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Hyatt Company Case

Our mission is to provide authentic hospitality by making a difference in the lives of the people we touch every day (HYATT, n.d.).

4/23/2014

Daniel Klein

Klein 1

Abstract

This report analyzes the Hyatt’s options on attracting more guests to its locations. The Hyatt is a

publicly traded company which focuses on making money from people staying in their rooms of

luxury. The purpose of this report is to analyze the Hyatt options in regards to helping this

corporation attract more guests to stay at their establishments. There are three possible solutions

for handling this serious issue for the Hyatt.

The three options that are being analyzed will help attract guests to their hotels. The first option

is making new forms or improving customer service at the Hyatt. The second option is putting

new or unique products in the rooms. The third option is to lower rates on the rooms to attract

guests in staying at these locations.

These options are evaluated by the terms of competitive advantage, ease of implementation,

profit, and cost. These options will be graded by these terms on the option matrix. Once the

grading is done, the best option will be chosen for Hyatt and its future. This option will benefit

the Hyatt the most in attracting guests into their establishments.

Klein 2

Table of Contents

Abstract 1

Executive Summary 3

Hyatt History 5

Financials 7

SWOT Analysis 8

Critical Issue 9

Options Analysis 9

Possible Solutions 9

Evaluation Criteria 9

Option 1 10

Option 2 12

Option 3 14

Options Matrix 16

Recommendation 17

Conclusion 17

References 18

Klein 3

Executive Summary

The Hyatt is publicly traded corporation which strives “to bring the best hospitality to

individuals in hopes to making a difference” (HYATT, n.d.). The Hyatt faces many competitors in

the hospitality field; this area brings in fierce competition on attracting guests, this has led to a

problem on how the Hyatt will attract more guests to their hotels. The main point of this report

is to provide options where the Hyatt can utilize one of them in hopes to bring in guests to their

establishments. In this report, there are three options for attracting guests to their hotels.

The options are:

1. Better use of customer service.

2. Having new or unique products in the rooms.

3. Lower prices on rooms.

The criteria that will be grading these options are:

1. Profit

2. Cost

3. Competitive advantage

4. Ease of implementation

The first option is based on better use of customer service at the Hyatt. This option brings in

advantages in competitive advantage, ease of implementation, and profit. The disadvantage to

this solution is that cost will determine if it would be affective or not.

The second option is having new or unique products in the rooms. These products could be art

work, technology, or fabrics that are in the guest’s rooms. This option has advantages in

competitive advantage, and ease of implementation. The disadvantages are that it would bring

down profits and would cost the Hyatt money to start this solution.

Klein 4

The third option is lowering prices on rooms. This option has advantages in competitive

advantage, ease of implementation, and cost. The disadvantage is that it would not bring in the

same amount or bring in fewer profits than what the original rates were.

The best option for the Hyatt in attracting guests for their establishments would be the third

option. Lowering costs on rooms was graded the highest from the option matrix based on the

evaluation criteria. This option would bring in guests from the Hyatt’s competitors, would be

easy to implement, and would not cost the hotel as much as if they raised the rates on their

rooms. The Hyatt should be focused on the volume of guests that come into their hotels because

this will bring in a larger profit margin. The only negative side to this option is that the profits

may not match out to the original rates, but if this option is implemented correctly, then the Hyatt

should make more in profits and have more guests than they ever had before. This option is best

for the Hyatt in attracting guests to their hotels

Klein 5

Hyatt’s History:

The Hyatt Corporation began because of the Pritzker household. By the early 1950s, Jay Pritzker

was running the family business. Jay Pritzker graduated high school when he was only 14 years

old. He went to college and then got a law degree from Northwestern. Jay would become an

accomplished deal-maker even when he was young, this would lead him to become quick at

sizing up balance sheets and offering deals. In the beginning of 1957, Jay made the starting deals

that formed the Hyatt today. In 1957 Jay Pritzker bought a motel named Hyatt House after its

original owner, Hyatt von Dehn. They worked together as a team; Jay ran the business while

Donald managed and showed the guests his gregarious personality (Hyatt Corporation History.,

n.d.).

Thomas Jay Pritzker (Jay’s son) became president in 1980. The new president started with

promise because three significant firsts started in this decade: the opening of the Park Hyatt,

Grand Hyatt, and Hyatt Resort. Park Hyatts were made as small luxury hotels, which featured

personal service, elegance, and privacy. The first Park Hyatt opened in Chicago near the Water

Tower. Grand Hyatts were made for the high-end market guests who wanted culturally rich

destinations, and had sophisticated leisure, banquet, and conference facilities which held the

latest technology. Hyatt Resorts were specially designed to reflect the local area which offered

numerous activities and facilities for their guests. The first Hyatt Resort was the Hyatt Regency

Maui in Hawaii. In 1981, two skywalks at the Kansas City Hyatt Regency Hotel tumbled to the

ground, which killed 114 people and injured 229 in what the National Bureau of Standards called

the most devastating structural collapse ever to have ever taken place in the United States.

Between the years of 1981 and 1986, more than 2,000 lawsuits were settled for $120 million. In

June of 1986, 900 individuals who remained in a federal class action suit against the hotel settled

Klein 6

their claims for $1,000 each. "Gross negligence and misconduct" were attributed to engineers

Daniel Duncan, Jack Gillum, and their former company, G.C.E. International Inc., whose "hurry-

up" design system which caused them to pour concrete on one part of the building while they

finished the design on the rest of the building. Hyatt managed the hotel for its owner and builder,

Hallmark Properties, so the Hyatt was not held liable for these disasters (Hyatt Corporation

History., n.d.).

In the start of the 1990s, Hyatt's growth was challenged by the reluctance of some owners of new

hotels to hire Hyatt as managers. This was because of the given high cost of running a Hyatt

hotel. This corporation was beginning to risk losing existing contracts if they implanted this

option. The Hyatt would lay off more than 1,000 of its work force and then wanted an appraisal

of the services it was offering at its hotels. The corporation’s cost savings were interpreted in

many ways, moving to a centralized purchasing system, changing the beds from an automatic

service to one that a guest had to request, cutting down on choices offered on their restaurants

and room service menus, and outsourcing housekeeping. The company also brought in ways to

attract business travelers by describing their Gold Passport frequent stayer program. This offered

additional business-oriented amenities such which included fax machines. By 1994, Hyatt's gross

operating profits had increased 45 percent, and it was having fewer complaints from hotel

owners about costs. While its acumen in managing hotel properties was never or rarely put into

question, some observers did have doubts about the company's late entrance into areas as time-

shares and franchising. Jay and Thomas Pritzker took charge of the parent company. The

successful Pritzker track record helped the Hyatt's future (Hyatt Corporation History., n.d.).

Klein 7

Financials

Cost of R

even

ue

Gross

Profit

Interest

Expen

se

Net Inco

me

Total

Reven

ue

Operating E

xpen

se

Operating I

ncome

Operating R

even

ue

Total

Expen

ses0

500,000

1,000,000

1,500,000

2,000,000

2,500,000

3,000,000

3,500,000

4,000,000

4,500,000

201320122011

(LexisNexis® Academic & Library Solutions., n.d.).

The chart above illustrates the cost of revenue, gross profit, interest expense, net income, total

revenue, operating expense, income, revenue, and total expenses for the Hyatt. The graph shows

a similarity in the high amounts of cost of revenue, total revenue, and total expenses. These

numbers bring into question on what options that Hyatt can apply at their establishments. The

Hyatt does not want their expenses to be higher than their revenue, because if that happens, then

they will either have to reduce workers, raise prices on rooms, or have fewer accommodations

with the guests. The Hyatt spent $200 million in renovating more than 30 of its hotels in North

America. The enhancements were to replace the worn-out furnishings, improvement in access for

people that have disabilities, coffee kiosks and convenience stores to hotel lobbies, and the

installing modem ports, large desks, and better lighting in the rooms (Hyatt Corporation History.,

n.d.).

Klein 8

Competitors Net Sales

Hyatt Hotels Corporation (H) 5,876,600,000

Host Hotels & Resorts, Inc. 5,286,000,000

Marriott International, Inc. 11,814,000,000

Starwood Hotels & Resorts Worldwide, Inc.

6,321,000,000

Club Mediterranee S.A. (CU)

1,447,000,000

Melia Hotels International, S.A. (MEL)

1,834,016,623

(LexisNexis® Academic & Library Solutions., n.d.).

This table illustrates all the competitors and net sales that the Hyatt deals with. These rivals bring

in numerous amounts of guests and have advantages in the marketplace in areas where the Hyatt

does not. These rival hotels may have better customer service, more new products in the rooms,

and more money to spend in ways to improve their weaknesses rather than the Hyatt. Even with

all these competitors trying to take business away from the Hyatt Corporation, it is still one of

the leading hotel companies in North America. Hyatt manages or licenses of 87 hotels and

16 resorts in 83 cities in the United States, Canada, and the Caribbean.

SWOT Analysis

Strength

1. Company's worldwide portfolio consisted of 488 properties / hotels2. Food and beverage, banquet facilities3. Collaboration with top corporate 4. Technology upgrades from time to time5. Hygiene standards and customer experience6. One of the most popular hotel chain brands

Weakness 1. Discontent amongst employees based on salary issues due to global penetration2. Limited market share due to tough competition from international

Klein 9

and domestic players which leads to competitive services

Opportunity

1. Improvement on membership plans, customer loyalty programs2. Employee retention to ensure better services3. Set higher standards for rooms division

Threats

1. Better room facilities offered by competitors2. Loss of major business travelers to domestic group of hotels3. Security levels

(Hyatt | SWOT Analysis | BrandGuide | MBA Skool-Study.Learn.Share., n.d.).

Critical issue

The Hyatt Corporation has many threats which lead rival hotel industries to have a competitive

advantage over this corporation. This type of competition is what the Hyatt must face if they

want to be one of the top hotel chains in the world. These competitors can expose the Hyatt and

show many threats that can potentially hurt to corporation. These problems bring a certain

issue of how does the Hyatt attract more customers? The Hyatt must deal with these threats

by applying options which can bring out positive effects for its corporation.

Options Analysis

Possible solutions for this issue

1. Better use of customer service.

2. Having new or unique products in the rooms that attract customers.

3. Lower prices on rooms.

Evaluation Criteria

The criteria below are what the options are graded on:

Profit

Cost

Klein 10

Competitive advantage

Ease of implementation

Profit- can be defined as how much money the Hyatt will or won’t make if an option is

implemented. This concept is important for the Hyatt because if this corporation does not make

the necessary revenue, then they cannot stay in business with their competitors.

Cost- is evaluated by how much it will cost if one of these possible solutions is put into place.

The most effective option will be one that has minimal cost but brings out major positive

outcomes for the Hyatt. This corporation has a large amount of total expenses, so it is critical that

the Hyatt chooses an option that will bring in more guests and revenue.

Competitive advantage- is defined as which one of these options brings out a better advantage

towards another competing company. The Hyatt has many competitors in their market, which is

why this corporation needs to pick an option where other corporations will have a disadvantage

in. The Hyatt has certain strengths which make their corporation successful in regards their

competition level with their rival companies.

Ease of implementation- is determined on how easy it will be to implement these options. The

Hyatt needs to pick an option where it is easy and not time consuming. This corporation does not

have the time to pick an option that takes time to implement because they are competing

everyday with competitors that are implementing options that are easy to place in their respected

businesses.

Option 1

The Hyatt could improve existing or offer new forms of customer service. This corporation

already displays forms of customer service but could expand in ways where the guests would

Klein 11

feel more comfortable at their establishments. The Hyatt can place new types of customer service

where their competitors lack in or do not have this type of communication with their guests. An

example of this is the corporation can set up more buttons on phones in the rooms that display

new ways where guests can have service. One of these buttons can be the use of gift shops they

have at their locations. One click of this button could have guests shopping for gifts at this shop

without them even being at this store. This would make the guest’s stay even more enjoyable

than it already is. Another new idea for customer service is if they have an online website where

the guests can ask for service from the hotel. Instead of the guests calling the front desk, they can

ask their question or post a comment on a chat icon from a Hyatt online room service search

engine. The guests would be attracted to the new idea of customer service as well as the

employees at the hotel. The Hyatt can use these new forms of customer service to make their

image even more popular than what it is. This type of service will attract new guests and current

guests to these respect hotels in the present and for the future.

Advantages

Competitive advantage

Ease of implementation

Profit

Disadvantages

Cost

Competitive Advantage- this option would bring out a competitive advantage towards its rivals.

The new form of customer service will attract guests to stay at the Hyatt rather than their

Klein 12

competition because the guests will feel more comfortable and will be receiving their money’s

worth for the services that are provided.

Ease of implementation- this option will be easy to implement because the employees could

improve or bring new forms of innovation towards customer service. The Hyatt can hire

employees based on customer service and this can lead to future employees running these hotels.

Profit- this option could bring in large amounts of profit if implemented appropriately. Guests

will be attracted to the new forms of customer service and the idea that the Hyatt is making

improvements with how they communicate with their guests. This positive activity will bring in

new guests to the hotel which leads to large profits for the future.

Cost- this option will have trouble with this concept. The Hyatt will have to pay for employees or

representatives to be in charge of these services. This brings in concerns on how many new

forms of customer service will be applied at these hotels because if guests are not attracted to

these activities, then the Hyatt will reduce services for the guests.

Option 2

The Hyatt can place more new or unique products in the guest’s rooms. Guests are attracted to

these luxuries hotels for the services, the location, and facilities that they provide. New products

in the rooms would be another reason for the guests to be attracted to the Hyatt. These new

products can be based on what their competition does not have in their rooms or new ideas that

management is thinking of that guests would like in the rooms. These products could be art

work, technology or new fabrics that will be placed in the guest’s rooms. These new products

will be differentiated from other hotels because these items will be specially made for the Hyatt

and their guests. The guests are paying for luxury and a nice place to stay in, so the Hyatt should

Klein 13

have those products in the rooms for these guests. The guests will look at the Hyatt in a positive

way if management puts in new or unique products into the rooms. They will continue to be

guests at these hotels because the guests will like all the improvements or new products that they

used in the rooms while they were staying at the Hyatt. This option brings out a give and receive

method to it. If the Hyatt gives luxury and expensive products that are in the rooms, then they

will receive more guests who want to use these products and services. Guests from other hotels

will be drawn to the Hyatt because they are spending money in order for their guests to live in

luxury. This idea will bring in more guests and keep current guests satisfied that they are paying

for the right hotel.

Advantages

Competitive Advantage

Ease of implementation

Disadvantages

Profit

Cost

Competitive Advantage- this option will bring out a competitive advantage towards its rivals.

The reason is because the products that the Hyatt will have in their rooms will be based on

products that their competition does not have or is lacking in. This idea will show the Hyatt is

paying attention about their competition and is giving the guests their needs and wants unlike

their rivals.

Ease of Implementation- this option will be easy to implement because the employees and

management just need to brainstorm and find out all the new or unique products that can attract

Klein 14

guests to their hotel. They can ask for guests to give their honest opinions on what new products

should be in the rooms. The Hyatt can act on these opinions and this can lead to better

relationships with the guests and the employees of the hotel.

Profit- this option will bring in less money to the hotels. Management will have to spend money

on these new products and this will cut out of the hotel’s profits. If profits are small, then other

products or facilities will have to be raised in order to balance out the costs.

Cost- this option will bring a question on how much these products will cost the hotel. If the

products are cheap, then the Hyatt will not have worry as much as if the products are more

expensive. The more expensive the product is, and then the hotel will have to raise prices on

other things so they will be able to afford these products in the long run.

Option 3

The Hyatt can lower prices on rooms. This action will attract guests to stay at the Hyatt rather

than another hotel. The Hyatt can reduce the price of all the rooms and this will bring in an

increase of demand for their hotel. An example of this concept is if the original rate of a king size

room is $250 and they decide to lower the rate to $200. Once the rate of this room is lowered,

then the demand will raise. The Hyatt already makes huge numbers of profits with the original

rates that they already have, but this number can increase due to the number of guests that will

come stay at the hotel due to the low rates on the rooms. The low rates will attract lower and

middle class individuals as well as higher class guests too. High priced rooms will only separate

the market to individuals that can afford or who want to afford these rooms. The Hyatt will only

attract a small amount of the market while the rest of those consumers will go to their rival

competitors because those hotels will charge less for their rooms. If the prices were lowered,

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then guests from Inns, motels, and other high ended hotels will be drawn to stay at the Hyatt.

This will bring in more revenue and sustainability for these chain hotels.

Advantages

Competitive Advantage

Ease of Implementation

Cost

Disadvantages

Profit

Competitive Advantage- this option will bring in a competitive advantage against the rivals of

the Hyatt. The reason is because if the Hyatt can lower its prices to attract all types of guests,

then their rivals will have think of new ways to attract guests from this location. The Hyatt is

already a popular hotel which gives them a competitive advantage, but this option will lead this

corporation to dominate the market.

Ease of Implementation- this option is easy to implement because management just has to lower

the prices on the rooms. Once the prices are lowered, the demand for these rooms will sky

rocket. The reason is because all different types of classes of people will rent these rooms and

there will never have to be a worry of the Hyatt not attracting guests.

Cost- this option will bring very minimal costs to the hotel. This method will lower prices on the

rooms, but it will not lower the cost on any other product or service that is being used at the

Hyatt. This hotel will lose cost on what the rooms were originally placed at, but the demand for

the lower priced rooms will balance out the cost of what the original rates used to be.

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Profit- this option will be the only disadvantage for the Hyatt. Lower rates on the rooms will

bring in demand, but it may not bring in the same or more amount of profits that the Hyatt was

receiving. These hotels will bring in many guests to stay in their rooms, but the profits may not

match up to what the rates were originally.

Option Matrix

OptionAnalysis

Profit Cost Ease of Implementation

CompetitiveAdvantage

Total

Option 1 X XX X 4

Option 2 X X 3

Option 3 X XX XX 5

Klein 17

Recommendation

The option that would be best for the Hyatt’s future is lowering prices on rooms. The two options

above would help attract consumers to the Hyatt, but lowering prices on rooms brought in the

best total on the option matrix. If this option was implemented, it would bring out advantages in

competitive advantage, profit, and ease of implementation. The disadvantage to this option is that

it could lead to smaller forms of profit for the corporation. Lowering prices on rooms would

attract more customers into the Hyatt and solve this critical issue that this corporation is having.

This option would bring in positive affects for the Hyatt and for everyone associated with the

corporation as well.

Conclusion

The Hyatt Corporation has been around since the 1950s. The Pritzker household made this

organization and it has flourished to what guests see today. This family started off with one hotel

and has made a chain of hotels in no longer than 30 years. They have made one of the most

popular hotel chains in the United States. This household has led this hotel chain to have many

strengths and weaknesses as well. The Hyatt also has threats coming from their competitors and

must implement an option where it leads them to attract more guests into their establishments.

Lowering costs on their rooms would solve this threat and bring a competitive advantage, ease of

implementation, and low costs for this company. This option would bring in positive outcomes

for the corporation and attract more guests to their hotels.

Klein 18

References

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http://www.hyatt.com/hyatt/about/index.jsp?type=clear

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corporation-history/

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http://www.lexisnexis.com/hottopics/lnacademic/

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2014, from http://www.hyatt.com/hyatt/about/our-company/company-history.jsp

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http://www.hyatt.com/hyatt/reservations/roomsAndRates.jsp?

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