A recent cover story in a national business magazine mentioned the To The Hilt Hotel chain (TTH) as an example of how NOT to manage quality. Following the article, TTH hired a consulting firm to recomment ways to improve customer satisfaction. The consultants' study concluded that the factors which determine guests' satisfaction level include the friendliness and effeciency of hotel staff, the attractiveness of the lobby, comfort of beds, and room size. Value Index analysis revealed that TTH was under-spending on employee friendliness/effeciency and lobby attractiveness relative to the value placed on these dimensions by hotel guests.
In response to the consultants' recommendation, TTH has decided to experiment with a Total Quality Management program including new training procedures and lobby renovations at its downtown Atlanta hotel, timed to be completed for the heavy tourist traffic expected to cost $145,000. Last year 85,000 guests stayed at the hotel.
The consultants' report inlcuded the following percentages relating to customer satisfaction:
- Expectations exceeded Without TQM - .30 With TQM - .37
- Satisfied Without TQM - .52 With TQM - .60
- Not Satisfied Without TQM - .18 With TQM - .03
- Estimated new quests Without TQM - 31,000 With TQM - 34,000
Stastics indicate that 80% of hotel guests whose expectations are exceeded will return. Of those who are satisfied with their experience, 45% will return, and of those who are dissatisfied, only 20% will return. Analysis of TTH accounting records indicate that returning guests stay longer, upgrade to higher priced rooms, and require fewer advertising expenses. As a result, the contribution margin per stay is $41 for returning guests, compared to the $39 for new guests.
REQUIRED:
1.In analyzing the financial benefit from quality programs, TTH evaluates the return on quality (ROQ), as the net benefit from the program divided by spending required. What is the ROQ of the total quality program recommended by the consultant?
2.Suppose TTH has decided to implement only one quality improvement effort at a time. Based on expected customer satisfaction levels provided by the consultnat (BELOW), what will be the ROQ if only the training program is implemented? Only the renovation?