of the trade-offs between a membership program brand image, employee satisfaction and revenue management. The Royal Dining (RD) membership program is financially successful, but might be causing displacem
39、ent of regular, full-paying customers and could have a negative effect on the carefully built and maintained luxury image of the Hong Kong Grand.1. Tn Erica Lius shoes, what would you present to the executive committee?Consider these two perspectives: on one hand, Erica Liu wants to present RD in th
40、e best possible light as it is her baby. On the other hand, the executive committee members will be quick to question her logic, assumptions, analysis and recommendations. She needs to be a businessperson first, and a RD advocate second; at least, if she wants to build her credibility and advancemen
41、t potential.The RD program was developed as a response to an economic downturn to increase the hotel revenue and boost restaurant sales. The annual RD membership fees provided a steady source of revenue and the incremental revenue from RD members meals contributed strongly to the hotels bottom line.
42、 Within the first year of introducing the RD Membership Program, more than 1,000 memberships were sold and the hotels restaurant revenue increased sharply from the added sales. By 2015, the program had a total of 4,200 members. Despite this, Erica Liu needs to acknowledge in her presentation to the
43、executive committee that customers have found loopholes in the membership program to obtain discounts and haggle with the staff, which is counterproductive for the hotePs overall image and profits in the long term.Ask the class to list the managers and their positions on the board. Then, for each ma
44、nager, ask, “What lenses do you use to see this situation and everything in general?” This exercise will provide a rich context for the case and put all students on a similar basis for the discussion. It will also keep the students from getting into the quantitative analysis right away. It is an esp
45、ecially good approach in executive-education programs, where participants often will not read and analyze the case as thoroughly as their degree-program counterparts. In short, having students get into the shoes of the different case characters will get the discussion off to a rousing start.2. As Er
46、ica Liu, what analyses would you run to assess the Hnancial performance of the RD Membership Program?Financial AnalysisThe RD program was developed as a response to an economic downturn and was designed to increase revenue for the hotel and help deal with a serious problem in restaurant sales. The a
47、nnual RD membership fees provided a steady source of revenue for the hotel and the incremental revenue from RD members meals contributed strongly to the hotels bottom line.The RD program is essentially a loyalty program in which members receive discounted prices in exchange for their memberships. It
48、 is different from traditional hotel and airline loyalty programs in which members receive redeemable points. It is more of a season-pass-type program where pass-holders receive lower prices in exchange for annual memberships. Like season passes, the RD membership fees provide a steady source of rev
49、enue for the hotel, as does members usage of the restaurants.Membership RevenueAnnual membership fees provide: (78*$1588) + (641 *$2588) + (3214*$275) + (310*$400)= $2,790,622.Incremental Revenue:The percentage of revenue provided by the RD program varies by restaurant. In 2007, the RD program provided $37.1 million of the $112.3 million in restaurant revenue. Of the $37.1 million, $24.7 million came from RD members; $12.45 million came fro