Harvard Business School 9-581-084
Rev May 9, 1988
This case was prepared by Associate Professor Christopher H. Lovelock as the basis for class discussion rather than to
illustrate either effective or ineffective handling of an administrative situation.
Copyright 1981 by the President and Fellows of Harvard College. To order copies or request permission to
reproduce materials, call 1-800-545-7685, write Harvard Business School Publishing, Boston, MA 02163, or go to
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recording, or otherwisewithout the permission of Harvard Business School.
1
Marriott’s Rancho Las Palmas Resort
The electric tram hummed across the golf course, winding its way between groups of tall
palms. Adjoining the greens, an artificial lake reflected the palms against a backdrop of shimmering
brown mountains and cloudless sky. Robert I. Small, the driver of the tram, waved his free hand
toward a cluster of buildings with white stucco walls and red tile roofs fronting the golf course.
“There are just 11 five-star resort hotels in the United States,” he said to the visitor accompanying him
on an October day in 1979, “and we aim to make Rancho Las Palmas the twelfth!
“We’re right in the middle of the desert resort area,” continued the general manager of
Marriott’s Rancho Las Palmas Resort, “just 15 minutes from Palm Springs Airport and surrounded by
country clubs, restaurants, and fashionable shops.” He swung the tram around the side of the hotel
complex, between green lawns and brilliant banks of flowers. “But like most resort areas, business
here is highly seasonal,” he went on. “Right now, we’re in the shoulder season. The prime season
starts with the Bob Hope Classic in January and lasts through April. Then there’s another shoulder
season before the summer.”
Mr. Small parked the tram near the main entrance to the resort and climbed out. “Most hotels
down here close from mid-June through mid-September,” he added. “This was our first year and we
decided to stay open during the summer. But you know, attracting guests to a resort when the
temperature’s over a hundred almost every day is quite a challenge. I thought we did pretty well!
Now we’re busy working on our strategy for 1980.
The Marriott Corporation
From the modest beginnings in 1927when J. Willard Marriott and his wife Alice opened the
first two A&W root beer franchises in Washington, D.C.the Marriott Corporation had grown into
what was considered the most diverse company in the hospitality-leisure industry. It operated five
groups of businesses: hotels, family and fast-food restaurants, contract food services (including airline
catering), theme parks (not unlike smaller Disneylands), and cruise ships. Hotels were the most
profitable group in 1978, accounting for 33% of corporate sales of $1.25 billion and for 49% of the
corporation’s $134 million operating profit.
The company had first entered the lodging business in 1957 with construction of a 370-room
motor hotel on the outskirts of Washington. Responsibility for development of the motor hotel
program was entrusted to J.W. Marriott, Jr., who succeeded his father as president in 1964. The hotel
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group grew rapidly thereafter as the company built or purchased many additional hotels. It
purchased its first resort hotel in 1967. By late 1979, there were 47 Marriott hotels located in 31 cities
of the United States, as well as in several foreign countries. There were also 18 franchised Marriott
Inns, owned and operated by other parties.
The Marriott Corporation had traditionally been a very centralized organization, with the
head office exercising strong control over operating units. But with continuing growth and broader
geographic coverage came moves toward decentralization and regional control. Within each
operating unit, the general manager had full responsibility for management and performance; all
managers and department heads reported to that individual. Meantime, the regional team
responsible for operating results within a geographic region had a staff relationship to each operating
unit for coordination, communication, auditing, training, and manpower planning.
Industry analysts and observers paid tribute to Marriott management’s pragmatism and
marketing skills. Forbes, for instance, noted:
[Marriott’s] analysis of its strengths and weaknesses is hard-headed and
realistic. . . . Its strength basically is in its knowledge of the hotel and eating
businesses, its legendary attention to the details of satisfactory food, motivating
employees, keeping clean premisesand in the all-important detail of site selection.1
Remarked The Wall Street Transcript:
Success at keeping hotel rooms booked comes about in part thanks to
Marriott’s marketing expertise. Analysts say the family has long known how to entice
customers with group rates and other incentives when occupancy shows signs of
sagging. The fact that the Marriotts have located most of their hotels in metropolitan
areas and given them a convention focus2 also guarantees good business, especially
from air travelers.
Hotel Group Strategy
During the 1970s, the Marriott hotel group had moved away from ownership of hotels (which
tied up great amounts of capital) toward operation of hotels owned by others. Some existing hotels
were sold to investors and leased back. During the previous five years, Marriott hotels had
experienced a 13% annual growth in the number of rooms. For the next five years, average annual
growth was targeted at a 20% rate on an expanding base; almost 90% of future expansion was
planned for North America. By 1979, Marriott hotels ranked twentieth in the U.S. lodging industry in
number of units operated and fourteenth in number of rooms. The company had one of the highest
occupancy rates in the industry, with more than 80% of available room nights sold. It could also boast
more “4-Star” ratings in the Mobil Travel Guide than any other hotel chain. Additionally, two of its
hotels, the Camelback Inn and the Amsterdam Marriott, received “5-Star” ratings.
The Mobil Travel Guide rated more than 20,000 hotels, resorts, and restaurants each year.
Ratings, ranging from one to five stars, were determined by field inspectors, a Mobil committee, local
and regional consultants, and an evaluation of letters from the public. Criteria included cleanliness,
maintenance, quality of furnishings, scope of facilities and services, and degree of luxury. Standards
for resorts were similar, but extra recreational services had to be available. Four stars, signifying
“outstanding,” were awarded to properties with larger-than average bedrooms, good furniture, a high
ratio of well-trained, courteous service people to guests, and an array of high-quality services and
1 Out of the Clouds, Back into the Kitchen,” Forbes, May 15, 1978, pp. 181-188.
2 “Lodging Industry: A TWST Roundtable Discussion,” The Wall Street Transcript, October 1, 1979.
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amenities, including restaurants. The distinction between a four- and a five-star resort lay in “luxury
and a consistently superior level of performance.” For a resort to be rated as “one of the best in the
country,” the quality of furnishings, decorations, and personal services should be not merely deluxe
but unique; all guests had to be shown a uniformly high level of attention from a friendly, helpful,
competent staff, with twice-daily maid service being standard; the grounds should be meticulously
landscaped, a wide selection of recreational facilities, staffed by skilled instructors, should be
availableas should special entertainment programs and the services of a social director.
Marriott executives noted that 5-star institutions enjoyed great prestige and commanded topof-the-line rates. A few exclusive groups would only hold their meetings at a 5-star hotel or resort.
Achieving and maintaining such a rating had a very positive impact on employee morale at the
facility in question, as well as enhancing the overall Marriott image. But Marriott executives
recognized that a 5-star rating entailed risks as well as bringing rewards. Guests tended to have very
high expectations and, therefore, to be more easily disappointed. And losing its fifth star could be
very damaging for the image of a hotel or resort.
The marketing strategy adopted by Marriott during the 1970s had been to reposition the
company from a chain of motor hotels to a group of properties ranking in the top 10% of all hotels in
the country. “Marriott isn’t at the top of the scale in luxury or price,” remarked J.W. Marriott, Jr. “We
offer a consistently high-quality product at a fair price; we are not flashy.” Recently constructed
Marriott hotels in urban areas were relatively conventional in appearance, lacking the dramatic
architecture of hotels in the competing Hyatt chain. Marriott advertising emphasized the quality of
personal service at its hotels, using the slogan, “When Marriott does it, they do it right.” Among the
full-color magazine advertisements recently employed were one showing guests arriving in a Rolls
Royce and being met by the doorman, and a second showing two guests breakfasting under palm
trees on an outdoor patio.
The company stated that its hotel system would “continue to focus on business travelers and
meetings groups at locations in downtown and suburban areas and near airports.” But it also planned
to expand selectively in luxury resorts, such as the 423-room Camelback Inn in Scottsdale, Arizona
(acquired in 1967), and the new Rancho Las Palmas Resort near Palm Springs, California, which
opened in January 1979.
The Palm Springs Area
Located in Southern California, Palm Springs had been internationally famous as a desert
resort for over half a century. The City of Palm Springs was the largest and best known of five
municipalities and five unincorporated communities in the upper Coachella Valley (Exhibit 1). In
mid-1979 these had a permanent population of approximately 90,000 people, a significant proportion
of whom were retired. During the first quarter of the year, the peak visitor and tourist season, the
population swelled by over 50%. Continued growth was forecast in the numbers of both residents
and visitors.
One of the appeals of the Coachella Valley to visitors was its warm, dry climate and clear
skies. During the coolest months of the year, November through March, the average daily high
ranged from 69F-80F; in April, May and October, the average high was 87F-93F. But from June
through September the average daily high exceeded 100F, and some days in July and August the
mercury went above 120F. However, even in mid-summer, the desert cooled rapidly in the evening
and the low humidity made night-time temperatures quite pleasant.
The valley was approached by highway from Los Angeles through the San Gorgonio Pass,
below the occasionally snow-clad summits of Mount San Gorgonio (11,485 feet) and Mount San
Jacinto (10,831 feet). Mountain ranges extended down both sides of the valley, at the bottom end of
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which, 228 feet below sea level, lay the 30-mile long Salton Sea. Twice as salty as the ocean, the sea
was known for its good sport fishing. The mountain climate was significantly different from the
desert. At the top of the Palm Springs Aerial Tramway, the temperature averaged 40F lower than in
the valley 8,500 feet below. Visitors could go skiing in the San Jacinto State Park in the winter and
hiking, camping, and riding there in comfortable temperatures during the summer.
Palm Springsthe hotel, retail, and financial center of the upper Coachella Valleywas
approximately 110 miles east-southeast of downtown Los Angeles, 500 miles southeast of San
Francisco, and 275 miles west of Phoenix. Its airport was served by eight airlines offering direct
service to most major western and southwestern cities in the United States. During the peak season,
the number of available flights increased to accommodate demand (Exhibit 2). But travel to Palm
Springs from eastern and midwestern cities was more expensive and time-consuming than going to
other sunbelt resorts such as Miami and Phoenix, often requiring intermediate changes for connecting
flights.
South of Palm Springs, many new country club-style condominium projects were being
developed around golf courses or other recreational facilities. Condominium units were often
purchased as second homes by residents of other states (or Canadian provinces), who limited their
stay in the Palm Springs area to less than six months per year in order to avoid paying the relatively
high California income tax.
In the view of many observers, the popularity of the Palm Springs area as a resort was
enhanced not only by its climate and magnificent natural setting, but also by the large and growing
number of entertainment, recreational, retailing, and dining facilities available. The various unofficial
titles bestowed on the area reflected its glamorous reputation: of the World (37 courses),
Playground of the Stars, and even Swimming Pool Capital of the World (6,600 in the city alone).
For some visitors, however, their first exposure to the Palm Springs area was a
disappointment. A New York Times story, written when former President Gerald Ford and his wife
took up residence in Rancho Mirage, noted that many easterners considered Palm Springs to be hot,
dull, and provincialeven during the peak seasonand were unimpressed by the desert landscape
and bare mountains.
The Convention and Visitors Bureau
The economic growth of the area had been aided by vigorous promotion from the Palm
Springs Convention and Visitors Bureau (CVB) and the Chamber of Commerce. The CVB focused on
promotion of tourism and conventions within the city limits of Palm Springs. Its annual funding of
approximately three-quarters of a million dollars came entirely from hotel room tax revenues
collected by the city; unlike similar bureaus in many other cities, the CVB sponsored no membership
program for local airlines, car rental agencies, restaurants or tourist attractions. It confined its
promotional efforts to Palm Springs, neither seeking financial contributions from hotels and visitor
attractions located outside the city limits, nor promoting such operations. No formal regional
promotional program existed to attract visitors and tourists to the valley.
The Hotel Market
Most hotel and motel rooms in the Coachella Valley were located within the City of Palm
Springs. The city boasted 177 hotels and motels offering a total of some 6,300 rooms. One-third of
these rooms and more than half of all room tax revenues were accounted for by eight major hotels:
the Canyon, the Spa, the Hilton Riviera, the Gene Autry, the Ramada International, the Westward Ho,
the TraveLodge, and the 7 Springs.
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The three major hotels outside Palm Springs were Marriott’s Rancho Las Palmas Resort in
Rancho Mirage, the Erawan Gardens in Indian Wells, and the La Quinta Hotel in La Quinta. A
number of small- and medium-sized hotels and motels were located in several of the other towns and
unincorporated areas, notably Indio. While most had swimming pools, relatively few offered such
resort facilities as golf and tennis.
Because of the seasonal nature of the demand for rooms, many hotels and motels were closed
during the summer. Those that remained openusually medium-sized, middle-quality facilities
offered substantial discounts. Observers estimated that room rates during the “shoulder seasons 11 of
May 1June 30 and September 15December 15 were approximately 70%80% of the peak season
rates charged between December 15April 30; during July and August, rates were often as low as
50%60% of the rack rate (the maximum daily charge set by management for a given room).
Contributing to this situation was the greatly reduced number of conventions held in Palm Springs
during the warmer months. The demand for hotel rooms had grown significantly over the years,
reflecting a rapid increase in the number of visitors to the Palm Springs area. In the quarter century
between 1950 and 1975, convention attendance in the City of Palm Springs rose from 8,330 to 172,850,
and had continued to rise.
A survey of Palm Springs hotel visitors showed differences according to the season.
Forty-five percent of visitors during the peak winter season came from out of state as opposed to only
12% during the summer. As compared with those who came during other seasons, winter visitors
were somewhat more likely to be making their first visit to the area, to stay longer, to be older, and to
have higher incomes (Exhibit 3). Not all visitors stayed at hotels or motels. Many owned second
homes in the valley; others found that they could rent condominiums from absentee owners.
Rancho Las Palmas
Marriott Hotels Inc. had joined forces with Sunrise Corporation to develop a major resort
hotel and country club on 27 acres 12 miles south of Palm Springs. The hotel was subsequently named
Marriott’s Rancho Las Palmas Resort. It was arranged that Marriott would manage the adjoining
Rancho Las Palmas Country Club in addition to operating the hotel, and that hotel guests would be
entitled to use the club’s golf course and tennis courts on payment of a fee; tennis cost $8.00 per court
hour. A round of golf (18 holes) cost $18 per person and rental of an electric golf cart cost $14. Tennis
fees were reduced by 50% in summer, and golf fees by 33%. The country club consisted of 864
condominium units built around three nine-hole golf courses, a clubhouse (containing restaurant, bar,
and two pro shops), and a 25-court tennis center; eight of the tennis courts were lit for night use.
The hotel consisted of a central complex, constructed in a style reminiscent of early SpanishCalifornian architecture, and 348 guest rooms and suites located in free-standing, two-story villas.
The central buildings housed the guest reception area, executive offices, a gift shop, barber and
beauty shops, a grand ballroom (capable of seating over 1,100 diners and also divisible into eight
smaller rooms), other meeting rooms, three restaurants, and a cocktail lounge.
The interior of the main buildings echoed the Spanish-California theme, with exposed wood
beams, rough textured stucco, tiled floors, wrought iron grillwork, hand-painted murals, and
Spanish-style furnishings. The guest rooms, by contrast, were furnished in contemporary style. There
were 316 deluxe rooms, 24 smaller rooms called parlors, and 8 suites. All rooms featured a patio or
balcony; some overlooked small artificial lakes, others the golf courses of the adjoining Rancho Las
Palmas Country Club. Most rooms were within a few minutes walk of one of the hotel’s two
swimming pools and hydrotherapy pools.
The main entrances to both hotel and country club were on Bob Hope Drive in Rancho
Mirage, a rapidly growing resort community. The hotel was approximately half a mile from Highway
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111, along which were located many expensive restaurants, giving the Rancho Mirage section of 111
the nickname “Restaurant Row.” An exclusive new shopping complex was located at the corner of
Highway 111 and Bob Hope Drive. Two miles further south, the town of Palm Desert offered a wide
choice of specialty shops.
The hotel opened for business on January 10, 1979, as construction workers and landscape
gardeners hurried to complete the final touches. Many Hollywood celebrities attended the official
grand opening the following month, and comedian Bob Hope broke the ribbon with a smashing golf
drive. By early October, Rancho Las Palmas had been open for 10 months and the hotel’s executive
committee was reviewing progress to date as it worked on developing a plan for 1980. Occupancy
rates and average room revenues for the first 10 periods of 1979 are shown in Exhibit 4, as are
projections for the balance of the year.
Hotel Management
Robert I. Small, general manager of Rancho Las Palmas, reported to the Marriott Hotel
Division’s vice presidentwestern region, who was located in Washington, D.C. Mr. Small headed an
executive committee consisting of himself, the hotel’s resident manager, the directors of marketing,
food and beverage (F&B), and personnel, the chief engineer, and the controller. This committee met
weekly, although the general manager often met separately with individual managers as the need
arose.
Small’s first exposure to the food and hospitality business had come 23 years earlier from
working in his uncle’s butcher shop in Tarrytown, N.Y. During college, he had worked summers at
various resorts in the Catskills, a popular mountain resort area in central New York State. From the
very beginning, he told a visitor as they walked into the cool of the hotel lobby, he had planned his
career to get exposure to all facets of the food and lodging industry. After college, he had worked for
Restaurant Associates in , then for the El San Juan Hotel in Puerto Rico. He also
worked for Fairmont Hotels and the Arizona Biltmore before joining Marriott in 1973 as resident
manager at the Essex House in Manhattan. Next, he became general manager of the Saddlebrook
Marriott in New Jersey, from which he went to the Netherlands for three years as general manager of
the Amsterdam Marriott. He had taken up his appointment as general manager of Rancho Las Palmas
seven months prior to opening.
Small paused in the red-tiled lobby to exchange brief pleasantries with a uniformed hotel
staff member. An old stone fountain splashed in the center of the lobby, surrounded by groups of
lush potted plants, including a 20-foot palm tree. Wrought iron candelabra hung from the beams of
the three-story ceiling. Beyond some rounded archways, several guests were checking in at the
reception desk. The staff member excused herself to see if she could assist them.
“Look around you!” said Bob Small. “We set a tone at Rancho Las Palmas and first
impressions are very important to our guests. We want to develop a relaxing holiday atmosphere
here and have the guests enjoy themselves,” he continued. “Our people, our facilities, and our food all
contribute to that tone.” Warming to his theme, Small led the way across the lobby and out to the
terrace overlooking the swimming pool and the golf course. “This is a very personalized business,” he
emphasized.
You’ve got to take care of the guests and take care of the employees, too. It
takes a lot of little things in both instances. There are 400 employees here at Rancho
Las Palmas during the peak seasonit’s very labor intensive. As general manager, I
like to train all my key personnel myself, so that they understand where I’m coming
from and what my criteria are. If they don’t understand, I’m in trouble!
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How involved I am is how involved my managers are going to be. It’s a
matter of leading by example. Each of the components in this resort has got to come
togetheryou have to have consistency. You also have to establish standards
standards which employees can relate to and take pride in. We’re trying to make this
a 5-star resort, which involves offering guests exceptional facilities and exceptional
service, with lots of little extra touches and amenities. I cant do that aloneit’s got to
be a team commitment. And everyone on my team understands where I stand on
that.
One of our goals is to obtain a very high level of rebookings among our
guests, both individuals and groups. The marketing people are expected to deliver
the bookings, but if the guests are going to come back again, I’ve got to hook them by
making sure the product is right.
Small saw Rancho Las Palmas as the prototype for new Marriott resorts. Unlike Camelback
Inn, which had been purchased by the corporation as a going concern, Rancho Las Palmas had been
built by Marriott from the ground up. However, the general manager felt that being part of a chain
imposed some constraints for his hotel:
Although the Marriott chain is positioned high, it’s underpositioned for
Rancho Las Palmas. We’ve had to deviate from the Marriott way at times. We’ve
needed extra touches, extra amenities, extra services. I’m always looking for added
components. That’s the only way we’ll ever get five stars.
The Marketing Organization
Immediate responsibility for marketing activities at Rancho Las Palmas rested with James K.
Lopez, director of marketing. Lopez had worked in four different Marriott hotels, including
Camelback. He supervised a staff of eight, including the director of sales and three sales managers.
Although Lopez’s immediate superior was Bob Small, he also had a formal relationship with the
regional director of marketing in Los Angeles and, through him, the vice president-marketing for
Marriott Hotels in Washington. The regional director was seen as providing a support system. “He
works to establish goals for each of the five hotels in this region, said Lopez. “He’s very experienced
and can provide me with valuable insights and information. But he doesn’t dictate.”
Lopez, like the director of marketing at each Marriott hotel, was responsible for developing a
marketing plan in the fall for the following fiscal year (beginning, at Marriott, at the end of
December). Lopez noted that the company divided its fiscal year into thirteen 28-day “periods.” Each
one of those periods, he said, had its challenges and its holidays, not only in the rooms segment but
also in food and beverage (F&B). The marketing plan addressed several areasthe rooms, F&B as it
related to the restaurants and cocktail lounges, F&B as it related to banquets, and other smaller profit
centers like the gift shop. Lopez also devoted time to solicitation of major conventions and to
advertising and public relations. The hotel employed a local public relations firm which was
responsible for press releases.
National advertising for Marriott hotels was handled by Ogilvy & Mather, Inc., of New York.
Each Marriott hotel was assessed a percentage of its total sales revenues as its contribution to national
advertising and national sales activities. Rancho Las Palmas had been assessed some $44,000 in its
annual budget (Exhibit 5) as its contribution to national advertising efforts. This advertising,
designed to gain national exposure for Marriott hotels as a group, appeared primarily in print media,
notably inflight airline magazines, Time, Newsweek, and Sports Illustrated. The agency also put out a
book of “stock” advertisements which any Marriott hotel could use to promote a wide range of
services and events (e.g., Mother’s Day lunches). Although Lopez felt that these stock ads worked
well for Marriott’s corporate hotels in urban areas, he believed that the distinctive nature of Rancho
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Las Palmas required the hotel to design its own advertising for promoting its lounges and
restaurants.
The budget for advertising and brochures at Rancho Las Palmas was set at $252,000.
Advertising accounted for two-thirds of this total. Brochures ranged from small folders to lavish fourcolor booklets printed on expensive stock. They were employed for direct mail, as sales aids for the
sales force, and for use by travel agents. Advertising was placed in travel industry publications, and
in general-interest magazines and newspapers targeted primarily at affluent readers in selected
western and midwestern markets. Advertisements and listings in Palm Springs area publications
emphasized the hotel’s restaurants and cocktail lounges.
Group business was projected to account for 65% of total room nights. Exhibit 6 identifies
group bookings at the resort during four representative periods of the year. Lopez noted that tough
negotiation was often necessary to obtain satisfactory group rates: “You have to say no sometimes,” he
remarked. The budget for sales promotion and public relations was $263,000. The director of sales
(who also supervised the work of three sales managers) was responsible for selling group bookings to
national associations and major insurance companies. The national association segment was viewed
as a prime source of group business and was projected at two-fifths of total group sales at Rancho Las
Palmas. It was, said the director, a highly sophisticated market and involved dealing with
professional meeting planners who were very demanding, familiar with major resorts around the
world, and willing to pay top rates.
The Palm Springs area did not, Lopez added, have as strong a reputation with these planners
as such resort areas as Hawaii, Phoenix, and Miami, each of which boasted a big convention center
and a large number of major hotels, and was also promoted by regional or statewide convention and
visitor bureaus. Lopez noted that both Miami and Hawaii had been successful in attracting foreign
visitors (Europeans and Japanese, respectively) during their off-seasons. Although the Phoenix area
lacked an ocean setting, it had been able to attract domestic visitors and conferences during the
summer by offering substantial discounts, emphasizing the low humidity of its climate, and
promoting the opportunity for early morning and evening recreational activities at outlying resorts.
Another major source of group business was represented by the corporate market,
particularly incentive-type sales meetings or bonus vacations, arranged by companies to reward
successful salespeople or dealers. This market was very strong in the Palm Springs area. The third
market, state and regional associations, was also quite large. Although the sales staff recognized that
Rancho Las Palmas was too expensive for many of these associations, they were still optimistic about
their ability to attract business from this segment. One sales manager was responsible for contacting
corporations and state and regional associations, while a second focused on selling to corporate
incentive houses (which arranged incentive packages for corporate customers).
The third sales manager was responsible for tour and travel business and directed her efforts
toward travel agencies and airlines, which produced both group and transient (individual) business
for the hotel. Her job included attendance at major travel agent conventions, work with airline sales
personnel, and sales calls on travel agents in key markets (especially major West Coast cities in the
U.S. and Canada).
The target for transient business had been set at 35% of total room nights. This segment was
reached primarily through advertising, direct mail, and travel agents. Transient guests paid full rates
($110 for double occupancy in a deluxe room, more for a suite) in the prime season, but could obtain
major savings during the shoulder and summer seasons.
In addition to the selling efforts at each hotel, national sales were directed by the Washington
headquarters and offices in New York, Chicago, and Los Angeles. They targeted major accounts or
prospects that might be expected to use a number of different Marriott facilities. All Marriott hotels
participated in the “Waygify” lead program, whereby organizers of group meetings at a particular
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hotel were asked, “Where Are You Going in Future Years?” Information on probable locations for
each group were then relayed to the national sales offices. Rancho Las Palmas budgeted $68,000
toward national sales expenditures.
The general manager had high expectations of the marketing group at Rancho Las Palmas
and clear ideas of the role it should play.
I want the marketing people to critique every aspect of this resort, including
competition, and I expect to use them as the conscience of the hotel. They know what
the guests are getting and they understand that word-of-mouth is a very strong
recommendation. They’re listening to the guests, they’re doing the booking, and
they’re responsible for handling the groups when they come to the resort. We have to
have an understanding here about what product the guest is going to get. I’ve known
hotel people who just think that the guest is a nuisance.
Competition
It was Bob Small’s opinion that no other hotel in the Coachella Valley could match the range
and quality of amenities offered by Rancho Las Palmas, nor the freshness of its physical facilities. The
one area of competitive weakness that he saw concerned his hotel’s lack of a health club and spa.
Construction of such a facility, if done on a first-class basis, would cost about $1.5 million. Although
the general manager had been disappointed by the initial performance of the hotel’s restaurants, he
felt that weaknesses there had been corrected as a result of physical changes in the kitchen design and
a change of management in the food and beverage department.
Small believed that the only significant local competition facing Rancho Las Palmas was the
Canyon Hotel, a couple of miles from downtown Palm Springs. Built in 1962 and enlarged in 1973 by
the addition of a large annex across the street, the Canyon complex was constructed in contemporary
style with flat roofs and a white exterior. The Canyon Hotel had changed ownership and
management more than once. It was presently managed by Pick Hotels, Inc., which also operated
resort hotels in Pennsylvania and Florida.
The Canyon had an excellent private golf course, 10 tennis courts, three swimming pools, and
a spa. Its restaurant, Hank’s, was highly regarded by visitors and valley residents alike. However,
some observers of the local hotel scene felt that the Canyon’s physical facilities were “tired” looking
and that its lobby did not create the ambiance of a luxury resort. Although the Canyon had always
closed during the summer, it was rumored that management was considering keeping the hotel open
during summer 1980. However, there was no mention of a summer season in the Canyon’s newly
published 1979-80 brochure.
Jim Lopez ensured that his staff monitored competitors on a regular basis. He pointed out
that Rancho Las Palmas competed with a number of local hotels and resorts for certain types of
business. “For instance,” he remarked, “the Gene Autry competes with us for smaller meetings.
Although I think we have a superior product, they’re less expensive, closer to Palm Springs, and do a
good job.” (Exhibit 7 summarizes characteristics of a number of leading local hotels.)
Management saw the principal competition as coming from other leading resorts around the
country, such as the Broadmoor in Colorado Springs, the Arizona Biltmore and Camelback in the
Phoenix area, and major resort hotels in California, Florida, and the south. “We are a destination
resort,” declared Bob Small, “and we must sell the destination.” However, some 5-star resorts, such as
the Greenbrier in West Virginia, were felt to be less directly competitive because their prime season
was later in the year than Palm Springs’.
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581-084 Marriott’s Rancho Las Palmas Resort
10
Experience During 1979
Despite a difficult period immediately following the opening in Januarycaused primarily
by construction delaysand disappointing weather in February, the executive committee felt that
Rancho Las Palmas’s first prime season had been a success. Occupancy rates had averaged in the 80s
and 90s, guest response to the facilities had been enthusiastic, and the percentage of rebookings had
been very high. A majority of the transient guests had been affluent middle-aged couples. Bob Small
recalled:
Initially we got a lot of ideas and advice from our colleagues at Camelback.
Once we’d established ourselves as a premier, destination type of resort, that took
care of the easy partthe prime season guest who can afford our rates. The shoulder
and summer seasons are more difficult.
In the spring shoulder season, both occupancy and rates had declined somewhat, but
business had still been brisk. The transient guests then had tended to be slightly younger than those
in the peak season, Small recalled, and some couples brought their children with them.
During the summer, a period when most of the larger hotels and resorts in the Coachella
Valley had traditionally closed, Rancho Las Palmas had elected to stay open. Some Marriott
executives had questioned the wisdom of this policy, pointing out that Palm Springs was not a
popular destination in summer and that demand would be limited.
The decision to remain open during the summer simplified, but did not resolve, an
employment problem facing hotel management. The work force of 400 employees required in the
prime season had to be reduced to half that number during the summer. The executive committee
worked hard to minimize any resulting hardship. Jobs were found for a number of employees at
other Marriott properties; for instance, 97 went to the Tan-Tar-A resort in Osage Beach, Missouri,
where the prime season occurred during Palm Springs’ off-season. Employees who wished to take the
summer off were granted leaves of absence, and only 11 actually went on unemployment. Those who
remained were cross-trained so that they could work on more than one job; thus pool waiters and
waitresses doubled as front-desk clerks. Other operating economies included reduced hours for the
laundry, gift shop, and certain restaurants; removal or replacement of certain guest room amenities
(such as expensive soap, bath gel, and sewing kits); and discontinuance of room service except for
continental breakfast.
Summer Season
The marketing plan adopted for fiscal periods 7, 8, and 9, extending from mid-June through
early September, contained three major elements. First, the basic transient rate was set at less than
40% of the prime season rate; substantial additional discounts were offered as part of weekend
package deals, family packages, golf and tennis packages, and concessionary rates for airline and
military personnel.
Second, extensive advertising was placed in local Southern California media, including Los
Angeles magazine and the Los Angeles Times. A full-page color advertisement in the former urged
readers to “Experience Marriott’s Rancho Las Palmas Resort this summer at a cool 60% reduction in
rates” (Exhibit 8).
Third, brainstorming sessions were held among the hotel’s sales staff to identify groups that
might be interested in meeting at the hotel at inexpensive rates, and to create special promotional
events and packages that might attract transient business. These ideas ranged from college and
university seminars to religious retreats to outings for fraternal groups and sports fans; from a disco
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Marriott’s Rancho Las Palmas Resort 581-084
11
weekend package to a billboard campaign to bargain rates for members of the California Teachers
Association; and from bridge tournaments to midnight tennis clinics to a running marathon.
Overall, the executive committee was pleased with the hotel’s performance during the
difficult summer season. Occupancy rates, budgeted for 44%, had remained in the vicinity of
55%-60% during each of the three summer fiscal periods (Exhibit 4), although most patronage was
concentrated at weekends. There were more young, single adultsmany of them military personnel
or airline employeesand more families with young children than at other times of the year.
Success in winning group business had been limited, especially during period 9 when
transients accounted for over 80% of room nights. Many of the groups and “mini-markets” contacted
had expressed no interest; none of the group bookings received had been large, and the biggesta
church-related group of 75 persons one weekendhad not received any of the mailings sent out to
150 church and religious groups in early May.
An Appraisal by the Director of Marketing
Jim Lopez had spent his time since arriving at Rancho Las Palmas in reviewing the hotel’s
operating experience during its first 10 fiscal periods and looking for marketing insights.
We know that in the prime season we can expect plenty of business, mostly
from affluent, middle-aged couples who’ll stay here for four or five days and then go
on to San Diego or Phoenix. There’s a lot of demand for our kind of product and
these people will pay our rates. We’re right in line with all the best resorts in the
country. But in the summertime, it gets awfully hot, so we’ve tried to turn this
around. The weather in L.A. is often smoggy and overcast in the summer; in San
Diego it can be cool, damp, and foggy. So we offer “Day in the Sun” type of
promotions which enable people to come out here for the weekend at very reasonable
rates, get a good tan by the pool and play golf and tennis in the morning and evening
when it’s cooler. We filled up every weekend this summerevery one! But weekdays
were tough, with occupancy rates in the 30s and 40s. One of the reasons it’s so tough
is that we’re just not in a location where there’s a lot of corporate business.
Groupwise, there aren’t a whole lot of meeting planners who want summer
meetings here, because of the heat. And for the most part, the organizations that
think they can afford us don’t meet in the summer anyway. So a majority of our
summer guests will probably continue to be transients. Rancho Las Palmas is
definitely a destination for weekend value seekers who want to experience a
beautiful resort and look for reduced rates to do so. But they’re a different mix of
people. They tend to wander through the lobby in swimsuits, and experience has
taught us to remove the upgraded guest amenities from the rooms since they seem to
disappear at a rapid pace during the summer months.
But the summer’s not our only problem: we’ve got to work really hard on
drawing business in the shoulder seasons, too. One difficulty is that people in this
part of the country just don’t think of Palm Springs until after the first of the year.
January through April is the prime season and then everyone just seems to bail out.
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581-084 Marriott’s Rancho Las Palmas Resort
12
Approaching 1980 at Rancho Las Palmas
By October 1979, as the Palm Springs area entered the autumn shoulder season, cumulative
financial results became available, showing that Rancho Las Palmas was 4.2% ahead of its budgeted
revenue figures for the first 10 periods of the year but 8.6% ahead of budgeted costs, resulting in a
very narrow profit margin. The executive committee was busy developing plans for 1980, as well as
working hard to increase bookings for the months through Christmas. Preliminary indications were
that the fall market was going to be a more difficult one to crack than originally anticipated; transient
business, in particular, was not as strong as had been forecast, and projections for periods 11, 12, and
13 had been scaled back accordingly (Exhibit 4).
Financial projections for 1980 included a cost budget for each of the 13 periods in the fiscal
year. The makeup of this budget varied somewhat from one period to another according to season.
Exhibit 9 shows projected costs for period 3 (prime season), period 6 (spring shoulder season), and
period 8 (off-season). The budget for the summer periods provided for an increased employment base
over 1979, since the executive committee had concluded that the hotel had been understaffed then.
About 65 personnel would have to be retained for the summer, including most of the engineers and
gardeners, and some of the administrators and security officers. The adjoining country club and its
recreational facilities would, of course, continue to operate during the summer, but these costs were
separate.
As they reviewed the experience of the resort’s opening year to date, Mr. Small addressed the
question of the summer season. “Are we going about marketing the summer season in the right way?”
he asked the other members of the executive committee. “Should we be approaching the problem
differently or should we even be opening at all?” After reviewing the experience of the spring and
considering the latest projections for the fall, he also suggested that the executive committee should
devote greater emphasis to attracting transient business in the shoulder seasons.
Finally, he stressed again his goal of a 5-star rating for the resort. “All of us at Rancho Las
Palmas have got to think five stars, and our operating and marketing plans for 1980 should reflect this
goal.”
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581-084 -13-
Exhibit 1 Visitor Map of Palm Springs and Vicinity
Note: The location of Marriott’s Rancho Las Palmas Resort is marked RLP, slightly right of the center of this map. Reprinted by permission of Palm Springs Life Magazine. Copyright 1981, Palm Springs
Life Magazine.
581-084 Marriott’s Rancho Las Palmas Resort
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Exhibit 2 Passenger Arrivals at Palm Springs Airport, 1978-79 vs. 1973-74
1973-74 1978-79
July 3,931 13,589
August 3,918 13,945
September 6,728 15,220
October 12,347 20,824
November 14,060 26,558
December 16,389 27,741
January 18,475 34,916
February 23,944 42,309
March 25,322 45,539
April 19,242 33,354
May 11,571 24,744
June 7,904 17,130
TOTAL 163,831 315,869
Source: Palm Springs Convention and Visitors Bureau.
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Marriott’s Rancho Las Palmas Resort 581-084
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Exhibit. 3 City of Palm Springs: Seasonal Analysis of the Palm Springs Hotel Visitor, 1976
Visitors in the:
Spring Summer Fall Winter
1. Visitor Origin
Southern California 75% 84% 70% 48%
Northern California 11 4 6 7
Illinois 1135
New York 0035
Oregon/Washington 2249
Arizona/Colorado/Nevada 2304
Michigan/Minnesota 0126
Canadian Provinces 1144
Other 7 4 10 15
2. Frequency of Visits
First visit to Palm Springs 16% 10% 15% 23%
Repeat visit to Palm Springs 84 90 85 77
3. Average No. of Visits Per Year
(Among repeaters) 2.3 3.2 3.9 1.9
4. Main Purpose of Visits
Pleasure/vacation 70% 76% 66% 67%
Vacation & Business 8 6 8 13
Convention 9 5 10 9
Business 5786
Therapeutic 3444
5. Average Size of Visitor Party 2.9 3.0 2.5 2.7
6. Transportation to Palm Springs
Car 82% 90% 78% 66%
Air 10 4 13 26
Car & Air 4468
Bus 0 0 1 0
7. Age of Visitors
0-20 years 15% 21% 11 11
21-35 38 42 28 28
36-50 24 20 29 26
51-65 14 11 22 20
Over 65 4149
8. Average Length of Stay (Nights) 3.1 3.0 4.5 6.0
9. Annual Family Income
Under $10,000 9% 9% 6% 6%
$10,000-19,999 27 27 19 19
$20,000-29,999 25 24 24 22
$30,000-39,999 14 16 20 12
$40,000-49,999 7 6 10 11
$50,000 and over 13 11 16 20
Source: Palm Springs Convention and Visitors Bureau.
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581-084 Marriott’s Rancho Las Palmas Resort
16
Exhibit 4 Room Occupancy Statistics, JanuaryDecember, 1979a
Occupancy Number of Rooms Occupied Average
Periodb % Rate Group Transient Total $ Rate
1c 12/30-1/26 84.3% 2,349 1,465 3,814 $55.34
2 1/27-2/23 78.1 5,886 2,737 8,623 83.30
3 2/24-3/23 90.9 6,470 2,689 9,159 83.84
4 3/24-4/20 80.9 4,917 3,132 8,049 84.30
5 4/21-5/18 63.5 6,840 1,744 8,584 69.99
6 5/19-6/15 61.2 3,363 2,756 6,119 57.35
7 6/16-7/13 57.5 2,819 3,008 5,827 31.10
8 7/14-8/10 55.8 2,408 3,624 6,032 29.56
9 8/11-9/07 60.4 915 5,360 6,275 27.78
10 9/08-10/15 55.6 3,537 1,884 5,421 48.44
11 10/16-11/02 79.4 6,162 1,578 7,740 67.18 (projecte12 11/03-11/30 78.7 4,651 3,016 7,667 70.19 (projecte13 12/01-12/29 54.8 3,156 2,186 5,342 68.83 (projectea Actual data for periods 1-10; projected data (as of 10/1/79) for periods 11-13.
b The fiscal year was divided into 13 periods of four weeks each.
c The hotel opened on January 10, 1979, so there were only 13 operating days in Period 1. During this period,
50% discounts were offered on all room rates since the hotel was still in the final construction stages.
Source: Company records.
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Marriott’s Rancho Las Palmas Resort 581-084
17
Exhibit 5 Operating Budget, 1979
Sales Revenues $’000
Rooms 5,252
Gift Shop 407
Food and Beverage 4,825
Other 242
10,726
Departmental Expenses
Rooms 1,198
Gift Shop 313
Food and Beverage 3,523
Other 327
5,361
Departmental Profit 5,365
Unit Expenses
General and Administrative 629
Credit Card Discount 125
Heat, Light, Power 306
Repairs and Maintenance 391
Sales Promotion 252
Local Advertising and Brochures 263
National Advertising Allocation 44
National Sales Allocation 68
Other 210
House Profit 3,076
Total Investment Factors 2,220
Profit Contribution 857
Source: Company records
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581-084 Marriott’s Rancho Las Palmas Resort
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Exhibit 6 Group Meetings Booked in Periods 3, 6 8, and 11, 1979
Period Type of Group Home State Type of Meeting Group Size Room Nights
3 Fast Food Co. Illinois Incentive Sales 150 200
3 Trade Association Oregon Annual Reg. Assn. 250 800
3 Electronics Company Illinois Sales 125 175
3 Trade Association Canada Annual Reg. Assn. 50 135
3 Trade Association D.C. Annual 24 48
3 Oil Company California Transportation Div. 50 110
3 Trade Association California Annual Nat. Assn. Conf. 220 550
3 Medical Center California Medical 200 400
3 Insurance Company Wisconsin Nat. Inc. Sales Conf. 250 550
3 Insurance Company Connecticut National Sales Incen. 200 670
3 Company Pennsylvania Annual Conf. 250 480
3 Company California Management 32 112
3 Insurance Company Illinois Sales Conf. 500 950
3 Trade Association California Board of Directors 70 105
3 Auto Company California Sales Conference 140 360
3 Medical Firm California Medical Conf. 250 250
3 Construction Company New Jersey Sales 24 48
3 Consulting Firm California Seminar 200 320
3 Drug Company California Sales 75 81
3 Foundation California Seminar 60 70
3 Sporting Goods Company Colorado Sales 24 59
6 Trade Association D.C. Annual Conf. 300 525
6 International Bank California International 100 150
6 Service Firm California Annual Review 25 100
6 Agric. Trade Association California Reg. Assoc. 20 70
6 Gas Company California Corporate 22 72
6 Trade Association California & New York Regional 30 30
6 Trade Association California Regional Assoc. 175 235
6 Insurance Company California Insurance Sales 35 105
6 Company California Sales 300 300
6 Trade Association California State Assn. 200 500
6 Professional Association California Pre-Convention Conf. 25 36
6 Broadcasting Company New York Programming 40 120
6 Insurance Company Illinois Annual Sales Conf. 350 635
6 Food Company California Golf Outing 100 130
6 Company Washington Award trip 36 55
6 Company California Western Regional Sales 90 300
8 Bank California Employee Outing 200 200
8 Company California Sales 200 200
8 Airline California Sales 300 200
8 Dance Professional California Dance Clinic 400 300
8 Lay Religious Group California Conference 300 200
8 Tour Group New York Youth Bus Tours 40 140
8 Life Insurance Company California Sales 22 27
8 Beauty and Talent Pageant California Youth Beauty Pageant 400 300
8 Company California Sales 300 300
8 Foundation California Annual/Fraternal 100 100
8 Franchise Bottling Co. California Sales 60 60
8 Company California Sales 500 250
8 Company California Sales 55 56
8 Airline California Sales 60 75
11 Nonprofit Organization California Regional 300 800
11. Trade Association California Annual Assn. Conf. MO 800
11 Professional Association D.C. National 80 150
11 Company Illinois Sales 150 550
11 Professional Association California Annual Regional Conf. 350 950
11 Trade Association Illinois Annual 80 160
11 Trade Association California Annual 400 675
11 Professional Association New York Fall Annual 150 475
11 Hospital California Medical Conf. 200 200
11 Nonprofit Research Assn. . Conf. 150 212
11 Company New York Sales Conf. 300 660
11 Auto Dealer California Sales Incentive 54 120
11 Electronics Firm California Corporate 14 65
11 Moving and Storage Company California Corporate 50 55
11 Security Firm California Regional Conf. 40 50
11 Company California Sales 70 120
11 Electronics Company California Corporate 20 40
11 Insurance Company California Sales Incentive 40 80
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581-084 -19-
Exhibit 7 Profiles of Selected Hotels and Resorts in the Coachella Valley, 1979
Exhibit 8 Advertising in Los Angeles Area Magazines, Summer 1979 (original in color)
586-088 Marriott’s Rancho Las Palmas Resort
20
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Marriott’s Rancho Las Palmas Resort 581-084
21
Exhibit 9 Budget Revenues and Operating Costs by Representative Seasonal Periods, 1980
(All Costs in $ Thousand)
Period 3 Period 6 Period 8a
Departmental Revenues (Prime Season) (Shoulder Season) (Summer Season)
Rooms 863 416 142
Gift Shop 62 43 24
Food and Beverage 611 334 182
Otherb 21
Departmental Costs
Rooms 139 111 74
Gift Shop 42 31 21
Food and Beverage 415 280 179
Otherb 33 31 24
Unit Costs
General Administrative 62 60 51
Heat, Light, Power 25 32 37
Repairs and Maintenance 40 41 40
Sales Promotion 22 22 20
Local Advertising and Brochures 12 12 12
National Advertising Allocation 6 4 2
National Sales Allocation 13 7 3
Otherc 35 35 20
a Management estimated that if the hotel were to close during the three summer periods, there would be
a saving of $50,000 in unit costs over the duration of the summer season. But operating expenditures
would continue to be incurred for departmental costs at the rate of $50,000 per period.
b Telephone and Recreation Center.
c Includes on-the-job training and accident insurance.
Note: Period 3 would run from February 22 to March 21.
Period 6 would run from May 17 to June 13.
Period 8 would run from July 12 to August 8.
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