Risk Management - Hospitality Industry - Essay Example

Business expansion Risk Analysis of hospitality industry Every business entity when initiated will have inherited risk inthem as it has to reach the costumers expectations and has to place itself in a competitive environment or it has to create a market demand to its new product to be launched. With out perceiving the risk of venturing into new market arenas the purpose of making profitability does not arise. All organizations will face some kind of risk proportions in their daily activities of their operations as the sectors demands a standard or particular norms and expectations to be met. The risk is inherited with the unexplored option which may turn in to organization benefit or it may crumble depicting that the perceptions were wrong. The common risk concerns areas are: Hazard risk: it is related to sudden incidents like fire eruption, natural calamities. Financial risk: the financial risks deal with the uncertainty of the economic viability of industry. Operational risk: is associated with various factors which has a significant role in the processes, methodologies adapted in the running the company. Strategic risk: eludes about the accuracy of the strategy implemented and explains ho far the methods adopted were proper to the company growth within the market. Identifying the risk is not so easy and the performance enhancement depends on how the companies perceive the risk and correlate the risk to the situation. The case example of the evolution of a new concept, the coffee shops into Indian service industry and the implementation method depicts the risks perceived in the ability of strategy implementation by various companies trying to position their brands in the customer mind. India, in early 90's the economy starting booming, the income levels has raised to a considerable extent, the spending capacity rose. Issues in expansion of hospitality Industry Caf coffee day initiated the coffee bars culture; the coffee bars opened a new service Market. The caf coffee day was successful in conceptualizing coffee bars but, it failed to market the coffee day outlets. The caf coffee didn't explore new market venues. The caf coffee day officials failed in analyzing the sources. The south Indian region has more coffee consumers when compared to North. The Company did not expand aggressively into the north India where there was more corporate culture in cities like Delhi and Mumbai. In a span of six years from 1996 to 2002 it was able to open only 50 outlets major of them in south India metros cities and a few in north India parts like Pune. The lack of aggressive marketing of the cafe coffee day brand allowed other competitors to captivate on the demand created by CCD .There is an inability to choose right market. The south Indian market has already some active players in the coffee shops, as coffee used to be consumed more in South India. Caf coffee day choose to compete in existing market and confined itself to southern region. The negligence of the north Indian market where there are many industrially developed areas like New Delhi, Mumbai gurgoan, Noida, Pune and the consumers who are willing to accept the trendy ambience of the caf coffee day was untapped for a long time. In a booming market a new entrant taking such a long time will certainly allow the competitors to cash the opportunity which the other coffee shops like the barista and qwiky's have done. The CCD lacked professional expertise in the business expansion which can be observed in time lag for five years, before the decision to expansion has been taken place. The workers doesn't know how to analyze the feasibility, how to locate the right market. CCD has entered into a market with other active players who already exists in the South Indian market. A company having an ambitious plan to introduce a new product should do the necessary Market research which depicts the: Type of expected clientele. The location. The necessary investment. The type of dcor. The acceptability of the product. The size of the market the firm has been looking for. The market trends in the concerned sector. The long term profit potential. The caf coffee day on a whole initiated a coffee bars concept but unable to build a dynamic strategic unit instead the company was happy with the share it has obtained in their conceived market area .Cafe Coffee day unable to expand its operations due to its organizational policies, however when a new entrant Barista espresso bar started tapping the market CCD started to visualize the possibility of expansion. The market share that has been occupied by barista is of niche market and coffee day was primarily targeting the masses so it might not possible to gain the confidence of the diverted customers who are the customers of Barista coffee bars as their place. The Barista Espresso bar has opened its business venture in north India where there is a possibility of creating a demand for the coffee product as it has been an untapped market. The Barista Company was successful in sensing the right market source. The main risk involved in launching a new product in market is that the returns were uncertain and the profitability solely depends upon the costumers who perceive the service. Service is not physical in nature to perceive it, customer should be present at the service area and the services provided should appeal to the taste of every customer who will come to perceive the service. The Barista has positioned at the right area where they are concentrating to target the elite customer. They made the differentiation (porter's generic strategies) from the other products by the first step naming themselves as a premium coffee bar outlet catering niche market. The service products normally has the daunting task as it has to bring the customers near the product, this basic requisite itself is inherited with the risk of customer acceptance. The constraint of C to P (customer to product) is a major conceived risk. When an industry is having several players to compete with and the competition, gaining the confidence becomes even more difficult task to achieve. To overcome this constraint the service industry should adopt a unique identity itself in the market to place itself as a unique product where the customer can expect some other value added service combined to this primary service activity. The Barista has done the differentiation quite efficiently by providing various other value added services combined with the unique coffee blend which is not native to the existing market the Arabica brew and inducted expertise by bringing the Brew masters trained in Italy, the ambience was lavish in Italian Espresso bar model. The ambience itself created a positive perception on the customer and made them to throng the outlet just to enjoy the lavishness as it depicted the modernity to spend time for the niche customers, and coffee as a trendy beverage. The customer -employee relationship was given top priority; there was informal and friendly greeting when the customer enters into the premises of service outlet. The company stressed upon the study customer behavior, as the customers are main revenue generating entity. The employees are thought about the behavior patterns of the guest at various restaurants and other hospitality firms to know the preferences and choices opted by the customer, which are in turn most vital in maintaining the guest loyalty. The guest retention is most important concern of the service industry. A satisfied guest spreads the positive word of mouth in his vicinity leading to customer loyalty. So the guest service preciseness has a vital role in promotion of the service. A satisfied guest is a valuable asset. Remember a dissatisfied will never return back and the negative aspect he perceived will spread faster than the positive aspect. Dissatisfied guest is major risk proportion as he hinders the customer's loyalty towards your property. The hospitality firm should supply a positive moments of truth in every aspect of the service as every moment the customer has spent will remain as a memorable experience in the customer's memory. The moments of truth will enhance the value of the service prosperity in the minds of the customer and enhances the perceptions. The environment in the service area should be visually appealing by creating a pleasant ambience to sit and enjoy coffee. The ambience has important role in projecting the service area as a place where the atmosphere is created to entice the customer. The dcor should signify the theme and should be pleasant to make the guest feel relaxed, comfortable visit to the service outlet. The display kitchens were a trend as the guest may have the experience of viewing the various production activities. The display modes are a part of the enhancement of dcor in a service property. When the service product is new to market and slowly gaining its market share the company should first try to build a brand value in such a way that the brand name itself will entice the customer to the service outlet. However, it was not the case with Barista; it was supposed to build a strong customer base and promote the brand to the other cities, when it gained popularity then it might have tried to promote the brand, instead it has opted for another strategy that to open the Barista outlet in several cities as an expansion process and then draw the customers at the locations. The expansion strategy was a false assumption that by opening several branches at many locations will allow Barista to capture the market at that location. The expansion process may be risk perception as the company didn't do the market research of the various locations to measure the feasibility of the market to a new product. The strategy works like a gamble which may sometimes push the company into serious losses. The other significance factor which drives the successful expansion is the Alliances and collaborations with various similar business entities. The alliances and collaborations allows the companies to enter into new market areas, to increase the market reach of the companies to share the revenue and investments which are vital for a business in the long run. The similar service offering done by the two companies can be shared for a wholesome benefit. The barista has a strategic alliance with TATA coffee ltd who were the suppliers of the coffee beans to the coffee bars of Barista. The alliance benefited to Barista as the TAJ group of hotels become the official suppliers of snacks which are to be served in the coffee bar outlets of barista. Educating the customer is an important method to build your product. The products like services require some time span to gain the customer choice in the market. The Barista has probably done a good thing by introducing the specialty coffee months to educate the customer about the various varieties of coffee blends available around the world. The customer who looks for difference between various outlets chooses the service of an outlet according the uniqueness it has imbibed in the service, thus giving an edge over the other companies. Barista future pressurized with the strategies like diversifying with its new products like the home segment market with out evaluating the product that has already been in the market. There was no prior analysis of whether there was any demand requirement or whether there will any market, they have opened their business into a new segment without any prior experience in doing segmentation. Any business expansion plan while expansion should enhance the services and the reach of the product to the customer. The hospitality as mentioned before require to entice the customer to the service area .What if the customer doesn't come to your service outlet even after promoting your brand as a superior product We have to go the place where there is a potential market regions like the public places in a city or a town customers can be expected. These public areas are the places where the people may come for an entertainment like cinema halls, parks etc .People may come for their work to a particular area like Banks, people may come for education like the Universities, schools and colleges. A service outlet will allow the Customer to know that there is a brand existing and due to the high turn out of crowd there are chances that people will opt for your service outlet and an assured business will be there for any service opened in these areas. The promotion of brands in the form of accessories like caps, cups will make the brand name and the brand logo give a unique identity to recognize the company product in different locations. The major risk when a new segment was opened is that there will be uncertainty in the salability of the product particularly in markets like India where most of the population is living an average lifestyle and when a company like Barista, huge investments will be diverted to develop the product which caters to the niche market .The developed product may not be able to capture the market to which it was designed .To avoid this risk we have to know what kind of product will be accepted. What pricing will make the targeted customer to divert the attention towards the product Pricing leads to salability because the value of a new product may be less and to customer have to choose your service or product even to test the standard of your product. The initial pricing will allow the customer to test the Product and to check the uniqueness of the product compared with other products available in the market of the same product line. A company should establish the product in the region were it was originated and should create a strong market before venturing into markets. The established brand will depict the popularity and the maturity of the product in the minds of the customer who are going to perceive the product. People will be made brand sensitive that leads to the profitability of the product. Barista made an ambitious plan for expansion to 250 outlets. It was a major decision as it relates to huge diversion of funds towards the expansion costs. It can be a major risk proportion as it is related to diversion of the working capital. The diversion of the funds may not allow incurring the running expenses, it can lead to operational losses for that company and pose a question on existence of the company. A new entrant has to slowly expand its operations by gradually retaining the customer base in the location. Massive expansion is a risk as funding will become an issue and opening hundred outlets hundred location will not assure you that customers will come to your outlet. A company like Barista should first look into the development of the product in a huge market like India and build a brand. The service industry must build brand recall value before venturing into new markets. The company instead of building barista as a national brand first, thought to venture into the international markets like srilanka where the markets are similar to India .The expansion strategy was to franchise with the local firms in that area. The strategic option is a risk as the franchise and franchiser may not have the experience to market the new service product. The selection of an able franchiser who can deliver your product must be selected to gain in the alien market. Reference: "Coffee parlours in India hotting up", ICFAI icmr case collection, by Y.Aparna Read More