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Exam 1 Study Guide

by: Rachel

Exam 1 Study Guide 499

Marketplace > Purdue University > Hospitality > 499 > Exam 1 Study Guide

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Exam 1 Review Questions and Answers
Study Guide
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This 9 page Study Guide was uploaded by Rachel on Sunday April 26, 2015. The Study Guide belongs to 499 at Purdue University taught by Adler in Spring 2015. Since its upload, it has received 111 views. For similar materials see Feasibility in Hospitality at Purdue University.


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Date Created: 04/26/15
Exam 1 Study Guide 1 The analysis of trends affecting lodging demand depends on 4 different types of compiled by government and industry organizations Name and discuss them a Information regarding the actual use of transient accommodations i Data requires little extrapolation and hypothesization Information regarding travel that may entail the use of transient accommodations i Does not directly re ect demand for transient accommodations Indicators of the general condition of the national economy and broadbased demographic trends that can have an indirect impact on the use of the transient accommodations i Does not directly re ect demand for transient accommodations Information detailing speci c characteristics of transient travel demand primary reasons for leisure travel or selection of hotels i Concerns elements of demand such as popular destinations and preferences among different market segments 2 In relation to corporate meetings versus meetings and conventions what are the unique differences in reference to size booking time and time of the year a Corporate meetings typically have a fairly small C attendance average of 69 people and range in duration from 16 days for stockholder meetings to 65 days for incentive trips The average length of a corporate meeting is 32 days Training seminars make up the largest number of corporate meetings roughly 13 The planning leadtime ranges from a low of 2 months to a high of 94 months Conventions typically consist of groups of 1000 or more and are booked a lot further in advance The average convention of more than 500 people is booked more than 4 years in advance 1050 people 10 months in advance etc Meetings and convention market have seasonal swings in demand with the high point in the late spring and low point in the middle of winter Association meetings include board meetings seminars and local chapter meetings They have an average of 91 people which is larger than the average corporate meeting but the duration is shorter 21 day average Planning leadtime ranges from 612 months in advance 3 Hotel development or acquisition begins with what 3 basic types a Identifying market areas that show longterm potential for hotel investment b Choosing a lodging product that will take best advantage of local supply and demand characteristics c Search for appropriate site 4 What is the Hotel Valuation Index who developed it and why and how is it used a A method of measuring cyclical changes in hotel values re ects trends in market values over time Hotel trends in major markets and in various average rate categories can be monitored The HVI was designed to illustrate these changes and to quantify the value attribute to movements in earnings and changes in the cost of debt and equity capital By using the HVI investors can determine their entrance and exit strategies and take advantage of the inevitable uctuations in market values HVI was initiated by HVS international in 1986 5 According to the text what are a few of the challenges facing the budget and economy segment of the lodging industry today a The introduction of budget and economy oriented extended stay products b Mid price segment of the lodging industry creating competition c No longer feasible to build these types of hotels because the perroom construction cost exceeds the perroom value 6 In their search for hotel development or acquisition opportunities investors should seek out market areas that exhibit what 4 characteristics Discuss them a Market areas with an undersupply of lodging facilities relative to the amount of demand situation develops when demand increases rapidly because of something like a new business in the area signi cant growth of an existing business or improved attractiveness of a city as a destination b Cyclical market experiencing an upward trend in occupancy it s important not to overestimate the length of an upward trend the best time to develop or acquire a lodging facility is when the cycle is nearing its lowest point c Markets in which newly constructed additions to lodging supply have been restricted or inhibited when there are barriers to entry such as zoning restrictions or government regulations Markets that offer diversity of demand these properties generally suffer fewer signi cant downturns than those who are dependent on a small number of demand generators 7 What is a market overview study Who does it and what are the two major parts of it Identi es an area with necessary longterm characteristics to support a lodging facility They are performed by directly by the hotel investor or by an independent hotel consulting and appraisal rm Should include discussion of the subject area s economic base and generators of transient visitation and an investigation into the supply of lodging facilities and operations characteristics of hotels and motels in the subject area 8 What are the 4 most desirable product traits and market conditions for preliminary product selection a A product that doesn t currently exist in the local market but for which there is suf cient demand to justify its addition to the market In addition barriers to entry limit other new additions b A product that exists in the local market but that because C of highlevel of demand and limited competition outperforms all other products and for which there is suf cient demand to justify the addition of more products of this type to the market The product enjoys the protection of barriers to entry A product that exists in the local market and that experiences strong and growing demand Competition within this product is also strong but because barriers to entry discourage entirely new products another product of the same type could be readily absorbed into the market d An existing product for which there is strong demand in the local market Competition within this product is present but if the competition suffers from poor location poor quality of facilities poor management or a weak franchise af liation a new lodging facility or an existing hotel that has been repositioned with positive attributes should be able to attract existing demand away from underperforming competition 9 What are 3 primary considerations in a site analysis a Physical suitability of the property size shape topography b Access and visibility c Availability of utilities and essential services 10 In relation to access and visibility list and discuss the 4 factors that are important to consider a The kind of guests the hotel generally attracts and the mode of transportation generally used by the guests are primary determinants of whether access and visibility are important b Quick and easy access means a route that leads directly to the property without requiring any complicated turns or directions c The location of the proposed property in relation to demand generators because a commercial traveler will usually seek a centralized location d Long term competitive environment What does the text say about the use of excess land by a hotel Is it good or bad What are 4 ways it can be utilized a Excess land will often increase the value of the property when separated from the existing hotel component Vacant land can increase visibility reduce noise and increase privacy The land can be used to create a health club retail activity or developing demand generator such as office space 11 12 The rst task in a market analysis is to de ne the boundaries of the market area in geographic terms What are the 3 factors that need to be considered in relation to this a The perimeter of a market area is set by the farthest generators of transient visitors who would likely utilize the property b Most competition is located within the market area c Overnight travelers usually seek lodging accommodations that are convenient with respect to the demand generator they are visiting 13 What is the difference between your primary competition secondly competition and negligible competition a Primary competition includes any lodging facility that attempts to attract the same transient visitors as the subject property facilities class and image b Secondary competition generally consists of facilities that attract the same transient visitors as the subject property but under special circumstances similar locational characteristics but share few other major qualities of the subject property particular class and image c Lodging facilities were operating with 60 occupancy level in the area 14 What are 4 questions that can be asked to judge whether or not a lodging facility represents any above 3 levels of competition a Does the facility in question offer a location similar to that of the subject property Is it quickly and easily accessible for the market area39s demand generators Does it have a specialized location eg airport convention center downtown or resort b Is the hotel similar to the subject property in terms of the facilities it offers Types of hotels offering specialized facilities include convention resort suite extendedstay conference center and casino C Does the hotel offer amenities similar to those of the subject property Distinguishing amenities include restaurants lounges meeting rooms swimming pools exercise rooms tennis courts and golf courses d Is the hotel similar to the subject property in terms of quality and price Classes of lodging facilities include luxury rstclass standardmidrate uppereconomy and economybudget 15 The most useful piece of information is an actual occupancy percentage for a competitive hotel in the market area under consideration What are 4 possible sources of actual occupancy information a Hotel association local assessor rooms tax collector lodging 400 survey 16 Explain what is meant by a competitor interview how is it used and who does it and what are the problems inherent in the process a Identify all of the competitor hotels in the market area and determine as accurately as possible their occupancy percentages average rates per occupied room and market segmentations done by an appraiser and generally involve a general manager People can lie during interviews The primary use is the competitive roomnight analysis 17 What is the demand generator build up method of guring out potential demand a Complicated and time consuming but the preferred way to determine the level of demand in new market areas for proposed facilities that would cater to untapped markets This approach involves the use of interviews and statistical sampling to estimate lodging demand by projecting the roomnights attributable to local demand generators 18 The above method should be used under what 4 conditions a The subject property will be situated in a new market area where there is no current competition by which to measure existing roomnight demand such as a new resort area b The subject property will cater to a particular market segment such as upscale executive conferences that does not exist in the current marketplace C The subject property will cater to a segment of the market that does not currently use standard hotels and motels such as the extendedstay market d The market has only one demand generator eg a large university situated in a small town such as the University of North Carolina at Chapel Hill 19 What is the lodging activity build up approach Used to quantify current demand More accurate c Bene cial to conduct the demand generator interviews to collect data on needs desires and experiences of actual participants in the market place 00 a Identify the primary and secondary competitive lodging facilities situated within the market area 393 Estimate the occupancies of the competitive lodging facilities C Determine the percentage of total occupancy represented by each market segment for each facility d Quantify the current accommodated roomnight demand in the area e Estimate total latent demand ie unaccommodated and induced demand for the area and develop a forecast of latent demand f Calculate accommodatable latent demand and total usable latent demand 9 Forecast accommodated roomnight demand over the projection period and combine it with total usable latent demand to yield total usable roomnight demand 391 Quantify the area39s total guestroom supply and the total roomnights available I Estimate overall area occupancy over the projection pedod 21 What is meant by the term unaccommodated demand and what are 4 factors that must be taken into consideration a Made up of transient travelers who seek accommodation within a market area but must either defer their stay or settle for less desirable accommodations because the facilities where they want to stay have no vacancies b Area occupancy nature of demand number of ll nights alternative accommodations 22 What is quotlatent demandquot and what are its two main components a Demand that potentially exists in a market but for any number of reasons its not accommodated by current lodging supply b Unnaccommodated demand and induced demand 23 What is induced demand and what is it made up of a Represents customers who are attracted to the market area for one or more speci c reasons b Second form of latent demand 24 What is the market penetration method a Percentage relationship between the actual market share and the fair market share of the lodging facility of how well the hotel is attracting hotel room night demand relative to the average hotel in the market 25 What is the competitive index method and what are its advantages a Analyzes competitive position and re ect the number of days per year for which one room in a hotel is occupied b Only one calculation is needed based on a single room easy to carry out analytical tool easier to understand than penetration method 26 What does the term stabilized occupancy mean a The anticipated levels of occupancy for lodging facilities over their economic life including any stages of buildup plateau or decline in their life cycles b Typical occupancy experiences by a hotel over its economic life 27 An estimate of the average rate depends on the evaluation of many factors List 4 a Supply and demand condition in local hostelry market b Current room rates of competitive hotels c Quality class and other attributes of subject property d Managements marketing expertise and ability to create a positive pricevalue relationship in the eyes of a consumer 28 What are the 4 terms that are used in the industry to describe different types of hotel room39s rates a Rack rates undiscounted room rates b Published rate rate found in directories and other pubHca ons c Commercial rate special discounted rate available to commercial accounts d Contract rate discounted rate to speci c users such as airline convention group bus tour etc 29 What is competitive positioning method a Forecasts the room rates of a proposed hotel by using the rates currently achieved by competitive lodging facilities 30 What is the bottom up method a The bottomup method also known as the Hubbart Formula assumes that a proposed hotel should charge room rates that will cover all the costs of its operation including a predetermined net income level debt service and development costs To use this method an appraiser rst determines the development and nancing costs of the project The process continues by working upward from the bottom of an income and expense statement which is tailored to the anticipated operating characteristics of the subject property until the required room rate is derived The required room rate as determined by this method directly re ects all of the predetermined development and operational considerations speci c to the subject property 31 What is the rule of thumb method a The rule of thumb method relies on the timehonored theory that every dollar of average room rate should support approximately 1000 of total hotel value ie land Improvements and FFampE on a per room basis 32 What are 3 reasons extended stay properties are unique and pro table a Lower guest turnover requires less front of ce staf ng b The longer stay enables property to achieve high levels of occupancies because normal weekly uctuations don t occur c High pro tability ratios 33 What are 2 major success factors for unique hotel properties a Ability to create new hotel demand b Pricevalue relationship 34 What are 3 basic locations deemed suitable for sites of transient lodging properties a Locations near transient demand generators b Locations near transportation c Locations near restaurants


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