THE CRAIGDARROCH INN

Transcription

THE CRAIGDARROCH INN
-Gaining competitive advantage-
Final Thesis
by Alexandra Birladeanu, soki0913
submitted to the Department of Service Hospitality and Tourism Management in
accordance with the requirements for the Academy Profession degree
under supervision of: Pernille Nøhr Verwohlt
No. of characters: 99,698
Signature:
May
2015
1
Table of Contents
1.
Introduction .......................................................................................................................................... 4
2.
Limitations............................................................................................................................................. 6
3.
Methodology......................................................................................................................................... 7
3.1
Data Collection .............................................................................................................................. 7
3.2
Theoretical Framework ................................................................................................................. 9
4.
Introduction to Strategic Management .............................................................................................. 12
5.
Mission, Vision and Goals ................................................................................................................... 14
6.
Internal Analysis – The Service Management System Model ............................................................. 15
1.
The market segment ....................................................................................................................... 15
2.
The Image........................................................................................................................................ 16
3.
The Service Delivery System ........................................................................................................... 16
4.
The service concept ........................................................................................................................ 18
5.
Culture and Philosophy ................................................................................................................... 21
7.
External Analysis ................................................................................................................................. 23
1.
Porter’s Five Forces That Shape Strategy ....................................................................................... 23
1.
Threat of new entrants ............................................................................................................... 24
2.
The bargaining power of buyers ................................................................................................. 25
3.
The bargaining power of suppliers ............................................................................................. 27
4.
The threat of substitute products and services .......................................................................... 28
5.
Rivalry among existing competitors............................................................................................ 29
6.
Conclusion ................................................................................................................................... 30
2.
3.
PEST Analysis ................................................................................................................................... 31
1.
Political/legal environment ......................................................................................................... 31
2.
Economic environment ............................................................................................................... 32
3.
Social environment ..................................................................................................................... 33
4.
Technological environment ........................................................................................................ 34
5.
Conclusion ................................................................................................................................... 34
Customer behaviour and market trends......................................................................................... 35
2
3.1 General Trends .............................................................................................................................. 35
3.2 GB Tourism .................................................................................................................................... 36
3.3 Visitor Experience ......................................................................................................................... 36
3.4 Food and Drink preferences.......................................................................................................... 37
3.5 Conclusion ..................................................................................................................................... 37
8.
Solutions.............................................................................................................................................. 38
9.
Conclusion ........................................................................................................................................... 44
10.
Bibliography .................................................................................................................................... 45
11.
Appendix ......................................................................................................................................... 47
1.
Swot Analysis .................................................................................................................................. 47
1.
Strengths ..................................................................................................................................... 47
2.
Weaknesses ................................................................................................................................ 48
3.
Opportunities .............................................................................................................................. 48
4.
Threats ........................................................................................................................................ 48
2.
Interview with Elinor Donnelly (May 2015) .................................................................................... 50
3.
Interview with Elinor Donnelly (August 2014) ................................................................................ 52
3
1. Introduction
The tourism industry and implicitly the hospitality industry are service providing industries, where
services such as accommodation, transportation and foods and beverages for immediate consumption
are delivered to customers. Compared to products, services have special characteristics that require a
differentiated marketing from that of products (Bateson & Hoffman, 2011)
In order to find out how services differentiate from products, it is needed to give an accurate definition
of what services actually are and what makes them special. On this matter, there are several
interpretations of what services are in essence. They are considered to be “activities, deeds or processes
and interactions”, or a component of a more complex concept of product (which is formed from some
tangible item and other intangible items that together are compiled in the final result delivered to the
customer) or “a process or performance rather than a thing” (Edvardsson, Gustafsson, & Roos, 2005).
Reading through these definitions and thinking further of what services are in essence, it pops out that
the most eminent characteristic of services is intangibility, which distinguishes services from goods and
serves as point of departure from which the other three characteristics emerge: inseparability,
heterogeneity and perishability (Bateson & Hoffman, 2011).
Therefore, in simple words, services cannot be touched or seen, as they are performances or activities;
they are consumed in the same time they are produced, as the buyer plays a major part in the
production of services (without a customer to use it, a service does not exist, it cannot be produced nor
delivered); services cannot be stored, reason for which they need to be consumed or used at the
moment of its production and they are different from one purchase to another, as they are created by
people thus variability is inbuilt during each production (Bateson & Hoffman, 2011).
Talking about the hospitality industry and services it provides, hotels represent a big sector in this trade
and are a perfect example of how services differ themselves from products and how they require
different marketing and selling strategies in order to keep businesses profitable.
Hotels’ core products are nights spent in their rooms, and eventually meals within the facility. Having
that said, the perishability of services brings a few challenges for hoteliers, because they have to support
the costs of their facilities even when they do not sell their services (the rooms). In consequence, they
always support the fixed costs of their services without necessarily always generating revenue in
exchange for their expenses.
These fixed costs cover both the costs for the facilities that sometimes stay unused, therefore not
generating profit, but also the cost of staff. Employees have to be paid whether they have or not
customers to serve or to accommodate during working hours, which is a problem for business owners.
They do not confront only with wasting unsold rooms but also with wasting paid human labour.
For these reasons, in service industry managers should pay attention to the demand they have on the
market and to possible seasonality issues they confront, in order to develop or redesign their services
aiming to increase productiveness and to use to higher capacity the resources they have: human
workforce, time, location.
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The Craigdarroch Inn is a small hotel business sitting on the banks of Loch Ness, run by a young couple
with experience in hospitality industry. The hotel has 8 double rooms to host guests and a nice local pub
serving food and beverages to both residents and non-residents at the hotel. Besides the two owners, in
the hotel work two full-time employees and as well two part timers. The hotel also hosts almost all year
around interns, students coming to gain practical skills in the hospitality industry. They mostly come
from spring to autumn for at least one month of practical learning.
From what regards their competition, the neighbouring area hosts another 4 accommodation facilities.
The Craigdarroch faces tight competition when considering the fact that Foyers is a small village with
population of around 300 people. Also, seasonality adds up to this challenge, giving owners a struggle
when it comes to filling empty rooms or restaurant seats and generating revenue in order to keep the
business running.
The problem uprising here is, besides seasonality, the lack of balance between work load employees
have to do during high season and low season, and as well the managing of interns: despite the fact that
they are there with the sole purpose of learning, they represent valuable human resources for the
business through which owners could generate profit at no significant costs. The same applies to
employees and generally to the facilities they could make use of.
However, strategic management aided by thorough knowledge and information on what assets and
resources they have on their disposal could help the owners produce and deliver more revenuegenerating services that would overcompensate losses caused by seasonality or simply by the nature of
services that cannot be sold at anytime in any condition, but only at the time of their existence and in
the presence of customers.
This leads the research topic to how the owners could come up with better strategies for exploiting the
resources they have, in order to decrease costs or increase profit in low periods and keep a
balanced/constant income. In order to achieve this objective, the aim is to redesign their services in
order to increase demand when normally it is low, by analyzing the market trends and providing
customers with the benefits they are looking for and cannot find in competitors’ offering, hence
approaching a differentiation strategy. As a result, the following research question has been generated,
followed by several guiding subquestions:
With which strategies can the Craigdarroch Inn achieve competitive advantage
and become more profitable?
1.
2.
3.
How can their resources be used for designing other services?
What marketing and sales strategy would ameliorate the consequences of seasonality?
How can the owners manage the HR at the inn in order to improve profitability?
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2. Limitations
Conducting this research, several impediments limited the research process. As consequence, data
might be missing or not be up to date. In order to display a critical view over the project report, the
existent limitations will be presented objectively.
Firstly, the long distance between researcher and the company made communication problematic, as it
limited means of communication between managers or employees and student. As a consequence,
some data might be missing.
Moreover, managers’ unavailability of providing some financial statements made this part of the
analysis harder, as assumptions had to be made about various parameters.
Next, in the analysis content, some of the secondary data might be old or out of date. This is because
desk research was limited to books available at the library or online articles and reports. Financial
limitations of the researcher made impossible more intensive field research or access to updated
information and Scottish research papers, as many are unavailable for free or require special access.
Moreover, when talking about competitors, the researcher limited to only local businesses in the vicinity
of The Craigdarroch Inn, firstly because they featured more or less the same services as The
Craigdarroch, and secondly because with more competitors to consider, data could have been less
reliable and lead to loosing focus.
Finally, data gathered from interviews can be doubted as not 100% reliable, since the answers reflect
the subjective opinion of the managers, who might see the business as they want it to be, and as
consequence disregard some real problems.
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3. Methodology
The methodological chapter of the project is aimed to vigorously present the content of the report, the
data that has been used and the method applied to help reaching a viable solution that would answer to
the research question. Therefore here will be explained the models and theories used and the type of
data collected, as well as the research method used to analyze the data, all with the aim of helping the
reader easily understand the flow of the analysis and its purpose.
Talking about the research philosophy adopted in this project report, that is interpretivism. This fact is
motivated firstly by the idea that the research topic belongs to social science subject, which is more
people oriented. Moreover, most of the data is compiled and transformed into useful information
through researcher’s interpretation of facts and ideas gathered, filtered through her own knowledge
and set of meanings. (Saunders, Lewis, & Thornhill, 2009) Next, from what regards the approach to the
subject, this has been deductive. In essence, a deductive research means that the researcher uses
different theories in relation to the subject, with the aim of establishing a final hypothesis. (Saunders,
Lewis, & Thornhill, 2009)
3.1
Data Collection
Data collection is the process of searching, finding and measuring information in such a fashion that
facilitates the researcher to come up with feasible answers for the stated research question. The data
collected needs to be precise and from trustworthy sources in order to keep the reliability of the report.
( Northern Illinois University, 2005)
It is important to make the distinction between two principal types of data: primary data, collected
directly by the researcher aiming to answer for the specific research question, and secondary data which
is information previously collected and analyzed by other researchers and for other purposes. (Ghauri &
Gronhaug, 2005)
Primary data is information collected for the sole purpose of solving the problem at hand for a particular
case, especially when secondary data are unavailable or unable to help answering the research question.
Primary data can be collected through a varied array of methods, mainly through experiment,
observations or communication.
Figure 1.1 Sources of primary data (Ghauri & Gronhaug, 2005)
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Normally, primary data is used due to some major advantages, such as the fact that it is entirely focused
on the problem at hand, being of great use for this research objective. It gives information about the
specific problem bringing thus accuracy into the analysis. Also, it provides information from past events
or experiences as well as about other people’s opinions and expriences with regard to the topic, which is
not possible to aquire through secondary data. (Ghauri & Gronhaug, 2005)
In the present project primary data was gathred through interviews designed for the managers, which
were developed in order to gather more information about the current situation of the company. This
data is meant to be used while assesing both the internal and external situation of the company, as it
helps to diminish the amount of subjectivity that comes from researcher’s personal observations.
The two questionnaires that stand as basis of the report were taken with the manager of the inn, Elinor
Donnelly, during the internship placement in August-Octomber 2015, and as well during the project
writing, in May 2015. The first interview that took place during the internship was carried as an
unstructured interview aimed to give insight about the current status of the business, the external
competitive market, owners’ vision and future goals, and the customers targeted. At first, several
questions were designed with the purpose of creating an agenda for the discussion, but then, according
to manager’s answers, other questions were formulate on spot in order to get better insight on specific
matters. The second questionnaire was structured and consisting of 11 questions which were
formulated on various topics (services, competition, strategy, mission and vision), but with the purpose
of finding answers or indications on how the research question could be adressed. Both interviews
resulted qualitative data to be analyzed in the project report.
When it comes to secondary data, it is collected mainly through desk research and it is usually preferred
by many researchers as it saves time and money, it helps to understand the research problem from a
holistic perspective, while it also facilitates international research. Secondary data also comes at help
when analysing the results gained from collecting primary data. Here theories and models have to be
mentioned, as they represent the framework according to which primary data is decrypted/analyzed.
(Ghauri & Gronhaug, 2005)
From what regards its provenience, secondary data can come from internal sources (such as invoices,
brochures and catalogues, internal reports) or external sources, which further are separated into two
categories: published (books and articles, statistics, research reports) and commercial (panel researchm
monitors, in-shop research and reports). (Ghauri & Gronhaug, 2005)
Figure 1.2 Types of Secondary Data (Ghauri & Gronhaug, 2005)
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Narrowing down to the present project, secondary data plays a major part in it as its content and
analyses are based on theories and models found in published sources such as books and articles, and as
well other research reports. Moreover, when it comes to the external analysis many industry and
general statistics have been used in order to study the external market environment.
Besides the primary and secondary data collection, the project features also empirical data, which has
been gatheret through observations and experimentation. This took place during the internship
placement, time in which the researcher observed various phenomena and activities that took place
within the company and which describe the business. Empirical knowledge of the researcher has been
used in this project in the internal analysis of the company, when describing the service management
system and when doing approximations regarding variables such as sales, occupancy and prices.
3.2
Theoretical Framework
The theoretical framework of a research report is an explanatory section where the author describes
and clarifies the main things to be studied (the key factors, constructs or variables) and the possible
relations between them. It encompasses together the system of concepts, assumptions, expectations,
beliefs and theories that support the research. (Miles & Huberman, 1994)
Having in mind the fact that the purpose of the project is to help in developing various strategies which
would help the Craigdarroch Inn gain competitive advantage, the theories used are built upon the
strategic management framework. (Okumus, Altinay, & Prakash, 2010) Therefore, taking a look at the
figure below, it points out the exact steps of analysis and solution finding that lead to strategic
management.
Figure 2.1 “The strategic management framework” (Okumus, Altinay, & Prakash, 2010)
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Firstly, the report will begin with an assessment of the company’s mission and vision statements, to
which will be added possible future goals and objectives the owners would like to accomplish. The
conclusions from this chapter will be helpful when developing the new strategies, as they will act as
parameters setting the direction towards which the business wants to develop to by keeping focus on
some purposeful core principles and objectives.
Secondly, the internal environment of the business will be assessed. The Service Management System
model will help in identifying the fundamental elements of services delivered by The Craigdarroch Inn by
breaking the service system into five components: the service concept, the market segment, the image,
the delivery system and the culture and philosophy. This holistic approach in analyzing a business will
help in separating all the elements that determine the benefits customers buy and for the future it will
help in efficient redesigning and recreating them. (Normann, 2002)
Moreover, when it comes to the service concept within the Service Management System model, the
Augmented Service Offering Model will be of great use in differentiating between the core product
customers buy and other benefits they receive together with it. (Kotler, Bowen, & Maskens, 2010) The
Augmented Service Offering Model has the advantage of showing what services the Craigdarroch Inn is
providing and further how they create value through them and what other ways there are to properly
use their resources in order to increase their worth.
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Thirdly, the external analysis will be assembled of the assessments of the micro- and macroenvironments of the business, through some different tools:
1. Porter’s Five Forces that Shape Strategy will be used as a framework for assessing the
competitiveness of various markets by measuring the weight/power of five different sources of
competition: new entrants, suppliers, substitute products or services, buyers and existing
competitors. Understanding these forces and their fundamental causes helps not only in finding
profitable sources in an industry, but also in developing strategies for anticipating and prevailing
over possible threats. (Porter, 1947)
2. Next, PEST analysis will be conducted for describing the macro-environment influencing the
business from four different perspectives: Political/Legal, Economic, Social, Technological. These
factors are in tight connection to the business and its stakeholders (customers, competitors,
suppliers, employees, etc.). (Okumus, Altinay, & Prakash, 2010) This structure of analysis has as
objective determining key factors that have impact on the business, thus taking it one step
closer to developing a successful strategy for becoming more competitive and profitable.
3. Finally through analyzing customer’s behavior and various trends in the Scottish tourism,
valuable information regarding customer’s preferences and the market demand will come in
help give guidance when rethinking the business’ strategy.
Bringing together the internal and the external analysis, the conclusions gathered will be put together
into a SWOT analysis. Here, the strengths, weaknesses, opportunities and threats will be assessed based
on the information provided by the tools and theories used in the previous chapters. The outcome of
this is helping to identify and explore strategic advantages of which the company can take advantage of.
To be noted that the SWOT analysis was put in the Appendix chapter, due to limited space.
Further in the Solutions chapter of the report, several frameworks were used with the purpose of
helping the researcher in strategically developing the solutions. Firstly, the Ansoff Matrix (Ansoff, 1957)
was used to assess the best strategy to grow its business and implicitly gain competitive advantage.
Furthermore, when describing the solutions and strategies, marketing mix was used to show what and
how different changes would take place according to different levels controlled by the organization
(price, place, promotion, product). Moreover, because the company is a service organization, another
three elements are brought to discussion: people, physical aspects, process. This is because services are
substantially different from tangible products and they require additional parameters when being
assessed. (Bateson & Hoffman, Services Marketing, 2011)
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4. Introduction to Strategic Management
By definition “strategy is the direction and scope of an organization over the long term, which achieves
advantage in a changing environment through its configuration of resources and competences with the
aim of fulfilling stakeholder’s expectation.” (Johnson, Scholes, & Whittington, 2008) Thus, strategy
allows organizations to match its resourced and capabilities to the demand from the external
environment, with the sole purpose of gaining competitive advantage. (Henry, 2008) Another way to
view strategy is that “competitive strategy is about being different. It means deliberately choosing a
different set of activities to deliver a unique mix of value” (Porter, 1996) This also shows that strategic
management goes hand in hand with market differentiation and it is a holistic approach to researching
all activities that lead to competitive advantage.
However, with the development of the economic world strategic management became a field of study
that helps companies define their mission, vision, goals and objective with the purpose of crafting
strategies at different levels of the organization’s hierarchies, in order to create sustainable competitive
advantage. (Okumus, Altinay, & Prakash, Strategic Management for Hospitality and Tourism, 2010)
It is important to stress over the fact that when using strategic management, and creating competitive
advantage, is important that organizations sustain it over time and reinforce it continuously through
their services and activities. For that reason, when thinking about strategy formation and
implementation firms should be prepared for a long-term process in order to gain and keep competitive
edge over its rivals. Investing money and time in a strategy is pointless when it is not sustained to
provide results on the long term. (Okumus, Altinay, & Prakash, Strategic Management for Hospitality
and Tourism, 2010)
Hospitality and tourism organizations have a great deal to win from applying strategic management. It
helps in creating a link between the internal and external environments of the company by giving a clear
image of the ever changing external environment and identifying and investing key resources that would
satisfy the market demand. Moreover it helps in defining realistic and measurable goals and objective
the firm should follow and invest in.
The strategic management framework illustrates the steps to be pursued in order to form and
implement strategy. By assessing the internal and external environment of the company, a strategic
analysis is developed that summarizes the findings and points out current and future strong and weak
points of the organization. In order to formulate the strategy, these characteristics are oriented towards
the mission, goals and objectives that the firm has set.
Another important characteristic of strategic management is that strategy is implemented on three
different levels:

Corporate level, which deals to the industry where the company wants to operate and gain
competitive advantage. Strategies might involve development and expansion in new lines of
business, therefore allocating the resources and capabilities the company already has in order
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

to gain competitive advantage. (Okumus, Altinay, & Prakash, Strategic Management for
Hospitality and Tourism, 2010)
Business level, where competitive strategies are developed, deals with the way firms choose to
compete and achieve competitive advantage ahead of its market rivals. Business strategies,
compared to corporate strategies, are developed at strategic business unit, while the others
involve an entire organization (here examples are franchises, chains, multinational companies).
(Henry, 2008)
Functional level, where changes are applied within the organization’s departments, on support
functions such as R&D, marketing, finance, administration etc. (Henry, 2008) Also, here
businesses are engaged in sustainable innovation aimed to ensure the quality of services and
products, as well as high customers satisfaction. (Okumus, Altinay, & Prakash, Strategic
Management for Hospitality and Tourism, 2010)
After strategy formation on the three levels according to the internal and external environment analysis,
strategy follows to be implemented, an activity that requires a great amount of processes to be run.
These include setting budgets, hiring and training, developing support systems, as well as creating
evaluation framework to measure the level of efficiency.
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5. Mission, Vision and Goals
Strategy is developed by organizations in order to achieve competitive advantage in front of the market
competitors. However, for successful strategies organizations need to match their strategic goals with
the firm’s purpose on the market, reason for existing( “raison d'être”). The bridge between them two is
represented by the mission and vision statements of the organization, along with its objectives and
goals. (Henry, 2008)
Therefore it is imperative to have knowledge about the company’s set of values before developing and
implementing competitive strategies.
A vision statement is the future desired state the company wants to reach. It describes the company in
the long run, with emphasis on the future. It does not illustrate who the firm is and what they are doing
now, but what they plan to achieve. The vision statement should inspire and stimulate employees.
(Hollensen, 2010) For The Craigdarroch Inn, the manager suggests that their vision is to not be
restrictive in what they offer, meaning that they will look to accommodate as many of customers’
wishes as possible and make them feel as welcomed as possible. (Donnelly, 2015)
Through its mission statement, companies communicate to stakeholders the purpose of the company,
who they are and what they do. (Hollensen, 2010) At The Craigdarroch Inn, the business’ mission is “to
provide food, drink and accommodation to resident and non-resident guests in a stunning setting with
friendly service”. (Donnelly, 2015) In their mission statement, the owners put emphasis on the three
elements involved in the service delivery: customers (residents and non-residents), employees (friendly
service) and the benefits/services sold (food, drink and accommodation, stunning setting). By its
simplicity and without being too focused on particularities with regards to services or their customers,
The Craigdarroch Inn’s mission statement allows the development of various services and competitive
strategies.
Goals are specific achievements that the organization wants to reach in a definite period of time. There
can be short or long term goals, but usually not exceeding more than five years. The goals are what the
company wants to specifically accomplish by also respecting their mission and vision, thus sticking to
their core values. (Okumus, Altinay, & Prakash, Strategic Management for Hospitality and Tourism,
2010) For the inn, managers’ goal is to “develop the fine dining side of the business again”. (Donnelly,
2015) Therefore they want to stick to their mission by serving food and drink to customers, but
developing and upgrading this service, with the possible achievement of differentiating from market
rivals.
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6. Internal Analysis – The Service Management System Model
The internal analysis of a company is focused on the organization, on what it delivers to its customers
and how it does that. For this reason, the service management system comes in hand, by breaking
services into 5 core components, analyzed separately but all connected. By doing this, the model allows
to identify the cause of a problem or to successfully reproduce a service, by systematically replicating all
the elements. (Normann, 2002)
Figure 6.1: “The service management system” (Normann, 2002)
1. The market segment
This element of the SMS refers to the group of customers for which the company produces and delivers
the services. At The Craigdarroch Inn the managers are trying to cater for everybody, being much more
inclusive. Despite the fact that when they started running the business, they were trying to reach the
foodie market, represented by people who go away to have good food, good wine, fans of fine dining,
now the company has adopted a more casual style, by having a public bar and pub food, which people
with both high or low income can enjoy. (Donnelly, 2014)
However, there are a few particularities that position the inn’s customers within specific target groups.
Firstly, the inn accommodates children, which is not a common characteristic of other accommodation
facilities nearby. Next, competitive bar prices makes the pub a good gathering place for locals, who
come by to have a drink or a meal with family and friends. Furthermore, the 4 stars inn attracts families
and couples from the middle to upper class who put value on service quality and a good travel
experience.
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Moreover, given the managers’ wish to redevelop the fine dining, it can be said that there is a potential
to attract adults aged 25-54 with stable income, an administrative or managerial position, willing to pay
an extra price for quality and memorable experience. (Donnelly, Interview with Elinor Donnelly, 2015)
2. The Image
The image is considered an information tool used related to employees, customers, and other
stakeholders. The image is the perception about the company which managers want to send to the
exterior. It is influenced by the services and the customers who receive them. It is important to stress
over the fact that once an image is created or gained, it must continuously be reinforced by the
organization through its activities. (Normann, 2002)
At The Craigdarroch Inn, the owners want to promote the place as friendly and welcoming, where
people can relax in stunning countryside. (Donnelly, Interview with Elinor Donnelly, 2015) They want to
make all guests feel wanted and special, and meet every need they have, with no exception.
In order to support this perception of their business, the owners made the inn a kids and dog friendly
place, they have a public bar where visitors can mingle with the locals and live an original Scottish
experience, the prices are very competitive and for some products lower than competitors’, while a
diversified menu is available even for special requests such as vegetarians and kids. (Donnelly, The
Business at The Craigdarroch Inn, 2014) Moreover, the stunning views over Loch Ness and location in a
remote area but still close to local countryside life add up to the authenticity and general charm of the
place.
However, owner’s aim to develop the fine dining side of the business could bring a constraint to the
present image of the inn and interfere with the friendly countryside atmosphere, since fine dining would
require a more formal setting and general atmosphere.
3. The Service Delivery System
This element of the SMS model illustrates the physical activities and parties involved which take part to
the service delivery. These are the personnel, clients, technology and physical support. It mostly regards
the active side of the service system, where the two parts are physically involved in delivering and
receiving the product/service. It normally represents the production and distribution operations in
manufacturing companies. (Normann, 2002)
I.
Personnel
As services are people-intensive requiring a lot of employee-customer interaction and customer coproduction, employees within service organizations play a fundamental role, especially those involved in
front-office jobs, as their interaction with the clients plays a major role for evaluating customer
satisfaction.
At The Craigdarroch Inn all the processes are personnel-intensive, as they are the ones who produce the
goods and deliver the services. Front line employees are the full-time bartender, part-time assistants
along with the seasonal interns. Their duties include: check-in and check-out of guests, taking orders,
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bar tending, and generally interacting with guests or visitors. The back office employees are the chef and
the assistants, who deal with cooking, cleaning, housekeeping, preparing the bills. Therefore it can be
observed that there is no distinction between front and back office employees. The chef and bartender
have their specific tasks and run the two departments independently, however coordinating the same
employees, at different moments or even in the same time. Often, confusion is created among
employees and service can get delayed because of this type of internal organization. However in the
same time it allows to use a minimal number of employees working various independent tasks.
Moreover it has to be stressed the idea that employees at The Craigdarroch do not have any superior
education, as the majority are high school or college graduates. However, the two managers, Elinor and
Martin have training in fine-dining and wine serving, (Donnelly, The Business at The Craigdarroch Inn,
2014) therefore resourceful knowledge that can be applied into bringing value to services and
differentiating from competitors
II.
Client
In service systems, clients are co-producers of the service, of the benefits they buy. Without their
physical involvement it would be impossible for services to be delivered and consumed. Thus, for a
service to be satisfactory for the client, not only employees must be carefully recruited and trained to
deliver to customers’ expectations, but also clients must be selected and managed carefully by the
companies, in the idea that that specific targeted customer would be most likely to be happy with the
benefits received and would perform his role as co-producer in such manner he finds it fulfilling for his
particular needs. (Normann, 2002)
In that idea, market segmentation and targeting are proven to be important with the scope of attracting
customers whose needs are easily met by what the company is providing. A specific market segment
with specific needs is easy to satisfy when the organization knows their needs and preferences. As a
result, satisfied customers are likely to spend more and to return or recommend their friends, which
overall makes the inn more competitive and profitable among the rivals.
III.
Technology and Physical Support
Even though services are personality –intensive and their delivery and consumption require social
interaction between employees and clients, however, technology plays a great role in facilitating service
delivery by increasing speed, reducing human error and labour costs. (Normann, 2002)
At the Craigdarroch Inn, technology is involved firstly when it comes to the reservation system. The inn
uses multiple online distribution channels, as well as a few travel agencies. Therefore an electronic
system comes in hand for checking the availability of rooms, changing rates according to the season or
demand, as well as in increasing their visibility online, by being active on more websites and online
travel companies. (Donnelly, The Business at The Craigdarroch Inn, 2014) Next, an electronic system is
used for sending food orders from the bar to the kitchen. This way, the requests are sent instantly
saving time both for bartender who stores it in the system automatically as it is sent, for the waitress
who does not have to make a trip to the kitchen and back for every customer, and for clients whose
17
waiting time is shortened. Furthermore, surveillance cameras are installed in public areas, offering a
high degree of safety for customers and owners. The food is prepared beforehand, using a vacuumpacking system that allows storing already cooked dishes for a long period of time. When an order
arrives, the chef only has to heat it up and do the plating. This method not only saves time during
serving hours, but also prevents from food wasting, as it can be stored for longer time, keeping the
quality and flavor in the same time.
On the other hand, there are other time-consuming processes where technology is not involved,
therefore creating a bottleneck in the service delivery. For example, when checking-in customers they
have to manually fill in a form and offer their card for pre-authorization, being led to their room
afterwards, procedure which takes time and keeps the bartender busy, which is problematic during rush
hour, when there are many customers in the pub waiting for their order to be taken.
4. The service concept
The service concept represents the package of benefits that customers receive when purchasing
services. They can be both tangible and intangible products delivered as a whole. (Normann, 2002)
Moreover, these benefits become more and more valuable as besides the core product there are
offered other services and benefits, which are aimed either to add value or to facilitate the use of core
benefits. (Normann, 2002)
As services are most of the times complex and hard to analyze, the “Service Offering” Model (Gronroos,
1987) will help in assessing different products and benefits delivered, as well as customers’ cooperation. By focusing on the service package and designing an attractive offer, a company can gain
competitive advantage, asking for money for the most wanted benefits they can provide.
Figure 6.2: The Augmented Service Offering Model (Gronroos, 1987)
18
Since in the case of The Craigdarroch Inn there are two distinct core products being delivered (a meal in
the pub or a room/accommodation at the inn), two separate analyses will be carried for the inn and for
the pub with the aim of having precise data about two product packages.
The core Product
Facilitating products
Supporting products
The Pub
Food&Beverage products
Cutlery, menus, tableware,
Parking place, internet
connection, kids menu, natural
surroundings, touristic
attractions, flat-screen TV,
whisky bar
The Inn
Accomodation
Check-in and check-out facility,
breakfast, pub, phone,
Parking place, internet
connection, natural
surroundings, touristic
attractions, bathroom amenities,
hospitality tray, whisky bar
The core product is what the customer is really buying, it is the reason for which the company exists.
(Kotler, Bowen, & Makens, Marketing for hospitality and tourism, 2010) In the present case it can be a
meal (lunch or dinner) or a night’s accommodation.
Facilitating products are goods or services needed in the service delivery, essential for the customer to
help him use the core product. (Kotler, Bowen, & Makens, Marketing for hospitality and tourism, 2010)
While for the pub these services are certain tools such as tableware and menus, while for the inn they
are more advanced, such as the check-in and check-out facility, breakfast, public bar serving lunch and
dinner, phone in the room.
19
Supporting products are extra facilities not necessarily required by the core products, but which add
value to the core services and lead to differentiation from competitors. (Kotler, Bowen, & Makens,
Marketing for hospitality and tourism, 2010) The Craigdarroch Inn aims to differentiate itself from
competitors and to meet as many as possible of customer’s needs. They offer a parking place, internet
connection, natural and quiet surroundings hiding several touristic attractions. Moreover, in the pub
customers can watch football games on the flat screen TV or order dishes specially designed for kids,
while hotel guests can make use of the free bathroom amenities or the hospitality tray. Also, the place
has a special bar filled with various expensive whiskeys, both of local and international provenience. This
product used to be promoted on the inn’s website and other distribution channels, but unfortunately
the room has been transform into a storage room and guests cannot enjoy it anymore.
What is more, locally-sourced food and beverage products make a difference in the pub’s menu and add
up to the traditional and original Scottish settlement, introducing guests more profoundly into the rural
Scottish experience.
The augmented product includes accessibility, atmosphere, customer interaction with the service
organization, customer participation and customer’s interaction with each other.
When it comes to accessibility, this is not a strong point for the inn, as it is hard to reach, being situated
on top of a hill and connected to a tight one-way road. However, its location contributes to the
picturesque atmosphere, rustic and traditional, giving the place the charm of an authentic Scottish
house, with delicious home-made food, friendly people and good drinks.
The customer interaction with the service organization takes place in 3 different stages: joining,
consumption and detachment. In the joining stage the customer first makes contact with the service
organization, expressing his demands and expectations. At this stage, services and products should be
easily reachable by the service company, thus increasing accessibility. As a consequence, clients are
more likely to go to the next phase, the consumption phase, and not abandon the process. (Kotler,
Bowen, & Makens, Marketing for hospitality and tourism, 2010) At the Craigdarroch Inn the joining
stage takes place when customers first enter the pub to have a drink or a meal, or when they make an
inquiry via email or phone for a room. While bookings made via virtual communication channels do not
imply direct human interaction, guests who physically come to the Craigdarroch are easier to be
retained by employees. With this idea in mind, at the joining stage the employees can make customers
aware of the fact that there is more to explore and enjoy during their stay at the inn and persuade them
into buying other services and products, thus increasing overall revenue.
During the consumption stage, guests have their F&B products in the bar or enjoy the night in the inn. At
this point it is important that customers are aware of all benefits they can enjoy and they are in contact
with the delivery system, thus increasing their overall experience and satisfaction, which is the aim of
companies when delivering services. Also customer interaction with the employees must be reinforced,
in order for them to be aware of customers’ needs and then meet them at high standards. (Kotler,
Bowen, & Makens, Marketing for hospitality and tourism, 2010) For The Craigdarroch Inn, by its
denomination (an inn), services are expected to be more personal and tailored for guests’ needs, while
20
personnel is expected to be more informal but friendly and helpful. Moreover, at this point, the
consumption stage, guests are looking to experience the local life and generally a traditional Scottish
experience, therefore again it has to be mentioned how important constant collaboration between
employees, local people and guests is.
At the detachment phase customers leave the inn or the pub, after the consumption stage has ended.
(Kotler, Bowen, & Makens, Marketing for hospitality and tourism, 2010)This is the last chance for
organization to improve customer’s experience, by aiding them in offering direction, a packed lunch for
the road, helping with luggage and other services that are cost-free for the company but in exchange
not only increase customer satisfaction but also increases the perceived value of their services, which
together lead to competitive advantage and differentiation.
Next, customer interaction with other customers takes place during the consumption stage, and it
influences their overall experience. Normally, customers’ interaction with each other has a positive
effect, as normally clients of a company are part of the same market segment, therefore they have in
common a particular background, needs, lifestyle. (Kotler, Bowen, & Makens, Marketing for hospitality
and tourism, 2010) However this might show up as a problem when putting different customers in the
same room. Sometimes, guests at the inn who are looking for fine dining and high standard
accommodation might not find it pleasant to share a place in the bar with local people, from the middle
class, who are drinking together with their friends and watching a football game. Therefore, depending
on the customers, the managers need to find a way of separating the two, thus being able to serve both
types of customers and to create a pleasant experience no matter of their needs.
Finally, customer participation is a characteristic of services, as most often guests are co-producers and
they are involved in the delivery process. This takes place mostly when there are included self-service
technologies or when guests have to procure their own products/services. (Kotler, Bowen, & Makens,
Marketing for hospitality and tourism, 2010) At the Craigdarroch Inn customer participation is not
strongly enforced: during breakfast, lunch and dinner there is always table service, rooms are prepared
to the last detail for customers to be accommodated, check-in and check-out services are also
performed by employees.
5. Culture and Philosophy
The Culture and Philosophy covers the social principles that stand behind the service delivery, having
the long-term benefit of manipulating and reinforcing the company’s value. Moreover, this element of
the service system highly motivates and guides employees, who are able to take decisions by following
some simple principles that describe the company, and without management’s supervision. As a
consequence, their work is more efficient time-wise and even money-wise, while they respect the
organization’s objectives. (Kotler, Bowen, & Makens, Marketing for hospitality and tourism, 2010) At the
Craigdarroch the culture and philosophy are a little difficult to be reinforced, when taking into
consideration that personnel changes often (the seasonal interns) and even the part- time employees,
who are often performing more jobs, therefore are influences by different organizational cultures and
rules. However, the services at the Craigdarroch are aimed to satisfy every need customers have, in a
21
friendly manner, with emphasis on friendly interactions between guests, employees and locals, where
everyone mingles in a cozy atmosphere.
All in all, the Service Management System model made the analysis of the overall services at The
Craigdarroch Inn systematic and approachable, by pointing out all important elements of services.
Several particularities, representing the strengths and weaknesses displayed by the company, have been
noted. By acknowledging their existence and reflecting upon then, it will be easier in the solution part of
the report to discover strategies through strengths can be used to gain competitive advantage and
diminish weaknesses.
If talking about strengths, noteworthy to mention are the fact that they are more flexible compared to
their competitors, and as a result they manage to accommodate various needs of guests
(accommodation of kids and dogs, public bar for both residents and non-residents opened all day,
internet connection), there is a high degree of customer interaction, especially with local people, guests
at the hotel can enjoy quite a wide range of supporting products which increase the total perceived
value of services. Also, the technology involved in the delivery process increases productivity, quality,
and eliminates wasting.
On the other hand, the inn features a few weaknesses which are threatening its position on market and
competitiveness. Firstly, without having a defined market segment to target, customer interaction with
other customers could become problematic, resulting in misunderstandings and tensioned atmosphere
in public spaces, as some guests might not be comfortable with other’s customs and behavior.
Moreover, the matrix type of internal organization, where employees work between two departments,
front and back of house, could bring problems especially during busy nights when coordination is vital in
order to deliver quality in good time. Also supporting products, and generally services that are not
mandatory for an inn but managers provide in order to increase satisfaction, require higher costs for the
organization and higher amount of work for the employees.
22
7. External Analysis
1. Porter’s Five Forces That Shape Strategy
Michael Porter’s work on competitive strategy features one of the most present tools in the field of
strategic management that all business schools now include in their selection. What led him to creating
the Five Forces model was the need of finding a common ground for businesses in different markets
that would lead to a pattern predicting what might occur in any organization in any industry regarding
competitiveness. As a result he came with a framework, which has the benefit of encapsulating all the
particularities of a phenomenon and inverted them into few core elements/dimensions (the five forces).
(Henry, Understanding Strategic Management, 2008)
The five forces model is undertaken from the perspective of a company that is already operating in the
given industry and it is successfully used for strategy purposes. However, it also comes in good help for
companies which need to determine whether they should enter a certain industry, by analyzing the
entry barriers that are protecting incumbents and adopting a distinctive positioning in order to be
successful. (Henry, Understanding Strategic Management, 2008)
By definition, “the five forces framework is an analytical tool for assessing the competitive environment”.
By combining the strength of the five forces (namely threat of new entrants, bargaining power of
buyers, bargaining power of suppliers, threat of substitute products or services and intensity of rivalry
among firms in an industry) one can assess the prospective of having profit within the industry or the
ability to compete effectively. (Henry, Understanding Strategic Management, 2008)
Figure 7.1: “The Five Forces That Shape Industry Competition” (Porter M. E., On competiton - Updated
and Expanded Edition, 2008)
Threat of
new
entrants
Bargaining
power of
suppliers
Rivalry
among
existing
competitors
Threat of
subtitute
products or
services
23
Bargaining
power of
buyers
Using this framework, an incumbent organization can learn a great deal about how to improve its
position in relation to the industry trends or how to use its resources beneficially in order to minimize
other threats. The final target is discovering a position within the industry, which the company can use
in order to defend itself from the other present forces or even turn them into its advantage. (Henry,
Understanding Strategic Management, 2008) For strategic management is crucial to turn the
competitive forces into our advantage and to formulate strategies based on the most influencing force
that determines the profitability of the industry. (Porter M. E., On competiton - Updated and Expanded
Edition, 2008)
1. Threat of new entrants
“The threat of new entrants is the extent to which new competitors may decide to enter an industry and
reduce the level of profits earned by incumbent firms”. (Henry, Understanding Strategic Management,
2008) New entrants have the power to gain market share and consequently making the market more
competitive from certain points of view such as pricing, production costs and rate of investment
necessary to stay competitive. This threat is dependent on the height of entry barriers. (Porter M. E., On
competiton - Updated and Expanded Edition, 2008)
There are a few major factors that can lower or heighten entry barriers on the market:
-
-
-
Economies of scale, which occur when the production costs per unit decrease as the number of
unit produced increase. In relation to new entrants, the existence of economies of scale forces
them to either enter the industry at a small scale and operate at a cost disadvantage, or at a
high production volume but risking low return on investment. (Henry, Understanding Strategic
Management, 2008)
Product differentiation and brand identity; incumbent firms on the industry have the advantage
of an already established product on the industry with considerable brand awareness, while
new entrants have invest in promoting and advertising their new products or services. (Henry,
Understanding Strategic Management, 2008)
Customer switching costs, which are supported by buyers when they decide to switch to
another competitor on the market. The higher the switching costs, the harder is for new
entrants to acquire new customers, as they have to come up with improved products at lower
prices. (Henry, Understanding Strategic Management, 2008)
In restaurant and hotel segments, entry barriers are expected to be lower, given the presence of large
national and international chains that led to a fragmentation of the tourism market. As a consequence,
start-ups and small businesses can find it easy to enter the industry and operate at a small scale.
Moreover, regulations are undemanding and only little training is required, making the industry
attractive for new entrants. (MarketLine, 2015)
24
Figure 7.2: Factors influencing the likelihood of new entrants in the travel& tourism industry in the
United Kingdom, 2014 (MarketLine, 2015)
The Craigdarroch Inn and other lodging facilities in the area are operating at a small scale as they can
provide services for a limited number of customers, as most of them are family-run SME’s. Adding low
to none switching costs for customers and medium capital requirements for start-up (here costs such as
mortgage, equipment and furniture, and other miscellaneous can be included) makes entry barriers low
and the market penetrable for new competitors, therefore they represent a big threat for incumbents.
2. The bargaining power of buyers
Buyers in a market can become a real threat for several noteworthy reasons:
-
-
they can force down prices or demand for more developed products which as a consequence
are driving up production costs (Porter M. E., On competiton - Updated and Expanded Edition,
2008),
a high number of buyers leads to high buying volumes, which has to be balanced by the number
of suppliers on the other hand and their ability to provide prime products which the company
can develop and sell further on the market, (Henry, Understanding Strategic Management,
2008)
25
-
-
If they have strong knowledge about cost and demand then they are at advantage and able to
choose cheaper or other better quality products (here the use of internet has been of great help
for consumers to search for alternatives) (Henry, Understanding Strategic Management, 2008)
If they have low earnings then they will automatically be price sensitive and always be searching
for good deals. In the end, companies will have to lower their margins in order to sell more and
cover costs. (Henry, Understanding Strategic Management, 2008)
Figure 7.3: “Drivers of buyer power in the travel & tourism industry in the United Kingdom, 2014”
(Henry, Understanding Strategic Management, 2008)
From what regards the travel and tourism industry, business takes place both in the B2B and B2C
markets, and as a result there always are a large number of buyers. Consequently, buyer power
decreases and customer retention becomes less important. Switching costs are low to non-existent as
previously mentioned, and services within this industry are highly differentiated, serving customers from
different market segments according to their budget, preferences, family status, etc. (MarketLine, 2015)
In this company’s case, internet access definitely led to the increasing trend of deal searching, no matter
of personal income. As a proof, Groupon and other online Deals are a real success for The Craigdarroch,
especially when it needs to attract tourists in low season, but on the bad side they are proof that
normally services are overly expensive and therefore they do not have to pay a full price when there is a
cheaper alternative to spend a night or have a meal at the inn.
Summing up, buyer power is moderate.
26
3. The bargaining power of suppliers
Suppliers are external stakeholders that provide producers with prime materials that are to be
transformed into products and services for the end consumers. Their power consists of several
advantages they have, such as:
-
-
-
They do not depend on a certain industry, but can provide for companies operating in different
markets, therefore they can set high prices for each industry, therefore gaining huge profits;
(Porter M. E., On competiton - Updated and Expanded Edition, 2008)
There are no substitute products or they are differentiated, therefore companies are highly
dependent on them to acquire their stock in order to be able to deliver promised services to
their customers (Porter M. E., On competiton - Updated and Expanded Edition, 2008)
They are able to integrate forwards the industry and become a direct competitor for their
buyers, therefore decreasing their profitability (Henry, Understanding Strategic Management,
2008)
Figure 7.4: “Drivers of supplier power in the travel & tourism industry in the United Kingdom, 2014”
(MarketLine, 2015)
For hotel and restaurant industry, there is normally a various range of suppliers, but despite of that fact
their power is strengthened by service companies need of delivering high quality F&B products,
therefore looking for particular suppliers who can rise up to the standards. (MarketLine, 2015)
The Craigdarroch Inn has a few consistent suppliers with big power, given by the fact that they deliver
differentiated products (especially when talking about Food & Beverage products) which in return are in
27
the business’ favor, being able to deliver to the end customers the promised services. Here it is worth
mentioning The Loch Ness Brewery (http://www.lochnessbrewery.com/), which distributes Loch Ness
ales, which are marketing the legends and rich history of the area, Macbeth’s butcher
(http://www.macbeths.com/) providing The Craigdarroch Inn with traditional Scottish meat, which is
also a quality standard the inn is proud with.
Moreover, given the remote area where the inn is situated, the business is highly dependent on its
suppliers, as there are few who can help The Craigdarroch delivering the promised quality at a
competitive price. Therefore, supplier power is high when it comes to this particular case.
4. The threat of substitute products and services
Substitutes perform the same function and meet the same customer needs as products from the
industry do, but in a different way and featuring different advantages or disadvantages. Substitute
products can lead to a decrease in the potential return within the industry, especially when the priceperformance ratio is more attractive compared to industry products. (Henry, Understanding Strategic
Management, 2008)
Substitute products and services become a major threat for businesses when customer switching costs
are low, thus allowing them at any time to choose a substitute that has the cost advantage, or when
they show up with better alternatives that can meet customer needs in a more practical, innovative, or
less time-consuming way. (Porter M. E., On competiton - Updated and Expanded Edition, 2008)
Figure 7.5: “Factors influencing the threat of substitutes in the travel & tourism industry in the United
Kingdom, 2014” (MarketLine, 2015)
28
In the hotel and restaurant industry, main substitutes are represented by self-catering holidays such as
camping (tent or caravan), self-made food or accommodation offered either by local people or via
booking websites such as Airbnb and Couchsurfing. (MarketLine, 2015)
For The Craigdarroch Inn, the caravan site situated just across the street represents a major threat as
both substitute product and market competitor. Moreover, having in mind that in hotel and restaurant
industry switching costs are insignificant as customers are not bound by a service once it has been
delivered, substitute products can be assessed as a strong threat.
5. Rivalry among existing competitors
Industry competition level is reflected through incumbents’ pricing and advertising strategies, through
which they aim to make their services more attractive while being cost-effective. (Porter M. E., On
competiton - Updated and Expanded Edition, 2008) High rivalry affects an industry negatively, as it leads
to reduced profits, as a consequence of companies’ strategies in reducing prices to keep a competitive
position. (Henry, Understanding Strategic Management, 2008)
There are also some noteworthy factors that shape competitiveness among incumbents:
-
-
Presence of numerous competitors, or companies of same size and value. (Henry,
High fixed costs, which put pressure on companies to gain advantage by working with
economies of scale. When more organizations try to produce at a higher volume, supply may
exceed demand leading to strong competition for market share, which in turn is reflected in
pricing strategies. (Henry, Understanding Strategic Management, 2008)
Lack of differentiation or switching costs, which gives customers no choice but look for the best
price when he doesn’t have a choice between differently developed products. (Henry,
In the hotel and restaurant industry, rivalry is sustained by the perishability of services: a night in a hotel
cannot be stored and bought at another time, therefore failure to sell inventory increases costs while
there is no revenue. Small hotels and restaurants are directly affected by the economic situation of the
country in a given period of time, by seasonality and location. (MarketLine, 2015)
Figure 7.6: “Drivers of degree of rivalry in the travel & tourism industry in the United Kingdom, 2014”
(MarketLine, 2015)
29
The Craigdarroch Inn has some noteworthy competitors situated in the vicinity, who offer similar
services and operate under the same concept: a traditional Scottish establishment, situated in a remote
area surrounded by nature, offering in some cases traditional local food and beverages, while building
up customer’s experience upon the local attractions and the local legends about the Loch Ness monster.
Such competing businesses are: Foyers House, Foyers Bay Country House and Foyers Roost.
(Booking.com, 2015)
Thus, given the fact that all competitors are businesses of the same size with low level of differentiation
and supporting high fixed costs, it is clear that the intensity of rivalry among competitors is high.
6. Conclusion
Summing up, it has been shown that some forces are stronger than others and have the power of
shaping competition within the industry. The lack of differentiation between products, low switching
costs for buyers and high fixed costs for organizations boost competition and amplify the threat of
substitute products, existing competitors and new entrants. Looking at all five threats in one picture and
generally assessing the market competitiveness, it can only be evaluated as highly competitive.
30
2. PEST Analysis
A company and its stakeholders such as employees, customers, and suppliers are directly influenced by
a series of external factors which together form the macro-environment. (Okumus, Altinay, & Prakash,
2010) Through a PEST analysis these factors are examined, ultimately helping in detecting possible
trends which influence competitiveness in different industries. This framework investigates separately
the four main aspects: political/legal environment, economic environment, social environment and
technological. However, it often occurs that some trends or changes regarding one of the factors are
also present in another one. Thus, there is an interrelationship between them which should not be
neglected, as one trend can affect an industry or organization both positively or negatively. (Henry,
2008)
1. Political/legal environment
Both political and legal factors will be analyzed together as regulations, rules and laws (which belong to
the legal perspective) are directly manipulated by the political conditions in a given country. Moreover,
given the fact that in democratic countries power is distributed between the executive, legal and
judiciary branches of the system, it makes a sensible decision to look at the two environments together.
The political/legal factor looks closely to elements as government stability, taxation policy and
government regulation. These points are vital to be known and scanned when it comes to national
multinational companies that make great investments across borders, as any change in regulations and
policies can shut down a multimillionaire business. (Henry, 2008)
Looking from this perspective at the United Kingdom, it features as a democratic country with great
considerations to human rights. It is in a progressive economic development with strong industrial
activity, and member of the United Nations (UN), North Atlantic Treaty Organization (NATO), European
Union (EU), giving it a strong political influence world-wide. However a referendum has been proposed
in order to achieve the exit from the EU. A past referendum was carried for Scottish citizens as
Scotland’s independence from the Kingdom was desired, but the people voted against it. (MarketLine,
2014) Moreover, English people were also against the separation, as they wanted the Union to stay
intact. (Green, 2014)
According to a report on governance carried by The World Bank, the United Kingdom was characterized
as a country where citizens enjoy freedom of expression, freedom of association, and where there is a
liberal and open attitude towards the press. It has also been ranked as a country likely to be put under
the pressure of government destabilization. The quality of public services, of policy formulation and
implementation and government’s credibility have also been ranked as high. (MarketLine, 2014)
Turning to the legal landscape, United Kingdom features a transparent system. However each of the
territories (England, Scotland, Wales, and Northern Ireland) has separate legal systems. From what
regards tax regulations, it is worth mentioning that the corporate tax is set to 21%, and 20% for small
profits (up to GBP300,000 ), while income tax is progressive, achieving its maximum at 45%. Next, the
VAT is set to 20%, which can be considered average when looking at other EU member states’ tax.
According to the index of economic freedom (2014) the United Kingdom scores high in business
31
freedom, labor freedom, trade freedom, investment freedom and financial freedom. Therefore the
political and legal environment is beneficial for businesses. (MarketLine, 2014)
2. Economic environment
The economic environment is evaluated according to several economic indicators (interest rate,
disposable income, unemployment rate, gross domestic product, exchange rate) which describe
economic phenomena. (Henry, 2008) Generally, businesses need to continuously look at these variables
and analyze different trends, in order to be able to see how changes of these indicators can affect their
organization. With regard to the tourism industry, which is part of the service sectors, an economic
growth within a country leads to better revenues for hotels, restaurant and travel companies, as people
would be willing to spend more money as they make more. (Okumus, Altinay, & Prakash, 2010)
The service sector became a source of economic growth for the United Kingdom. In 2009 the country
had a major decrease in Gross Domestic Product (GDP), but since then it steadily went up, as in 2013
economy recovered as a result to significant domestic demand. Trends look positive for the next few
years, at least until 2017. (MarketLine, 2014)
Figure 8.1: “GDP and GDP growth rate, 2007-17” (MarketLine, 2014)
When it comes to GDP distribution in 2013, 78.85% is represented by services, while only 20.48% by
industry, and less than 1% by agriculture. As a result, the southern part of Great Britain, covered mostly
by the service sector, has flourished, while the northern part with high industrial activity declined
economically.
When it comes to debt, the high level for households, private non-financial corporations and
government raises worry, as totally they amount a debt of 270% (out of the GDP in 2013).
Consequences for this problem are the negative effect on bad investments, while external debt could
lead to refinancing problems in crisis situations. (MarketLine, 2014)
32
Figure 8.2: “Sector-specific contribution to GDP, 2013” (MarketLine, 2014)
The interest rate has been kept for several years now at 0.5% by The Bank of England, keeping on
stimulating economic activity by stimulating bank loans and expenditure on capital goods. (MarketLine,
2014)
Next, unemployment rate also decreased starting in 2008, when it reached its highest since 1971. Now
5.5% of the labour force is actively looking for a job. Moreover, wages reached their maximum now,
from 306 GBP/week to 488.58 GBP/week, which also might lead to a greater demand and buying power.
(Trading Economics, 2015)
3. Social environment
This macro-environmental factor comprises socio-cultural features of the market, such as geographic,
demographic and psychographic, as well as the trends reflected in customer’s choices and preferences.
Analyzing this aspect of the macro-environment, details regarding the groups of customers can be
achieved, which further on can leave hints on consumers’ needs, demands, and interests. This
particularity becomes of greater importance when an organization has to deal with more cultures, from
what regards both human workforce and customers. (Okumus, Altinay, & Prakash, 2010)
The United Kingdom has a dense population, whose residents enjoy a high living standard, with access
to one of the best social systems and healthcare services globally. With regards to education, the UK
hosts three out of the world’s top ten universities. (MarketLine, 2014)
Looking at the demographic details, there are a few aspects worth to be mentioned. Majority of
population (41% out of total) is aged 25-54 years, while 17.3% are born after 2000, and around 12%
born in the 1990’s. Moreover, 29% of the population is aged older than 55 years (baby boomers). (Index
mundi, 2014) Looking at the numbers, it appears that most of the population is represented by
generation X and generation Y (millenials).
33
Ethnically, United Kingdom’s population is 13% represented by foreign-born people (immigrants),
number that doubled since 1993. When it comes to nationalities, India, Poland and Pakistan are the
countries with most immigrants in the UK, Indians being in the top as number of immigrants. (Rienzo &
Vargas-Silva, 2014) On a good note, migrants are likely to be of working age (this being the reason why
most of them choose to move in the United Kingdom) or with higher education, therefore increasing the
number of skilled labour force. On the same idea, skilled immigrants look for jobs on British markets that
lack trained human resources, therefore helping on balancing and filling in the gaps of the labour
market. (Pettinger, 2015)
4. Technological environment
In the hospitality and tourism sector, technology had a great impact when it comes to back office
operations, communications, and bookings. Technology made all processes much faster nowadays,
increasing service quality and in consequence customer satisfaction, but also expectations. Moreover,
guests’ safety became easier to ensure thanks to technological development. (Okumus, Altinay, &
Prakash, 2010)
The United Kingdom is one of the leading countries when it comes to research and development,
applying environmentally friendly technologies in most sectors of the industry. Moreover, the UK
features a developed aerospace industry, by being a world supplier and a leader in research. However,
the UK lacks skilled workforce in R&D, despite the top education and research institutions available in
the country. (MarketLine, 2014)
Since 2008 the number of internet users almost doubled, reaching to 88% internet users. Moreover,
most people own at least one mobile phone and are subscribed to a mobile network. (MarketLine, 2014)
With the rise of internet, businesses have more access to data that helps in improving services and
marketing strategies. Here to be mentioned Search Engine Optimization (SEO), online/email newsletters,
Google Analytics and Social Media.
5. Conclusion
As a conclusion, one of the most important facts discovered in the PEST analysis is that the United
Kingdom has a favourable environment for new businesses, thanks to low interest on loans, low tax rate
(under the EU&EFTA average) (MarketLine, 2014) and efficient regulatory environment. Moreover the
country’s economy is strong and steady, which is seen through the general high living standard, low
unemployment rate, higher wages. Next, technological innovation supports country’s development,
featuring a strong R&D branch. On the other hand, the country is prone to political instability as a result
to proposed referendums (to exit the EU and Scotland’s separation), and features high indebtedness.
34
3. Customer behaviour and market trends
For producers and service providers, “a market is where the product or service is sold or delivered and
the profits generated”. The market is defined by all the customers who share some particular needs or
preferences. (Hollensen, 2010) Consequently, firms need to gain knowledge on potential markets where
they can operate, with the purpose of defining buyers’ needs and then developing products and services
that would satisfy them.
Markets can be divided into business-to-customer market (B2C) or business-to-business market (B2B).
Organizations can operate on one of the markets or both, depending on the end users. There is the
possibility to selling directly to the end-buyer or to other distribution channels and suppliers, which will
further sell company’s service to other costumers or businesses. (Hollensen, 2010)
However, in the end, there are a number of factors and variables that influence consumer decision
making, such as demographics, lifestyle, marital status, culture, personal preferences. (Hollensen, 2010)
With that in mind, the above mentioned particularities will be analyzed, with focus on the tourism
sector in Scotland, where The Craigdarroch Inn is situated. Different trends and statistics will be
discussed in order to get an insight on the industry’s development and future direction. In the end, the
data will be useful for developing competitive strategies focused on the demand for various services.
3.1 General Trends
For 2015 inbound tourism in Britain is forecasted to grow, by 2.5% in volume and 4.5% in value, thus
travelers are expected to spend more money in one trip. This evolution is backed up by improvements in
UK’s airline connections with Asia and the USA, which has the potential to bring more international
tourists. (2015 Forecasts, 2013)
In 2013 82% of trips were made by British citizens, while only 17% from overseas, with most overseas
tourists coming from the USA, Germany and France. Moreover, Scottish travelers represented 43% out
of the inbound tourism. On the other hand, Scots spent 29% out of the total nights, while overseas
tourists spent 31%. Next, when it comes to money overseas tourists spent 36% out of total, while
Scottish travelers spent 25%. The conclusion is that overseas tourists are likely to spend more nights
during one trip and spend significantly more money, compared to GB tourists. Among UK residents,
English people are likely to spend more money and more nights during their trips, making them a more
profitable market, compared to Scottish people. (Visit Scotland)
Both in the case of overseas trips and domestic trips, the most favorable time to visit Scotland is the
period July-September, when 33% of domestic trips take place and 41% of overseas trips. However, for
the inbound tourism the April-June period is also popular for traveling. Talking about spent money,
overseas tourists spend 3 times more money than the British, while spending twice more nights. (Visit
Scotland) Once again, international tourists bring more profit and spend more time in Scotland.
35
3.2 GB Tourism
The average monthly occupancy rate for guest houses/B&B is of 45%, ranging from 16% in winter
months to 76% in the peak season, August. Most trips are for holiday reasons, accounting for 77% of
spent nights. Next come business trips or visiting friends and relatives. (Visit Scotland)
The majority of the British tourists choose for accommodation hotels/motels/guest houses, while
spending biggest amount of money firstly on accommodation, followed by eating and drinking out and
travel expenses. Most common transportation method is by car, but also the train is a popular option.
When it comes to accommodation, the overall experience is determined by quality of services and
facilities. (Visit Scotland)
Looking at demographic details, 21% are aged 45-54 and the same percentage is 35-44. Young travelers
(16-24 years old) represent only 10% of visitors, while the old ones (aged 65+) count for 15% out of
total. The most common activity is general sightseeing, while a quarter of visitors want to relax. (Visit
Scotland)
As a note is important to mention that 70% of British holiday visitors are the ABC1 socio-economic group
(Visit Scotland), which is a demographic category of people belonging to upper, middle and lower middle
class, with occupations from higher management to junior and administrative. This social group has a
strong buying power as it is more and more emerging in society, as consequence of changes in economic
conditions and increase of educational facilities. They are concerned with global trends, health issues,
and always looking for high-quality products. (Social Grade A, B, C1, C2, D, E, 2014)
3.3 Visitor Experience
Most visitors are interested in visiting country side locations or generally touring Scotland. Only 27% of
visitors are on their first visit there, therefore a vast majority is accustomed to the places and customs.
What motivates tourists to choose Scotland is mainly the landscape, or the previous experiences lived
there. Also, a small number (28%) are interested in the history and culture. (TNS, 2013)
Most UK residents traveled to Scotland by car, while half of international visitors had to take the plane.
Regarding the accommodation choice, the majority stayed in a hotel, while 25% chose a
B&B/guesthouse. Among visitors favorite activities are sightseeing, tasting the local food, visiting a
castle, shopping, or visiting cities. (TNS, 2013)
When it comes to eating out, most visitors chose to have a meal in cafes or tea shops, but also pubs and
bars are almost as popular. Next, visitors were interested into good quality restaurants. In the end, after
returning home, the majority of visitors use social media to share their experiences either by uploading
photos or updating their statuses. However, only 10% leave reviews on booking websites. (TNS, 2013)
When it came to customer’s satisfactions, most visitors were happy about the available information
both offline and online, about accommodation facilities and the opportunity to interact with local
people. However, a dissatisfaction reason was the deficient availability of internet and mobile phone
reception. (TNS, 2013)
36
All in all, a big majority of visitors were very satisfied with their overall experience and stated they will
definitely return to S (TNS, 2013)cotland in the next 5 years. Moreover, 88% said they would
recommend it as a destination, both UK residents and overseas visitors.
3.4 Food and Drink preferences
With regards to restaurants and bars, tourists in Scotland show their willingness to pay an extra price
(up to 15% more) for locally-sourced products and authenticity. Moreover, traditional Scottish F&B
products are seriously taken into consideration when evaluating the overall visitor experience. (IBP
Strategy and Research for Scottish Enterprise, 2009)
As a result of promoting and delivering to customers the Scottish experiences, businesses can benefit
through enhancing visitors’ experience, increasing their reputation, encouraging visitors to return and
boosting sales. The idea of an authentic experience motivates customers to pay more for services and
goods, and be more satisfied with what they receive. (IBP Strategy and Research for Scottish Enterprise,
2009)
3.5 Conclusion
In conclusion, several important facts have been discovered through the analysis. Firstly, domestic
tourism in Scotland is more dominant that international tourism. Despite of that, overseas visitors are
likely to spend more money for accommodation, transportation and food, compared to the UK
residents. Sightseeing is tourists’ main activity, but they also appreciate good traditional Scottish food,
which completes the overall customer experience. The most favorite period for travelling is summer,
which poses the problem of seasonality, as businesses have to fight to bring tourists in cold season.
However this trend applies mostly to overseas visitors, as UK residents’ travelling periods are more
balanced through the year. Moreover, most of domestic tourism is performed by upper and middle class
citizens, who are not necessarily price-driven when choosing a destination.
37
8. Solutions
Having in mind the findings resulted from the internal and external analysis of The Craigdarroch Inn,
which together have been compiled into a SWOT diagram aimed to bring to light the company’s current
situation in relation to the market, time has come to use all data as input in the process of problem
solving, whose output will be viable solutions that answer the research question.
Given the fact that the project is built upon the idea of the idea that competitive advantage can be
achieved through strategic management, the solutions themselves should be presented as strategies at
different levels of the organization: corporate, business, functional. However, in the present situation,
where the organization is a family-run business with limited number of employees and possibilities of
expansion, competitive strategies will be developed and implemented at business and functional level.
Because the problem formulation at the beginning of the project is aimed to strategy development,
aimed to increase the overall competitiveness of the firm as a long-term objective, the following step is
to determine how the business can grow, with the current resources in existing or new market.
Therefore the Ansoff Matrix should offer guideline in which direction the solutions are to be developed.
This framework enables to identify opportunities for strategy development, being based on the results
found in the external and internal analysis. (Team FME, 2013)
The matrix is based on the matching between the market where the company has the opportunity to
operate and the products it is ready to use. The framework presents four different growth strategies:
market penetration, market development, product development or diversification.
Figure 8.1: “The Ansoff product-market mix” (Ansoff, 1957)
Current Markets
New Markets
Current Products
Market Penetration
Market Development
New Products
Product Development
Diversification
Judging the findings from the SWOT analysis and looking at the four possible strategies, it seems obvious
that The Craigdarroch Inn has the capacity of gaining competitive advantage through product
development. This decision is motivated by the following reasons: the business doesn’t look to serve
only a specific market group, but are more inclusive, therefore they reach clients from any possible
market, as long as there is a way to meet their needs. Therefore it cannot be discussed targeting a new
market, since at the present moment there isn’t a specific market segment. Also, when it comes to
products, the internal and external analyses have proved that there is a real opportunity for developing
new services and products.
Product development implies the modification of goods and services delivered, such as quality, variety,
style.
38
Next, as future strategies, several opportunities open the door for reinforcing and sustaining
competitiveness.
I.
II.
III.
IV.
Fine dining is an opportunity for the company of gaining extra revenue by investing minimum
money and effort. Through this service, a formal dining experience could be offered to residents
and non-residents as well, who are willing to pay more for the different food and experience
that comes with it. The advantages that come with this strategy are: demand for such service;
the place already has the physical support that would meet the requirements of formal dining (
elegant dining room, white tablecloths for tables, cutlery and assorted table-ware); managers’
training allows them to develop an appropriate food and wine menu that would match it;
technology used in kitchen helps in reducing food wastage; the fact that the dining room is
situated next to the kitchen facilitates processes that include taking orders and food delivery;
Using the existing whisky bar is another solution for increasing value to the overall services. The
inn disposes of a large variety of traditional drinks, but it is not made available for sale, since the
designed whiskey bar was transformed into a storage room. However, associated to the formal
dining, the possibility for guests to attend a whiskey tasting before dinner not only that brings
extra profits for the company, but also improves guests’ experience. Also, it must be mentioned
that this additional service would not imply any costs, however would require involvement from
the management, who would be in charge of it, given their training.
Creating loyalty programs, aimed to retain customers. It is general knowledge that it costs less
to keep a customer than getting a new one. On this idea, retaining customers bring financial
advantage, are a source of referral marketing (through word-of-mouth advertising, usually
generated by satisfied customers), they are accustomed to the services and facilities provided
therefore they have less questions and require less attention, facilitating the service delivery.
Moreover, loyal customers are willing to pay every time more money for new or different
services, since they are used to the basic benefits provided. (Bateson & Hoffman, Services
Marketing, 2011)
Developing marketing strategies for overseas tourists who are a profitable market to cater for.
The aim is to attract them through attractive offers, including a wide range of services that
would increase the value of their experience in Scotland.
Further each solution will be developed in terms of implementation and explained how changes will
occur in different levels of organization.
Fine dining
This strategy will be structured using the 7 P’s of the marketing mix, specially conceived for services. It
will help visualize all the actions and benefits that will be marketed for customers.
The marketing mix
Product: in this case the new product marketed is a service, the opportunity of having a fine-dining
experience in a stunning country-side location. Customers can enjoy high quality food and beverage
39
products carefully selected by the managers, who are trained and have vast knowledge in this area. It
can be a romantic dinner as part of a weekend escape, a birthday or any kind of celebration that
requires the experience of authenticity and luxury.






Price: Prices are accessible for the market targeted with this product, which are upper-class
adults with high income, who have the knowledge and taste for such experience. Prices for a
fine-dining experience could be up to 30% higher than those of a pub grub, as they are paying
for the location and experience, together with high quality food and drinks.
Place: the service will be delivered in the dining room of the inn, which is a cozy place with a
relaxing and quiet atmosphere. It is convenient for all customers, especially given the fact that
they can choose to have accommodation in one of the rooms upstairs.
Promotion: firstly, this service will be obviously promoted on the inn’s website, Facebook page,
and other online distribution channels ( Booking.com, Tripadvisor, etc), which is cost-free. Next,
the fine dining experience together with accommodation at the inn can be sold as a holiday
package on websites such as Groupon, where the concept is that companies and businesses sell
their products at minimum prices in order to increase awareness and brand recognition, as well
as for the sake of acquiring customers.
Physical evidence: it consists of tangible aspects such as the delivery location and other items
that confirm the delivery took place. In this case this is represented by the dining room, tableware, and cutlery.
Process: the delivery of the service will consist of table-service, where a waiter/waitress will
take customers’ order, explain the food menu and the drinks available then bring the dishes and
continuously assure that guests are satisfied. It is also important at this stage that the customers
will be informed with regards to general rules that apply, details of the process such as time,
location.
People: talking about personnel, they will need to have some training with regards to rules of
conduct when it comes to formal dining, as service in the pub is more casual and less restrictive
for both employees and customers. Moreover, it would be requested that personnel wears
formal clothes in accordance to the rules of fine dining, while the kitchen staff will be able to
deliver high quality food, with a nice presentation. When it comes to customers, they will
obviously have knowledge about what this setting requires in terms of clothing, general
appearance, food and drinks selection, as well as plating. Guests will be ready for a fine dining
experience and the service would be much easier to be delivered if they have knowledge on
what benefits they should expect to receive in such a context.
Financial implications
Taking as a promotion method sales through Groupon vouchers, which are ideal for overcoming low
occupancy rates as consequence of seasonality, there should be a visible profitability.
Normally, a Gropon deal would offer one/two/three nights accommodation with dinner and wine in the
first night and cooked breakfast every morning, at prices as low as 109/149/189
40
http://www.groupon.co.uk/deals/dealbank_en_gb/ga-the-craigdarroch-inn-1/53645563 ) pounds per
deal. By changing dinner in the pub with a fine dining experience, there would also be an opportunity of
taking prices higher, requiring extra money for extra value and benefits received by customers.
For the current situation, it will be considered that the average stay was of two nights through groupon
vouchers. Given the fact that there were sold 89 vouchers in the first half of 2015, it means that income
was of £149*89 vouchers=£13,261.
Increasing overall prices by 15% which, represents the extra amount to pay for fine dining experience
and quality products, the inn would generate £15,250.15 . Therefore, a difference of £1,989.15 of extra
revenue gained in 5 months (as the vouchers are available from January until May).
If talking about costs, there is a huge advantage as the business already owns all the physical resources
that would allow this new product development: they have the physical support, the staff, knowledge.
When it comes to raw materials, for food products they could be mostly the same, only preparation
could differ and require different manufacturing.
Therefore, this strategy helps in developing the service concept at The Craigdarroch, making their
services more diversified and appealing for customers. The fact that costs at this stage are almost
inexistent comes as a cost advantage for the business, therefore making them stronger and more
competitive on the market.
Whiskey tasting & overseas tourists
Because it is a time consuming solution and requires trained special human resources, this service
should be performed only at request by customers. The idea of experiencing a whiskey tasting in the
comfort of the accommodation facility would appeal inn residents who have a taste for malt drinks and
educational experiences. A profitable opportunity for this would be offering the service in the case of a
group of tourists, all accommodated at The Craigdarroch, looking for some entertaining. Knowing that
Scotland is a popular destination during hunting season (http://www.countrysportscotland.com/ ), this
strikes as an opportunity for the inn to attract tourist groups from overseas who are coming to Scotland
with the purpose of shooting and hunting.
Generally, people who perform activities such as shooting, stalking and hunting have a large income and
belong to the upper class, therefore their willingness to pay as much as needed for desired experienced
is not limited by any important factor. Therefore, they represent a market that The Craigdarroch will
definitely want to target and accommodate.
Financial implications
Having this in mind, a scenario-based analysis will be presented for investigating the financial benefits of
this strategy. It will be considered a group of eight people- therefore occupying four rooms spending 5
nights at the inn (the number of nights has been chose according to the following reasoning: out of a
week’s holiday, which is a common time-span for tourists, at least two days are spent commuting,
41
especially when talking about international tourists, because of distance considerations and means of
transportation). The following data has been gathered:
customers
Rooms
Nights
accomodation/night
8
4
5
£
50.00
breakfast/day
£
3.00
lunch/day
£
5.00
dinner/day
£
15.00
beverages
£
7.00
total/person/night
£
80.00
total
£
revenue/group/night
640.00
Accommodation price is half of room price normally offered by owners for groups, or when reservation
is made in advance. Prices for food and beverage have been estimated according to average prices from
the pub’s menu, breakfast including a cooked item, lunch calculated as a sandwich with a sweet snack
and one soft drink, and dinner with 3 courses (starter, main dish and dessert) calculated at the average
price, with two drinks (one beer, glass of wine or a measure of spirits costs around £3.5), considering
that most probably the group is formed of men who are likely to drink.
(http://thecraigdarrochinn.co.uk/food-and-drink/2064755)
Taking a general look at the results, it comes out that approximately £160 per night per room are likely
to be spent in this context. If compared to revenue coming from Groupon vouchers, where the income
varies between £109/night/room and £63/night/room, it comes out as obvious how profitable is
targeting and attracting this market segment. Also, compared to Groupon customers who are costdriven (proven by the method of looking for and buying the service), overseas tourists will not look at
money when thinking about the experiences they could live.
Obviously, extra revenue comes from services at the pub, such as food and drinks, which have noted as
not being the most profitable side of the business compared to the hotel (the reason mentioned by the
managers was that pub prices are low to attract local people). However, prices for rooms still cover the
costs and generate significant profits (normally, the lowest price the managers afford to ask for a room
is £70, therefore £100 per night would generate at least £30 operating profit).
What makes this market segment appealing is that thanks to the reason of their trip, they have a busy
day and will be focused on their activity. Therefore they are likely to have cooked breakfast in the
42
morning before leaving for a long day, to require a packed lunch for the day, since there is availability for
that, and to have a rich dinner together with friends after a long day, accompanied by quality drinks.
All in all, the company meets most of guests’ needs without involving any special resources and services
into it. Profit is gained by choosing the right customers to accommodate.
Customer loyalty
For a small business, word-of-mouth advertising, referral marketing and relationship marketing is the
way to go for being visible on the market and reaching possible customers. This can be achieved through
establishing time-lasting connections with current customers and by encouraging them to return. With
regards to the competitive market, customer retention helps businesses shift away from market
competitors by being unique service providers for a given market segment, that is unlikely to shift to
competitors. This comes as an advantage, since switching costs in tourism industry are low to zero, and
buyer power is influenced by price/quality ratio.
Unluckily, a small business does not enjoy the same possibilities as large companies to create retention
programs and keep customers engaged after the delivery of the service. However, an inn has the
advantage of being more personally involved in customer’s problems and can pay more attention to
their needs, since there is a smaller number of customers. With that in mind, the way of creating
customer loyalty for The Craigdarroch Inn is giving services a personal touch, making guests feel
welcomed any time and wanted there, taking advantage of local events, holidays and other festivities
for attracting clients to come back and live different experiences with each stay.
43
9. Conclusion
Writing this research project has been a challenging task from many perspectives and required
knowledge from many fields of study, as well as analytical skills and patience for developing a viable
outcome.
The report has a classic structure which is comprised of an internal and external analysis of the
company, where the internal strengths and weaknesses, together with the external opportunities and
threats have been identified. Several business models have been used to facilitate the analysis and
presentation of the company’s and external market’s characteristics.
This specific structure of the report was used as a consequence of the problem formulation stated in the
beginning. The purpose of the writing was to find strategies that would make the company to perform
better on the market, in relation to the competitors and to the customers. The problems approached
were competitiveness, differentiation and strategic use of resources and development of marketing
strategy, which together cover the field of strategic management.
As result of the analyses, several noteworthy findings have been discovered, which were of great help in
developing solutions.
Firstly, the internal analysis that The Craigdarroch Inn already has an extensive range of services that can
accommodate many of guests wishes (daily opened public bar, kids and dogs accommodation allowed,
local F&B products) and as well many strengths that augment their potential of development (training in
fine-dining and wine serving, access to large number of distribution channels, extensive use of
technology). However, on the bad side there have also been found some downsizes: lack of trained
personnel and no specific targeting strategy.
Next, the external analysis, based on two common frameworks, Porter’s five forces and PEST analysis
has brought to light that there is demand for formal dining service and locally-sourced products, and
more than that overseas tourists spend far more money than British ones, thus they are an opportunity
for targeting a specific market. On the other hand, also at this level of the external environment have
been found some flaws, such as high competitiveness both from competitors, substitutes and new
entrants, seasonality that drastically lowers demand on cold season.
After gathering all the data concluded in the analysis, the SWOT matrix was filled in and gave as output
ideas and solutions for the research problems. Firstly, extending services by adding fine-dining proved to
be financially profitable, helpful in overcoming seasonality and a way of targeting a special group of
customers. Next, a special segment of international tourists, who choose Scotland for shooting, stalking
and hunting were also considered a profitable market and a real source of sure income. Finally,
emphasis was put on creating customer loyalty, which for small companies brings the benefit of free
marketing, and also helps the organization in the competitive environment, as loyal customers are a
sure source of profit and help The Craigdarroch Inn in having a strong position on the market.
44
10.
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11.
Appendix
1. Swot Analysis
The SWOT analysis is a technique that helps in developing suitable strategies. This framework brings
together the internal and external analysis of an organization, by assessing the strengths and
weaknesses (from internal analysis) and opportunities and threats (from external analysis). (Hollensen,
2010) In the context of strategic management, the SWOT analysis brings to light what advantages the
company has in order to be exploited in the strategy, and what dangers are on the market and within
the organization that should be avoided or lowered. Positioning the firm’s internal resources and
capabilities with the external opportunities is called “the strategic fit”, which leads to sustainable
competitive advantage on long term. (Okumus, Altinay, & Prakash, Strategic Management for Hospitality
and Tourism, 2010)
As a result of the thorough analysis of The Craigdarroch Inn, both internal and external, several
noteworthy aspects will be further translated into the SWOT elements, thus assessing the current
situation of the company and of the market.
STRENGTHS
 Use of technology
 Daily opened public bar
 Accommodating kids
 Accommodating pets
 Whisky bar
 Potential for fine-dining
 Mingle of tourists with locals/customer
interaction
 Many distribution channels
 Locally sourced F&B products
 Training in fine-dining and wine serving
OPPORTUNITIES
 Large market to target customers from
 Targeting different segments in different
seasons
 Increased demand from overseas tourists
 Demand for fine-dining
 Social media as means of sharing
experiences
 Demand for locally-sourced products
WEAKNESSES
 No definite market segment
 No specific targeting strategy
 No trained personnel
 Not easily accessible
 Obscure internal organization
THREATS
 Emergence of other local businesses
 Increasing popularity of online booking
websites (AirBnb and Couchsurfing)
 Competitors with lower prices
 Seasonality
 Higher wages for employees
1. Strengths
A noteworthy number of strengths have been assessed for The Craigdarroch. The smart use of
technology is increasing productivity and sustaining quality of products, the use of numerous
distribution channels make them more competitive when it comes to promoting, while by
47
accommodating kids and also pets they are open to a larger share of the market segment,which can be
seen as a differentiation strategy. Moreover, having a daily opened public bar ensures presence of
customers and local people in the same time, therefore creating a more authentic experience for those
looking for a traditional rural settlement. The presence of the whisky bar, together with owners’
knowledge in fine-dining has the potential of creating more value for the existing services and attract a
different customer segment. Also, locally-sourced products are highly appreciated by tourists, therefore
also adding up to the experience quality enjoyed by visitors.
2. Weaknesses
There are several weaknesses that managers did not manage to reduce so far and which together put at
risk the strong points of the business. Firstly, by not having a set market segment, the business might be
serving the wrong customers with the wrong products. By this, it is meant that instead delivering
services to that specific group of customers who demand them, the company sells a preset package of
benefits for any customer who chooses The Craigdarroch, disregarding the reason. Therefore, without
targeting a specific group, the owners are found in the position of not knowing what their customers
want, and they end by not meeting their expectations. When the services delivered with customer
expectations do not overlap, services are perceived as poor and the client is not happy.
Lack of trained personnel in the hotel branch makes it harder for the owners to manage their human
resources, as they have to invest time in instructing them and giving feedback until operations go
smoothly. Moreover, services might not be perceived as highly qualitative by customers. Also when
talking about personnel, given that tasks are distributed ad-hoc among employees, not only that it might
lead to confusion for them but also can decrease productivity and motivation at the workplace.
3. Opportunities
Fortunately there are real opportunities for The Craigdarroch to gain competitive advantage and
increase profitability. Firstly, the market demand for fine dining strikes as an opportunity for designing
new services which would generate extra profit without facing any major investing costs. Moreover,
tourists’ preference for locally-sourced products also comes in the favor of the business, by both
increasing the perceived value of services and giving the possibility of requiring a higher price for quality
offerings. Next, overseas tourists have been shown to spend more money during their trip, therefore
they are a profitable market segment to be targeted. Moreover, by being more inclusive and flexible
with services provided, the inn benefits from being able to target a larger number of tourists, as they are
able to satisfy more and various needs. By that, chances are higher that occupancy increases
Moreover, the use of social media is a trend that gives companies free and less time consuming
advertising, as most of the times customers are promoting the places they visited through word-ofmouth advertising: sharing pictures, updating profiles, check-in’s, etc .
4. Threats
Economic development and low entry barriers allow entrepreneurs to start small businesses, therefore
there is a real threat that other B&B’s will emerge near The Craigdarroch, possibly at a cost advantage,
48
making therefore competitiveness on the market tighter. Also during low season competitiveness
becomes even fiercer, as there are less tourists but the same number of rooms that need to be filled.
When talking about competitors, alternative online booking websites such as AirBnb and Couchsurfing
are increasing in popularity and are able to offer travelers accommodation together with an authentic
Scottish experience, which is the main benefit customers are interested in.
Moreover, economic development automatically requires higher wages, thus companies have to pay
more for their employees. The extra cost must be covered by the revenue, but of course prices should
not change significantly unless there are extra benefits customers are willing to pay for.
49
2. Interview with Elinor Donnelly (May 2015)
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51
3. Interview with Elinor Donnelly (August 2014)
1. When and how did you start running the hotel and the business?
We started in July 2007, so we have been here for 7 years, and we started right at the height of the
season, in the middle of the season,in the summer, so it was very busy.
2. I know that at first it was a hotel, and then you transformed it in an Inn. How did this happen?
Things changed over the past 10-15 years in UK, in terms the business it is to what it does. So, the
name can be hotel, inn, B&B, guest house, small hotel, country house hotel. And these names can
be designators and the designator is the thing that is given to you by the tourist board. So if you
want to be competitive in the market place you need to have a rating and a designator from the
tourist board. In Scotland, the tourist board is called Visit Scotland, and in England is Visit England,
and so on. And the idea behind it all is that they all use the same marking credentials and every
property is marked according to their rules and regulations and then they will give you a star rating.
sSo you get 1, 2,3, or 4 stars and that is internationally recognized as your standard. They will also
give you the designator. So it used to be that people perhaps buy a business and run it as a hotel
because it has previously been called as a hotel, or as an inn, there were quite a lot of inns in Britain.
What happened to us is that the property was a country-house hotel, but it was a small one. They
then changed the designators, because we were very much trained in food-led businesses (Martin
has his fine-dining training for kitchen and I have fine-dining for front-of-house and wine serving), so
we decided when we took on the business that we wanted it to be more food-led, so we did that for
more years and as a result for that we were advised by the Visit Scotland and AA, to be a restaurant
with rooms. *(requirements for a hotel)*. Then, last year, because of the demand of pub-led food
and the demand of a pub in the area, we decided to change it completely and came around as being
an Inn. So we have bedrooms for accommodation, we offer food, to non-resident and resident
guests, and we also have public bar where people can have a drink. So all these things ticked all the
boxes to become an inn. If we still wanted to be a hotel, we could, but it wouldn’t be the business
that it is today if we were a hotel. The credentials, or the requirements for an inn Is that they supply
food to non-resident and resident guests, drinks, alcoholic and non-alcoholic drinks to non-residents
and that you also have accommodation.
3. Do you think that now that you are an inn, it got better for the business? (Regarding the
profitability)
it has in terms of profitability, it is a more profitable business but then you have to offset that
against the costs of the business. We are now more profitable, we make more money, but our costs
have also , gone 10-fold, it is much more expensive to run the business now.
4. What distribution channels do you use to sell the rooms? Do you consider them efficient?
Mainly online we sell in the first instance to 6 travel agents who then sell to their travel agent offices
mainly in Europe. We also use Booking.com, which is one of our largest booking sites and we use
Eviivo that is the booking agent via our own website. Because we’re live with Eviivo and with
52
Booking.com , they re-sale again. Eviivo sells to Expedia and then Expedia on some other websites,
like Trivagio and other websites. But there are quite a few other websites. So what happens is
mainly Eviivio and Booking.com and then they sell to other online sites. All in all are 10, maybe a
dozen.
5. Do you find all these distribution channels efficient? Do you manage to sell all the rooms?
It is a lot of work because you have to manage the availability online. Most large hotels have a
designated reservations team, and on a daily basis they will alter the rates and the availability when
selling online. But because we are a small business we have to do it ourselves. So it takes quite a
time every day, because you have to update every time a room is available and you have to check on
all the different sites, because there might be an overbooking or double booking situation. So in
terms of efficiency it is not the best, but we want to be as competitive as possible and we want to
appear on all these websites, so we need to put ourselves up there.
6. How are you promoting your business?
Few different channels, but mainly online, we have our website, we are doing a new website every 2
years, we sell via the AA, who is an internationally recognized travel body, and locally we do features
in newspapers and magazines, especially on Christmas time and New Year, that is the time that
tends to appeal more people. We also go for online deals, in the quiet months, they have the biggest
response. We have also tried Travelzoo, Secret Escapes deals, kKgb deals, but it wasn’t particularly
good. There are times when you must look at the exposure you have and try selling the rooms.
7. Are online deals, like Groupon and travel zoo profitable, when you sell the rooms via them?
Well a Groupon it is not fantastically profitable, because the deal is a two-night stay, they have
breakfast included both days and a meal with wine included on first night. There is the cost of food
and staff. The idea behind the deal is that if they eat here in the first night, then they would also eat
and drink with you the second night and we also did a deal for 3 nights, so they would eat with us
for the 3rd night also. They pay the amount for the voucher, having the meal and the room included,
but we do not get as much as from the guests coming without the voucher. We get more from the
customers paying for the food separately, the accommodation separately and drinks separately. The
outcome is that you get guests who would have otherwise not find you. So saying in terms of
profitability yes, it is worth doing that, but only when we have empty rooms.
8. What market segment are you trying to reach?
We are very much now for everybody. When we first took over, it was the foodie market, which is
people who go away and have good food, good wine, a specific type of guest who went to certain
places for fine dining, and that is also reflected into the awards that the place has got for the foods.
So for example we have 2 AA rosettes for our food. So that is a well recognized food standard. So we
did target a specific market for that, but now we are much more inclusive. We didn’t try to be
exclusive before, but only trying to suit for a certain kind of market. Now we started to be a more
53
inclusive market, we started accommodating children and we have a children’s menu available so it
has become a lot more inclusive.
9. You have the restaurant and the hotel. Could they be one without the other? For example, run
the hotel and close the restaurant or close the hotel during the winter and keep only the
restaurant open?
One way that may well happen, because we are still a new business regarding the pub, we started
running it for just over a year, so we will still see how it works in terms of profitability in the next
years. What happens a lot with hotels and accommodation providers in the Highlands is that in the
winter period they will just close, so just open up from Easter until October and they find it is more
worthwhile. Because we created quite a local trade now, because of the public pub, local people
come up here and use the local pub and also the camp site sells, quite well during the winter
months, so what we want is to stay open during the winter months as well. The only thing that
might be considered for the next years is that we close the sale of the rooms over the winter
months but keep the pub open. So we keep doing food and drink to non-residents. So that takes
away wage cost and maintenance cost of running bedrooms and doing breakfast. During the winter
months, if you do not have occupancy it is not worth having the hotel open. We have never done it
though. We have always been open during the winter and we find it is just fine. We certainly never
close the pub. We are open on Christmas Day, we are open on 1st January.
Because is a pub we want people to come in, irrespective if they are guests or not.
10. Regarding the competitiveness here, is there a high level of competition? Are there many
competitors you should take into consideration?
In the immediate area, there are 2 or 3 other guest houses really, this is where the designators bit
comes back at it. For example, the property behind us are calling themselves a house hotel and it is
not really, it is just a guest house, because the facilities they offer are not at hotel standards, but
there is nothing we can do about it really. There is also another guest house, not far from us, which
again calls themselves a country-house hotel and it is not, it is a guest house. These are things we
are aware of and we know what our competitors are offering, but we have always felt, most of the
time, that we are pretty competitive, and that what we offer to resident and non-resident guests
will be a couple of things the local properties excel at, and is that they sell the rooms a little bit
cheaper than us but the reason for that is that the rooms are at a different standard. The main thing
that keeps us competitive and I believe that is the view, because we have the best view of any
property, and that’s what we always felt very confident about. It is brilliant we have the view and it
is the selling point of the hotel.
11. Do you have any strategy to differentiate yourselves from the competitors? Do guests know
what you have different from the others and why you sell rooms at higher rates?
I think because we have a 4-star rating with the AA, that in itself should say to guests that we are at
a better standard, hopefully that is the reason that it is a little more expensive. We feel that what
54
we offer here is worth paying a little bit more extra, I think in terms of facilities we have more to
offer here, in terms of food and drink facilities, opening hours, all that kind of things.
12. Closing the hotel in the winter, are you considering this option?
No, we are not closing the hotel this winter, but perhaps in the coming years that might happen, if
we do not get a good occupancy. This winter we will also do groupon and take the rates down to
make it more appealing. Of course we got the pub as well, and guests will see we have locals in the
bar and people in the area will eat and drink here, and maybe the locals will support their stay here,
it makes the atmosphere jollier, a bit more lively. It is a bit of a question mark whether to close the
hotel during the winter, it will definetly not be this winter, but perhaps in years to come it will be
something to think of. A lot comes down to staffing, if you keep the hotel during the winter time
then we will need the staff. Historically we have had more staff than we needed in the summer
montsh. But in the winter time is quite difficult to keep the staff if you do not know what the
occupancy will be. When we were a restaurant with rooms it was a bit easier because martin did all
the cooking and I would take care of all front of house, and other 2 local girls taking care of rooms
and breakfast. We knew we wouldn’t have more than 3 or 4 rooms and martin and I just did this
between us, but it is different now because the volume is higher and we have more people coming
now in terms of accommodation and in terms of the pub, and because of that is a bit more difficult
with the staff.
13. Do you have any future plans for the inn and the pub?
Yes, we will have another new menu coming up for the winter menu, local people would love to
have a new menu and get their hands on a new menu. It brings them back again, if they have not
been here in a while so we will do that, seasonally. The beers change pretty often as well, is good to
have the beers fresh and get new ones every so often, people like to see that. The other things that
we have planned would be a mini beer festival, but that would be just once a year, but it is
something we could be quite well known for, but it is in a development stage now and we are
thinking what time of year we could do it and where, but it is something we could thing about in
terms of putting our name out there. One of the next things we need to try is our social media
selling. It is something that we have not managed to do as well as we wanted to at the moment, so
we will concentrate on that.
It is a problem because we are not as competitive as we should be and as we would like to be.
Nationally, or in the Highlands, we need to look how competitive they are and we have a good
product we have to sell, which would be easy to sell through social media. Is easily marketable
mainly because of the view, because of what is going on here. We have a pub quiz and we are trying
to bring some bands here during the winter, so we are looking for another way of selling our rooms.
It is a problem, because we could get better exposure on social media. Unfortunately, martin and I
are not confident enough how to market it.
We are not getting the exposure we could have. It would be interesting to see if it would get people.
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THE CRAIGDARROCH INN

Transcription

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