Submitted to:
Dr. J. K. Mitra
Faculty of Management StudiesUniversity of Delhi.
Submitted By:
Group 1
Amit Batra
S-5
Anjanee Kumar Srivastava
S-10
Mukul Grover
S-36
Pankaj Garbyal
S-40
Ruma Saxena
S-57
Sunil Manohar Singh
S-71
Syed Sarfarazul Haque
S-76
Vikas Arora
S-81
Corporate Evolution and
Strategic Management
MBA – PT- Vth Semester
Case Analysis – Playa Dorada
Tennis Club: Expansion
Strategy
Table of Contents
Q-1) What is the dilemma? ... 2
Q-2) What are the options? ... 4
Short term options: ... 4
Long term options: ... 4
Q-3) How many tennis courts needed? ... 5
Case – 1 Expand with more clay courts, leaving hard courts as it is. ... 8
Case – 2 – No Expansion, change pricing mix and offerability to increase capacity utilization. ... 8
Case 3 – Convert all 5 Hard Courts to Clay courts. ... 8
Q 4) What shall Douglas Hall Do? ... 9
Q-1) What is the dilemma?
Solution:Douglas Hall, the tennis director of Playa Dorada Tennis club faced a growing but seasonal demand for tennis courts. In his first two weeks on the job, Hall had to handle two issues: court capacity and pricing structure and he need to represent his findings and propose a strategy for the year to PD Inc. Management. But several corporate divisions had different interests in the outcome of strategy of PD Tennis.
The corporate divisions who had interest in the outcome of the strategy are as follows: • Resort Operation Division
• Marketing and Sales Division • Finance Division
• Development Division
• PC Inc. Corporate Management Resort Operations division
They are interested in a profitable operation- specially a low investment base and an easy operation to manage. However, PD tennis operations had not been profitable to date. Marketing & Sales division
They wanted to continue to promote the PD tennis services and encourage Hall to build additional courts. They wanted more i.e. to provide a free Wii tennis lounge for students (18 and under) and build a $100,000 pro shop and a clubhouse; and hire well-known tennis players.
Finance Division
They are interested in cash flow and then return on investment which was not easily attainable since there was no room for the additional courts at the existing south side location and building as new tennis club house and a pro shop-in addition to new tennis courts which would increase the fixed cost.
Development division
They wanted the courts to blend into the environment and the rest of the exotic resort buildings that meant alternative solutions such as adding high powered lights to a number of courts so that tennis could continue after dusk, or setting a cost effective tent to house the new site’s service staff that could be a challenge.
PD Inc. Corporate Management division
They believed that expansion strategy would be critical to other resort operations. E.g. the resort golf director could foresee a similar problem with his course capacity. In resolving the tennis capacity issue, management hoped to develop a methodology that could be applied to the capacity planning decisions.
Q-2) What are the options?
Solution:There are two types of options possible in this case Short run options
Long term options
Short term options:
a. Overhead lights can be installed to ensure that customers can play early morning hours and late night hours.
b. Games that are similar to tennis such as squash etc. can be facilitated by opening squash courts as it requires less space and tennis lovers would love to play squash. c. Focus on its internal operations.
d. Provide coaching facilities for kids which will attract a large number of customers who want to make their kid active and sporty.
Long term options:
a. Vertical expansion: Making a multi-storey complex at current available space which has multiple courts on multiple floors. This will increase the capacity as well as caters to the restriction of limited space and larger availability of courts during off peak period will boost revenue generation.
b. Horizontal expansion: Building of 4 new tennis courts at the existing facility which may a tricky decision. It may be a profitable for a short run but sustainability and operational efficiency and the optimum price fixation will still be an issue.
c. Opening a new entertainment centre in which various facilities will be available. It will divert the traffic and frees up the tennis courts and will also act as a sorce of revenue to the PD resort.
d. Modifying the price strategy as per the seasonal cycle. Reduce prices or more discount packages during low demand.
e. Depending on the demand of the customers, additional hard courts which were set up earlier can be converted into clay courts.
Q-3) How many tennis courts needed?
Solution:Shop Courts Total
Revenues $395,200 0 $395,200
Court fees 0 $436,000 436,000
Annual members 0 40,000 40,000
Lessons 0 40,000 40,000
Total revenue 395,200 516,000 911,200
Less cost of sale 235,200 0 235,200
Gross margin 160,000 516,000 676,000 Expenses Supervisory 28,000 152,000 180,000 Clerical 36,000 36,000 72,000 Labor 12,000 40,000 52,000 Benefits 7,600 7,600 15,200 Taxes 8,400 16,000 24,400 Supplies 7,000 3,000 10,000 Repairs and maintenance 400 13,200 13,600 Utilities 6,000 8,000 14,000 Miscellaneous expenses 14,000 14,400 28,400 Rent 12,000 48,000 60,000 Total expenses 131,400 338,200 469,600 Contribution $28,600 $177,800 $206,400
The contribution from all 18 courts combined has been only $ 177800, which is quite insignificant considering the returns from even one sale in real estate business of Playa
Dorada, hence it is quite clear that revenue from courts shall not be a consideration while arriving at decision to have more courts or not.
Let us see the capacity utilization of courts throughout the year.
Month Number of Days Days Missed Bad Weather Daily Hours (a) Total Hours Available for Play (per Court) January 31 3 8-5 252 February 28 3 8-5 225 March 31 2 8-6 290 April 30 1 8-7 319 May* 31 2 8-7 255 June* 30 2 8-7 255 July* 31 3 8-7 255 August* 31 3 8-7 255 September* 30 2 8-7 224 October 31 2 9-7 290 November 30 3 9-5 243 December 31 3 9-5 252
Month Total Court Hours Used at PD Tennis Nov-05 889 Dec-05 1,797 Jan-06 938 Feb-06 1,506 Mar-06 2,824 Apr-06 2,885 May-06 1,196 Jun-06 1,459 Jul-06 1,090
Aug-06 840 Sep-06 457 Oct-06 629 Nov-06 2,416 Dec-06 3,409 Jan-07 2,825
Below are the overall capacity utilization figures:
2004 – 18.4 % 2005 – 25.9 % 2006 – 34.8 % 2007 – 47.3 %
Therefore although the utilization has been increasing, still the overall capacity utilization currently is below 50 %, but since the demand varies as per season as well as time of day may be reflective of a very high utilization rate per existing schedules.
Looking at below key figures Nov-05 889 Dec-05 1,797 Jan-06 938 Nov-06 2,416 Dec-06 3,409 Jan-07 2,825
The overall demand for above 3 months has increased from 3624 hrs to 8650 hrs. which is around 140 % increase in demand.
Case – 1 Expand with more clay courts, leaving hard courts as it is.
Assumptions
Linear demand increase as per projections. Stable Economic conditions.
Tennis as essential vehicle for real estate business.
Number of courts to be added:
Peak Demand – 140 % Capacity utilization – 50 % Excess Demand – 40 %
Number of additional courts needed = 18 *.40 = 7.2 Courts.
Therefore 7 -8 more courts will be needed.
Case – 2 – No Expansion, change pricing mix and offerability to increase capacity utilization.
Assumptions
Uncertainty in Demand as seasonal industry. Economic conditions may change.
Only 50 % capacity utilized.
The first sector to be affected by economic cycle is real estate hence any investment shall be always conservative.
There is a scope to manipulate demand.
Case 3 – Convert all 5 Hard Courts to Clay courts.
Assumptions
Only a single segment of youth who prefer hard courts will be affected and it is not the target clientele of real estate sales.
Will cater to most variations in demands, since by calculation 7 more courts will be needed.
Increase in conversions and maintenance assumed to be of insignificant costs compared to long terms returns from real estate.
Q 4) What shall Douglas Hall Do?
Group 1 will go for Case 2, that is no expansion and adjust the pricing and offerability to suit the needs of consumers as well as organization.
Q 5) What are the implications of Tennis in PD Resort?
The following are major implications of changing pricing mix and offerability to increase capacity utilization of the tennis court.
Attracts new buyers
Improved court facilities, recreation centers, the supporting operation infrastructure and facilities will add value to home buyer customers. As given in the case the customer sees it as second home where they can spend leisure time during vacation and enjoy recreation facilities.
Good investment
Finance Division are interested in ROI and cash flow which can be attained easily.
Complement resort business
The improved pricing structure, preference for double play over singles and increased capacity due to new expansion result in better utilization of court facilities which will complement resort occupancy. It will make win-win situation for both resort business and court operations.
