Reference no: EM133121388

Question - Rick Gold is the owner of the Triple Tree chain of five-star prestige hotels. These hotels are in Miami, Munich, New York, Toronto, Beijing, Houston, Paris, and Toronto. Mr. Gold is currently struggling to set Monday-Tuesday rates for the Toronto hotel (the Toronto Triple Tree). From Wednesday through Sunday, the Toronto Triple Tree has an average occupancy rate of 90%. On Monday and Tuesday nights, however, average occupancy declines to less than 30%. Triple Tree's major customers are high-income vacationers who stay mainly Wednesday through Sunday.

The current room rate at the Triple Tree is $180 a night for single occupancy and $216 a night for double occupancy. These rates apply seven nights a week. For many years, Mr. Gold has resisted having rates for Monday and Tuesday nights that are different from those for the remainder of the week. Mr. Gold has long believed that price reductions convey a "cheap" impression to his guests. The Toronto Triple Tree decidedly values its reputation for treating its visitors as if they were royalty.

Most room costs at the Triple Tree are fixed on a short-stay (per-night) basis. Mr. Gold estimates the variable costs of servicing each room to be $24 a night per single occupancy and $26.40 a night per double occupancy.

Many prestige hotels in Toronto offer special early week rate reductions (Monday and/or Tuesday) of up to 50% of their Wednesday-through-Sunday rates. These beginning of the week rates also include additional items such as a discounted breakfasts, an alcohol package, and free Raptors tickets.

After reading the preceding activity, discuss the following questions with your groups on the discussion board:

1. What are some of the major costs faced in the hotel industry? Which ones are fixed vs. variable costs?

2. What type of company is Triple Tree (e.g., manufacturing, merchandise, service)? Does it have inventoriable costs? Explain.

3. What are some of the industry factors in the last decade or so that have impacted the hotel industry, on both a positive and negative level?

4. Would you recommend that Mr. Gold reduce room rates at the Toronto Triple Tree on Monday and Tuesday nights? What factors to protect the value proposition should be considered in his decision?

5. In four months, a Taylor Swift/Drake concert is to be held in Toronto on a Monday. Mr. Gold observes that several five-star prestige hotels have already advertised a Sunday-through-Tuesday rate for that week of $360 a night. Should Mr. Gold charge extra for that week? Explain.