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Empty Room Budget

Empty Room Budget. Prepared especially for: Ramada Worldwide. Recent Headlines. “Markets in turmoil” “Travel spending declines 1 st time since 2001 ” “U.S. to take over AIG” “Lehman Files for bankruptcy , Merrill sold” “Are we in a depression?”. Insights from Past Downturns….

william-parks
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Empty Room Budget

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  1. Empty Room Budget Prepared especially for: Ramada Worldwide

  2. Recent Headlines “Markets in turmoil” “Travel spending declines 1st time since 2001 ” “U.S. to take over AIG” “Lehman Files for bankruptcy , Merrill sold” “Are we in a depression?”

  3. Insights from Past Downturns…

  4. Don’t Touch that Ad Budget • The Impact of heavy Ad spend cuts on Premium brand share • “The clear findings was that those with the highest ad spend at the begining of any period were most likely to increase their share during the period.” • A study of the three economic downturns over the past 30 years shows that those brands who maintained advertising continually performed better than those who cut ad spend in terms of market share. • 2002 ARF Study

  5. Don’t touch that Ad Budget • Advertising in a down economy clearly creates a competitive advantage. • - It relays a more positive message about the company’s commitment to its products and services. • - More importantly, it also keeps those companies top-of-mind when purchase decisions are made. • Profit Impact of Marketing Strategy (PIMS) • Profits of companies were higher both during and following recessionary periods. • - Research based on 1,000 global companies from 1973 – 1999 • - 2 years before and 2 years after recession

  6. Recession Study Jif Peanut Butter and Kraft Salad Dressing increased their advertising and experienced sales growth of 57% and 70% respectively Coors light and Bud Light increased advertising and saw sales jump 15% and 16% respectively. Miller cut budgets and saw a 4% drop. Among fast food chains, Pizza Hut sales rose 61% and Taco Bell’s 40% thanks to strong advertising support, reducing McDonald’s sales by some 28% as they slowed advertising. MarketSense concluded the study: “The best strategy for coping with a recession is balanced exploitation of ad spending for long-term consumer motivation, plus promotion for short term sales boost.”

  7. McGraw Hill Research’s Laboratory of Advertising Performance analyzed the performance of 600+ firms: those firms which maintained or increased their advertising expenditures “averaged significantly higher sales growth” during and for the three years following the recession compared to those which eliminated or decreased advertising. • McGraw Hill Laboratory of Advertising Performance 1985 • American Business Media Study: “Sales and profits can be maintained and increased in recession years and (in the years) immediately following by those who are willing to maintain an aggressive marketing posture, while others adopt the philosophy of cutting back on promotional efforts when sales appear to be harder to get.” • American Business Media 1974 - 1975

  8. Advertising studies Pre-Recession & Post Recession • Buchen Advertising Inc. tracked a ‘large number’ of business to business companies: sales and profits dropped off, “almost without exception”, at companies which cut back on advertising. Post recession, those companies continued to “lag behind” companies which maintained their advertising budgets. • Buchen Advertising Inc. 1949, 54’, 58’ , 61’ • Harvard Business Review report of 200 companies: largest sales increases reported by companies that advertised the most during the recessionary year. • Harvard Business Review 1923

  9. Ad Cutbacks Backfired for Bankruptcy Victims Mervyn’s, Bennigan’s, Sharper Image all cut ad budgets deep! • New York Aug 2008 - In the really tough times, It’s almost instinctual for a company to dial back on marketing, but there’s a growing body of evidence… and bankruptcy filings… to suggest that cutting ad dollars can be the ultimate false economy. • Advertising levels 12 months prior to bankruptcy • -25% • -75% • -82%

  10. Hotels are stinging • Forecast: 2009 Hotel Occupancy Rate to be Lowest Since 1971 • According to the PwC forecast, 2008 RevPAR will decrease by 0.8 percent, primarily due to a 3.7 percent decrease in occupancy, the highest annual decrease in occupancy since 2001. In 2009, demand is forecast to decrease by 2.0 percent, which, when coupled with a 1.6 percent increase in supply, is expected to further reduce occupancy to 58.6 percent, the lowest since 1971...."The deteriorating outlook for the economy is impacting travel habits and spending, and hotels are expected to experience reduced occupancy levels, and to a lesser degree, some room rate erosion through 2009," said Scott Berman, principal and U.S. Leader of PricewaterhouseCoopers' Hospitality and Leisure practice.Note: RevPAR is revenue per available room. The article also mentions ADR: average daily room rate. • From PricewaterhouseCoopers: PricewaterhouseCoopers Forecasts a Substantial Reduction in Hotel RevPAR in 2009

  11. Conclusion… • We all can agree on the facts: • U.S. economy is, at best, unstable. Consumers are changing spending habits. • Hotel Occupancy is down • The opportunity to grab additional market share with maintained or increased advertising is NOW! • When times are good, you should advertise. When times are bad, you must advertise.

  12. But there’s nothing left for an ad budget! conserve your cash… • Reserves must be kept to meet obligations: • Payroll / Pensions • Maintenance • Lease payments • Infrastructure • Taxes • Security

  13. Create a media budget using empty rooms. • Every day you open the doors with an empty room, an asset withers on the vine, and is written off as a loss to the company. • The expense to keep your doors open are relatively the same regardless of what your occupancy is. • With increased “inventory”, leveraging your empty rooms makes more sense than ever.

  14. Calculating your budget * Figures based on room rack rate of $100 per room / Per night Annual Barter Budget using 1% of Rooms – $312,200

  15. Calculating your budget • In this example, I have illustrated the basic concept of how an advertising budget can be created. • Depending on what market your hotel is in and the ability of a media company to sell your hotel rooms, this may or may not be a solution for some. • When you use this concept and then pool your efforts with other Ramada owners, a powerful campaign can be created with just 1%-2% of your empty room budget.

  16. Choosing the Right Mix of Media • In-Flight Magazine • Radio • Metro Traffic Spots • Outdoor Media

  17. Thank You! Rob Fogarty, Director of Sales 21198 Beavercreek Rd. Bldg. B Oregon City, OR 97045 800-858-8973

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