MKT 271 ASU Marriott Rancho Las Palmas Resort Marketing Strategies Case Study You must read the HBS case and prepare a response. You should assume that you have been hired by the Marriott organization as a marketing consultant and you have been selected to answer several questions related to their marketing efforts. You must advise the company, Robert I. Small the property General Manager, and James K. Lopez, the Director of Marketing on what to do.
Management of a resort hotel near Palm Springs is reviewing the hotel’s performance nine months after opening and planning a marketing strategy for 1980. Of particular concern is the strategy to adopt during the shoulder and off-seasons when demand for the product is lower. Should the hotel even remain open in the summer when other major hotels in the area are closed? Will attempts to stimulate summer demand negate the hotel’s efforts to win a five-star rating? What market segments could be approached to utilize or occupy the hotel during the off-season?
As a marketing expert, the company is specifically interested in your answers to the following questions:
What is the best way to explore to identify a possible combination of customer segmentation that would be interested in the hotel during the summer period?
How can the company effectively market to this new segment without cannibalizing it’s existing market segments?
Based upon the VALS2 matrix, can you identify two market segments that are not currently being sought that might make sense for this hotel?
How is the current market segmented? At what segment should Marriott be targeting?
What are the pros and cons of the market segmentation strategy that you’re proposing?
Read the scenario carefully and develop your position using supporting arguments from the text reading material and any supporting videos. You must outline your position clearly. Any questions at the end of the case are suggestions to prompt your thinking and do not need to be answered in sequence. For the exclusive use of P. Cameron, 2016.
Harvard Business School
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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 1927—when 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
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
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Marriott’s Rancho Las Palmas Resort
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 premises—and 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
available—as 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 69°F-80°F; in April, May and October, the average high was 87°F-93°F. But from June
through September the average daily high exceeded 100°F, and some days in July and August the
mercury went above 120°F. 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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Marriott’s Rancho Las Palmas Resort
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 40°F 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 Springs—the hotel, retail, and financial center of the upper Coachella Valley—was
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: Golf Capital 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 provincial—even during the peak season—and 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 open—usually medium-sized, middle-quality facilities—
offered substantial discounts. Observers estimated that room rates during the “shoulder seasons 11 of
May 1–June 30 and September 15–December 15 were approximately 70%–80% of the peak season
rates charged between December 15–April 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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Marriott’s Rancho Las Palmas Resort
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