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Banyan Tree Case Study

Case Study Presented to Associate Prof. Guntalee Ruenrom, Ph.D. & Ajarn Yayus Mak Prepared by MBA English Program #3 Kotchaphan | Laochareon | 518 27814 26 | Ratanapong | Sanpote | 518 29421 26 | Thanan | Sastarasadhit | 518 28530 26 | Karit | Yuvaboon | 518 28094 26 |

For the Course of 2605691 Seminar in Marketing Management Faculty of Commerce and Accountancy Chulalongkorn University QUESTION 1 : Identify the primary issues in the case. Between 1997 and 2005 a series of crisis severely challenged the hotel industry and stake holders, especially in asia region, which never before have so many issues that causes a crisis that has lasted that long With majority of properties located in asia, Banyan tree was hit hard by the crisis causing poor profitability in 2005. Foreseeing the risk of focusing its core operation in one region, Mr.Ho, CEO of Banyan tree initiates the expansion plan of banyan tree to open new properties in new location in order to minimize the risks. The IPO was executed to increase the capital for this expansion.

However, the key issue of this aggressive expansion in how banyan tree can maintain its respective qualities across the chain due to: * The limitation of manpower and infrastructure to consistently deliver banyan Trees experience * The danger of bran dilution in case of banyan tree expands into territories that may have a negative impact on the brand. Its very important that banyan tree ethos, culture and skill set do not disappear with the process of the growth. Tha ability to manage growth while at the same time prevents brand dilution is crucial when considering about doing a mega expansionary project. * The emergent of competition in niche markets also happened as banyan tree enjoyed the exclusivity for some time. Maintaining a niche position as market matured was an ongoing issue for the company. Price competition was experienced in 2003 2005 and new hotels competitive advantage. In order for the company to be sustainable in the global market place, it can no longer just rely on competing with costs from manufacturing efficiencies and low cost production. Banyan tree created unique value proposition by offering total brand experience to customer which becomes the unique selling proposition, to be discussed in the following section. QUESTION 2: What value propositions does Banyan Tree offer as an experiential brand? An experiential brand goes beyond simply delivering its core products or services. It connects customers with emotions, desires and lifestyles that all together deliver the total outcome or experience of the brand. The value proposition of an experimental brand does not only aim to offer consumers with functional value, but also emotional values through conceptualize interactions with consumer and bring them along the pathway to see, to feel, to use, to remember and to experience it. Banyan tree offers customers with more than just a luxury place to stay for the holidays. It has combinations of signature features of the hotel such as a tropical garden spa is also a crucial tool in delivering brand experience through its distinctive products and services authenticated by Banyan trees secret know how. As a result, Banyan tree delivers its

value proposition to customer when they stay at the hotel as a luxury retreat with romance, intimacy and rejuvenation. In addition, Banyan tree focuses on CSR campaign as one of their core brand building strategy. This creates value to banyan tree as an aspirational brand in the eye of their customer. Consequently, the customers are willing to pay premium price to banyan tree and their loyalty is enhanced, as they believe in Banyan trees value. QUESTION 3: Evaluate Banyan Trees evaluation plan. What are the potential risks that Banyan Tree should be aware of and how can it mitigate such risks? Based on current resources, is it realistic and achievable? Banyan tree evaluates the expansion to new locations based on critical criteria which are: * The natural beauty and the feature that can go along with banyan tree brand characteristic * Potential to achieve high price-to-cost ratio * Accessibility of the location * Potential market demand * Potential to establish a premium niche position in the location * The existing basic infrastructure of the location Despite carefully selecting the locations through mentioned critical criteria, Banyan Tree involves uncontrollable risks which are: * Legal and political instability The instable political situation can greatly affect the business and profitability of Banyan Tree in the long run. Given the example of Thailand market, the latest political unrests has caused fears for tourists causing the slum in the whole hospitality industry. * Inconsistent quality standard due to cultural diversity Operating in various locations around the world/continent gives Banyan tree a challenging task in maintaining the quality standard. Given the

manpower in different locations can have different mindset, attitudes, believes, and values. It is crucial for banyan tree to understand each locations cultural context in order to be able to educate and train their staffs to understand Banyan trees values and deliver them according to the standard. Despite these two risks are uncontrollable, Banyan Tree can mitigate the risk by: * Allocating larger portion of investment on property sales due to the low fluctuation of business to external environment. Based on the information given, in 2005 where tourism industry has been hit hard by natural disaster, all sales in many Business units significantly decline, except for property sales. Thus, allocating more investment in property sales would increase financial security for Banyan Tree. * Cultural diversity can be considered a risk, and at the same time, an advantage. As Banyan Tree will be operating in more locations around the world, international job rotation can bring new ideas, best practices, know-how, and skills across the locations. For example, Banyan Tree can rotate a front desk staff from China to an emerging market where it is becoming popular for Chinese tourists. QUESTION 4: Provide a financial analysis of Banyan Trees businesses and make recommendations for its growth strategy based on this analysis. The global trend of travel and tourism industry has grown continuously since 1995 to 2005.However, there were the impact on macroeconomics like Asian financial crisis on 1997, Terrorist activities on 2001, SARS on 2003 and Tsunami on 2004. Besides that, Banyan tree has run its expansion plan in Asia pacific. The over all trend has slightly grow in 2000-2005 by 2.4% with the high fluctuation during 2002-2004 due to SARS effect. Banyan tree has its IPO on August 2006, Currently Banyan tree run the operation through 18 resorts and hotels,49 SPAs, 53 Galleries and two golf courses over none countries from Indonesia to Maldives. Considering the operating profit deducted amortisation of negative goodwill.

The huge drop on 2005 was from the impact of Indian Ocean Tsunami in 2004.The revenue from Phuket resorts decreased by 40.1% and revenue from Maldives decreased by 15.7 %. The major revenue of Banyan tree is depends on Hotel investment and property sales by 57% and 30 & respectively based on 2003-2005 figures. Recommendations on Banyan tree growth strategy based on the financial perspectives. 1. Africa market is the fastest growing market in the industry with over 10% market growth. Therefore, it is an opportunity for Banyan trees expansion as it aligns with banyan tree strategy in * Being the first mover to discover the unknown location, where Africa is a potential location as it has potential to become a popular destination, yet awaits to be discover and promoted. * Low labour cost benefits Banyan tree in giving more possibility to achieve its high price-to-ratio. * The competition in premium niche hotel in Africa might be less aggressive than other region. Therefore, there are some room for banyan tree to establish the premium niche hotel position in the African market. 2. From the revenue contribution, the property sale is the least sensitive to environmental factor. It is the most secure investment. Banyan tree can mitigate the risk not only across geographical area, but also by portfolio management by giving more investment in property developments. 3. Strengthen Asian base since the Asian market generates highest revenue. However, the competition is harsh. Banyan Tree needs to secure its position in Asia market to defend its base before expanding to other regions. Moreover, Asia can be strategic a hub to develop skilled employees with low labor cost to supply them to other region for future expansion 4. Diversified Workforce in order to serve more diversified customers. Banyan tree might consider to set up the International Job Rotation to accommodate different customer ethic groups and also start the

Knowledge Management / Sharing program to make sure that the Banyan tree standard has been serve all over the expanding region. Moreover, in some region that the cost of labor is high, Banyan tree could use the Job rotation or employee transfer from the country that has lower labor cost. For example, might transfer the staff from Asia to work in Europe region.