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Small vs. Large Hotel Business Strategies

The document discusses the differences between small and large hotels, highlighting that smaller hotels offer personalized services while larger ones benefit from economies of scale and brand recognition. It also explores business growth strategies, contrasting organic growth with faster inorganic growth through acquisitions, particularly during economic downturns. Additionally, it provides insights into production metrics, costs, and the concepts of diminishing returns in a business context.

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5 views8 pages

Small vs. Large Hotel Business Strategies

The document discusses the differences between small and large hotels, highlighting that smaller hotels offer personalized services while larger ones benefit from economies of scale and brand recognition. It also explores business growth strategies, contrasting organic growth with faster inorganic growth through acquisitions, particularly during economic downturns. Additionally, it provides insights into production metrics, costs, and the concepts of diminishing returns in a business context.

Uploaded by

hasanrosmeen.personal
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd

1a)

a) Small hotels typically cater to traveller preference through local


charm; larger hotels don’t operate in niche markets and are more
general purpose.
b) Smaller hotels may offer more personal services, something that
wouldn’t be possible in a much larger hotel

1b)

a) Economies of scale to spread overhead costs


b) Globalization
c) Brand Recognition
d) Access to Finance
a) Horizontal Integration – expansion of a business by acquiring other
companies operating at the same level in the supply chain, typically
operating in the same industry. Vertu acquired car dealerships who
also sold cars – allowing him to increase his market share and
reduce competition and further benefitting from economies of scale.
b) He needed access to large amounts of finance, and economic
conditions such as after the 2008 recession would mean demand for
cars could potentially be lower.
c) Organic Growth –
Slower but more stable with less risk, maintains culture and
prevents culture clashes and bring customer loyalty.

Against Organic Growth –

It would be much faster to inorganically grow through


integration and mergers. The recession meant that buying
businesses was that much easier since it would be cheap.
They were able to get more assets for lower cost.

Organic has its merits, however Vertu was able to properly strategize to
maximise the benefits of scaling inorganically – particularly by exploiting
economic recession.
Average Product:

- 8
- 12
- 14
- 15
- 13.2
- 12

Marginal Product:

- -
- 16
- 18
- 18
- 6
- 6
- -
Diminishing Marginal Returns: Each additional worker adds less to
output than the previous one, occurring after labour = 4 as MP dropped
from 18 to 6.

Diminishing Average Returns: When AP starts to fall, begins after labour


= 4 as AP begins to decline.

a) Total accounting cost = £27,000

Total economic cost = £27,000 + £10,000 + £15,000 +


£2,000 = £54,000

c) Yes
Labour Total TFC TVC TC AFC AVC ATC MC
Produ (£) (£) (£) (£) (£) (£) (£)
ct
0 0 10 0 10 — — — —
1 10 10 2 12 1.00 0.20 1.20 1.20
2 22 10 4 14 0.45 0.18 0.64 0.17
3 34 10 6 16 0.29 0.18 0.47 0.17
4 42 10 8 18 0.24 0.19 0.43 0.25
5 48 10 10 20 0.21 0.21 0.42 0.33
6 52 10 12 22 0.19 0.23 0.42 0.50
7 54 10 14 24 0.19 0.26 0.44 1.00
8 54 10 16 26 0.19 0.30 0.48 0.00

Diminishing marginal returns where TP = 48

Diminishing average returns where AVC starts rising


a) Shared services like marketing, IT etc

Bulk purchasing power

- Accounting Profit = Revenue − Explicit Costs

- Economic Profit = Revenue − (Explicit Costs + Implicit Costs

- Normal Profit = The value of implicit costs (i.e., opportunity costs like
foregone salary and investment returns)
- Produce 10 units → profitable

- 15 units → break-even

- 20 units → loss-making

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