Resort on a Remote Island

I: Your client is a resort owner on a remote island near Malaysia and they have been facing declining revenues for the past 2-3 years. Suggest reasons for the same.

C: Can I know more about their services, the competition, and their key customers?

I: Their main source of revenue is the stay and dining services they provide. The competition has other ancillary services too. They cater to all kinds of customers including locals. The locals have stopped visiting the island now and the peak period for tourists is February to September.

C: As we are only looking at the core sources of revenue which are the stay and dining facilities, can I know more about the occupancy rate.

I: Sure. The occupancy rate is 30-40% on average which is a sharp decline. Our competitors have also faced a decline but not as sharp as ours.

C: To link the decline in occupancy rate with a decline in revenues, I would like to analyze it using an equation. Framing an equation for the same, revenue would be a component of the number of customers*occupancy rate*average revenue per customer. Focusing on the first component, the number of customers, can I know how customers book a stay with the resort and how accessible the resort is?

I: Can you think of ways the resort would be able to attract customers and get bookings?

C: Sure. There can be two sources to attract customers – online and offline. Online could be through a personalized website, by partnering with a tours and travel company, or by buying advertisement slots on other related websites. Offline strategy could include partnering with a travel agent on the mainland for bookings independently or as a part of some travel package or conducting campaigns for the local population on the mainland. They could have salesmen deployed at the airport during peak season to attract tourists too.

I: This seems good. There are manned kiosks installed at the airports through which tourists can book a stay at any resort or hostel on the island. 

C: Since there is primarily only one source for attracting customers, I would like to look at the issue from a demand and supply side, considering both components – the number of customers and the occupancy rate. The decline is occupancy rate could be because of a decrease in the total addressable market, an external factor, or a decrease in customers booking client's services. Since the competitors have not taken a major hit such as the client, it reason could be a mix of both. Has there been a fall in the number of tourists visiting Malaysia or a decline in the number of tourists visiting the island? 

I: The number of tourists visiting Malaysia has been increasing by 15% year on year. The number of tourists visiting the island depends on the bookings which has reduced by some extent. Can you name a few reasons why the bookings for the client could have reduced?

C: The decline in bookings could be because of external as well as internal factors. Internal factors could be due to incorrect marketing of the service offerings or poor customer service leading to negative word of mouth. External factors could include attractive ancillary services provided by the competitors on the island, or maybe some new tourist spots have opened on the mainland due to which the bookings have reduced.

I: That is partially correct. Some new tourist spots such as luxury resorts and entertainment parks have opened in Malaysia due to which some tourists prefer to stay on the mainland itself. Can you give some recommendations for the client to deal with the declining revenues?

C: Sure. I would like to share some short term as well as long term recommendations. In the short term, the client could focus on increasing the bookings. They could tie up with some travel agents and club their services as a part of a travel package by providing individual as well as family-oriented packages, with discounts during the non-peak seasons. The locals are an underpenetrated market so the client could focus on attracting them, especially during the non-peak periods, by doing some campaigns on the mainland to initially spread word of mouth. In the long run, the client could build their own website to get bookings organically. They could focus more on attracting families and high-income individuals by adding ancillary services in their offerings.

I: This looks good. We can close the case now.