case study

Case Study on the Hillside Hotel: A small

boutique hotel in a unique location
By Timothy LG Lockyer

Introduction The Hotel

This case study discusses the concept, development and opera- Building on the top of a high, steep site presented numerous
tion of a family owned and operated boutique hotel nestled on a challenges. Heavy timber and building materials had to be hand-car-
hillside adjoining a 300 acre private native forest conservation reserve ried up the mountainside. Pumping concrete for foundations up such
in the midst of the 2300 acre working beef and sheep farm. The inspi- a steep incline tested the equipment and the operators. Wind and
ration for the hotel was conceived in 1994 by the owner of the land cold often impeded progress of the work. Traditional timber cladding
whose family had farmed in the area since the 1860s. Fraser Graham was chosen throughout the development. This is an unusual feature
stood on the highest point of his sheep and cattle station at Taupiri, for a modern building but they used the resources they had - more
near Huntly in the Waikato region in the north island of New Zealand than a third of the timber used in the construction was pinus radiata
and allowed himself to dream. As a farmer, he had tramped the ridge grown on Hillside Station and milled on site.
more times than he could remember, shifting stock, trapping possums It was a family affair, right the way through. The 26-room bou-
and clearing stubborn clumps of gorse. When he came down from the tique hotel was finally opened on 28 October 2003, by the then
mountain, he gathered his family and told them of his plans. He had Minister of Tourism, the Hon Mark Burton in the presence of the
resolved to build a hotel close to the highest point of his farm, some Maori Queen, Dame Te Atairangikaahu, with a swirl of bagpipes and
765 feet above sea level. Despite all the negatives, Fraser Graham had a powhiri (a Maori ceremony of welcome), reflecting the family’s
a vision to create and operate a stylish hotel facility, sympathetic to the Scottish background and the support of local Maori people. The build-
environment that would be a source of both pride and income for the ing design was inspired by famous American architect Frank Lloyd
family and local community. Wright – often considered the father of modern architecture and who
Mr Graham had three motivations for the development of the described his work as “organic architecture”. Care was taken to settle
hotel. First, the region had a special significance for his family. It was the buildings as lightly as possible onto the natural contours of the
where his ancestors had farmed since they arrived from Scotland in hillside.
1858. He also wanted to share it with others, plus create a venture in Current Operations
which his family could be involved. He had to counter some scepti-
It is nearly ten years since the Hillside Hotel opening and the fol-
cism from those who couldn’t fathom why anyone would want to build
lowing comes from information obtained through interviews held
a hotel on a mountaintop, especially one off the regular tourist route.
with the manager of the hotel, Rosemary Leader (nee Graham) who is
To bring this vision to fruition would need a monumental amount of
the daughter of Fraser Graham, the man with the dream. Rosemary
work. There would be resource consents to be obtained, initial sur-
left her employment as a scientist to develop and operate the hotel.
veying, concept drawings and layout, building consents, earthworks,
She had no previous experience in the industry but had risen to the
water system design, kitchen design, building project management,
challenge of her father’s passion for the dream.
on-site engineering, welding, landscaping, interior design and décor.
In the interview with the Manager the level of occupancy was ex-
Specialist assistance would be needed for visual assessment, geotech-
pressed as an area with significant challenges and something that the
nical assessment, building engineering, building drawings, electrical
hotel has been working on since it first opened. The hotel has a total of
design. While building, carpentry, plumbing and electrical work was
26 rooms. When the Hillside Hotel first opened the occupancy was less
sub-contracted the family did much of the work, pushing themselves
than had been expected. As reported by Rosemary, “In the low period
‘to the limits’, working long hours and battling the terrain, the ele-
the room occupancy could be 5 to 15 percent while in the main season
ments and bureaucracy. Fraser admits it tested them.
40 to 50 percent”. Initially the main approach was to try and even out
the occupancy. As Rosemary put it, “The levelling of occupancy was felt
to be important to be able to give continuity to the staff.” The staff of
Timothy LG Lockyer is affiliated with The University of Waikato, New
Zealand. the hotel was made up of a very small number of full time staff, plus a

Journal of Hospitality & Tourism Cases 23

number of part time staff. Although this gives flexibility with occupancy A fantastic weekend spent at hillside hotel. From the friendly greet-
falling as low as 5 percent even continuing to offer any permanent posi- ing at the front desk to the warm farewells, it was a taste of good
tions was problematic. The hotel does not offer any accommodation old fashioned kiwi hospitality. The rooms are spacious and nice
for staff on site and therefore all staff live away from the hotel and are and warm, and the restaurant serves excellent dinners and break-
drawn mainly from a surrounding 20 mile radius. It was interesting to fasts. Top marks also to our room service lunch. This is not a glitter
note in the interview that the staff did not tend to come from the local and gloss spa retreat, but authentic country living at its best. As it
town areas but rather were from local rural homes. is built on a hillside there are naturally steps to all levels, but a very
Successful promotion included flyers and offers to not-for-profit clever ‘chair lift’ makes handling luggage easier. Will definitely be
organisations and schools. These types of organisations have employ- making a return visit. Thanks especially to Rosemary and Clair.
ment breaks (and therefore potential customers) during low periods Absolutely stunning views, the dinner of lamb cutlets has to be
of the year when the corporates have fewer bookings. Rosemary re- eaten to be believed! The hand prepared fruit salad was divine.
ported that this approach has worked well. Also there has been heavy Excellent staff, and a totally refreshing time.
promotion of weekend specials, assisted through the sale of coupons Great resort, very peaceful and quiet. Awesome views and a great
through radio and internet sites which have been priced at break-even room (level 4). Very friendly staff and owner and exceptionally
point. Profits from this type of scheme may be minimal and focused on helpful! Recommend bush walk (Rangi track) in Taupiri ranges,
any additional services that can be sold to the guest but Rosemary be- awesome views of approx 12 lakes at the end (1 1/2 - 2hrs round
lieves that they have raised awareness for the hotel within the market. trip). The only problem I would have to say is the drive up to the
In addition it has generated a lot of repeat business. With these efforts resort, gravel/dirt road and bumpy, not that great at all. I would
the lowest periods now achieve 20 percent occupancy. definitely recommend this resort and stay here again. .
It is important to note that New Zealand is in the southern hemi- We found everything first class - the spacious room, furniture,
sphere therefore the seasons are reversed. The main summer holiday meals, service, plus friendly informative hosts and outstanding
is from just before Christmas up until early in February. Schools are views. Definitely highly recommended.
closed for six weeks at this time and many businesses will close com- The clear objective of management is to offer as little discount
pletely for three weeks over Christmas when there are four statutory as possible but to add value. Although there is no direct competition
holidays and many people take the bulk of their annual leave. close by, Hamilton (New Zealand’s fourth largest city, population ap-
As reported by Rosemary the hotel has done well with conferenc- proximately 125,000) is only about 15 miles away and in Hamilton
es. However, the structure and layout of the hotel is unusual and it has there is heavy discounting. [A recent unpublished research project
been really necessary to make sure that those booking a conference demonstrated that taking into account all factors (inflation, salary
understand the constraints of the hillside location. Between the rooms increases etc) most hotels in Hamilton are charging less today in real
and the other facilities the walkways and landing areas are open – the terms than they were ten years ago.] Although not encouraged at
native bush, fresh air and views are a particular feature in these areas Hillside, for specific purposes Rosemary will discount. For example
but the weather can provide difficulties. Management like those large corporate clients, depending upon their frequency of use, could
people in charge of booking events to come and see the facilities receive a discount of 10, 15 or 20 percent. This approach has worked
before confirming the booking so that they can see the property and well and there a number of large corporates (large in New Zealand
can be sure that it is what they want. The site is so unique and different terms) who regularly hold courses and retreats at the Hotel. An inter-
and there have been people who have not responded well to the loca- esting comment that Rosemary made was that corporates like to have
tion, the outdoor aspect and isolation. Management are committed to retreats at the hotel because delegates are not tempted to visit local
not disappoint guests. The example was given of a function booking bars, clubs, shops or other diversions as there are none close by, and
the restaurant and booking a band. The restaurant is at the top of the this makes the retreats a lot more productive.
development and there are three flights of stairs to get there so access Other than for corporate guests, only the basic rooms are dis-
for bringing in heavy instruments etc proved a problem. counted. The suites are only discounted as a package including
The Hillside Hotel has a small a la carte restaurant featuring the evening meal and breakfast. While still remaining flexible they try to
best of local produce. For most of the year the restaurant is promoted remember that the property is not designed for the mass market. In
only to in-house guests as access at night can be difficult. relation to segmenting guests, Rosemary identified two groups with
Some interesting comments published on TravelBug, New Zea- whom the property has particular success. The first is new immigrants
land’s online travel website, are as follows: to New Zealand, many who come from Asia and want to experience
the New Zealand outdoors in a controlled situation. The other seg-

24 Volume 2, Number 4
mented market is for New Zealanders who are living overseas, perhaps inherent problems of a poor location (Moutinho & Paton, 1991).
Australia or the UK, but want to have a New Zealand wedding. This The location is a complex mixture of attributes, for example, where
gives a traditional occasion which reflects the couple’s heritage. location close to city areas might be seen as an advantage to some,
A further sector of the market that is growing is people on a ‘get- surrounding characteristics such as noise and congestion may be seen
away’ weekend from Auckland. Auckland is New Zealand’s largest city as a disadvantage and the hotel’s use of natural resources may have
(approximately 1.4 million people and over one third of New Zealand’s impacts on the community as a whole.
total population). New Zealand employment law requires that all As location is a fixed attribute, it has to be considered along with
workers are paid four weeks annual leave on full pay. This has meant many other influencing factors. For example, location directly impacts
that leisure time has increased. The Hillside Hotel is only 60 miles from upon room rate, also influencing staff and service quality, the supply
Auckland and offers such a different experience that there is a poten- of goods and services, the use of natural resources, and pollution.
tial growth in this market. Along with the growing awareness of ‘green’ Therefore, the location of a hotel cannot be considered in isolation
issues combined with an encouragement for physical exercise and from other factors. It must be considered on a strategic level with full
outdoor pursuits, the bush walks are proving an incentive also. awareness of the factors that the hotel’s location are influenced by and
A great number of the challenges in the operation are directly have influence over (Lockyer, 2007).
related to the location and uniqueness of the product provided by this Yield Management
hotel. Currently the hotel makes a small profit; this would not cover The room rate charged by a hotel in today’s environment is a very
the true cost of family members’ time spent in the operation of the challenging issue. The management of room rates is generally related
business. The owners were asked about the return on the investment to yield management. The fundamental question that surrounds yield
but this was not possible to be answered as they did not know the management is how to “sell the right room to the right person for the
asset value of the property. right price” which in turn relates to maximising the return for the space
The hotel is currently run by the daughter of the owner of the of the hotel (Berman, 2005). Yield management originated from the
land (Rosemary Leader) and her husband. No other members of the airline industry in the 1970’s, and is based on the assumption that ho-
family (the next generation) have an interest in working the hotel and tels (like airlines) have a high fixed cost and a low variable cost (Smith,
so there is some concern about the long term future of operation. It Leimkubler, & Darrow, 1992). To successfully use the principles of yield
would be possible to bring in a management company but the cost management, hotel operators and managers must achieve an under-
of doing so would probably not be met by the current operational standing of the market in which the accommodation is operating. This
income. often requires a long term vision of the hotel’s future.
From an operational perspective yield management has two
Literature Review
parts: A differential room rate pricing strategy – the price charged to
Location a guest in any particular situation, and room inventory management –
When considering the development of a new hotel it is often allocating different types of rooms to the pattern of demand. Finding
stated that one of the most important aspects is location, location, the balance between these two impacts upon the financial success of
location (Bull, 1994). As the location of a hotel is fixed at least in the the property and also the level of satisfaction by the guest is a chal-
medium term it has a very large impact on its operation (Bull, 1994). lenge. Changing the room rate is a strategy that management often
At the same time the location has a direct impact on issues such as: uses to try to maximize revenue. Depending on the objectives of the
occupancy, room rate, the willingness of guests to travel, staffing, the management the room rate can be increased or decreased (Brewton,
supply of goods and services, and the environment where the hotel is 1991). To successfully use the principles of yield management, hotel
located (Lockyer, 2007, p11). operators and managers must achieve an understanding of the mar-
The selected location for the hotel impacts on many operational ket in which the accommodation is operating. The aspects that need
factors and as a result for this case study a multi-disciplinary approach to be understood are: average room rate charged by other hotels in
has been taken drawing on a number of different sources: the litera- the region, fixed costs of the hotel, variable costs of the hotel, cost
ture, published documents and interviews held. The aim is to give a of advertising, value of the location, amenities available in the hotel,
rounded understanding of the issues involved in the development and occupancy percentage of hotels in the competing region, competi-
operation of the Hillside Hotel. tion from other hotels, and season of the year, time, or special events
A good location is important to the successful operation of a impacting on prices.
hotel. Even excellent marketing has a problem in overcoming the An important aspect of yield management is selling to the right

Journal of Hospitality & Tourism Cases 25

person. The segmentation of the market has a direct impact on the search also indicates that part time employees are not as committed
amount charged for a particular room and works on the principle that to an organisation as full time employees, that there is a high turnover
each guest has a unique set of needs and wants. Each guest is there- of part time employees and this adds to the cost of training and im-
fore potentially a separate market. To be able to segment the market pacts upon guest satisfaction (Stamper & Van Dyne, 2003). Sometimes
management must be able to: a) decide on what basis the market part time staff can have a lack of commitment to the success of the
could be segmented, b) develop an understanding of the market hotel. Managers and full time staff perceive part time staff as less valu-
segment, c) develop ways in which the segmented market could be able (Inman & Enz, 1995). It also must be stated that in the current
measured, d) position the product so that it becomes attractive to the economic environment these perceptions of part time employees are
segment of the market, e) develop a plan of the mix of products to be not necessarily accurate.
sold in the segment. The level of education among employees is having an impact
Marketing on the desire of people to work within the hotel industry. As the level
Hotels are a service industry. Hotel products have the following of education increases in the local population, there is a growing re-
characteristics: inseparability, intangibility, perishability and variability. luctance to work in a hotel where employment can include unsocial
The marketing of a hotel is very different from a product. Since the hours and weekend work. The style, location, and type of hotel plus
1960’s many marketers have been talking about the four P’s (product, numerous other factors influence staffing requirements. Where a par-
price, place, promotion) which in relation to service industries has ticular hotel is isolated, the pool of experienced staff is limited. If there
been expanded up to, as suggested by some, the 7P’s or 8P’s (Booms is a need to bring staff into the area for employment this can be very
and Bitner, 1981). Whether there are 6P’s, 7P’s, or 8P’s (Collier, 1991) is expensive. As a result the talent available to a hotel located a long way
not important for the purpose of this discussion, but what is impor- from available staff is problematic.
tant is that in the hotel industry, the service characteristics need to be
Case Study Questions
reflected in the approach to marketing. A key ingredient of marketing
1. As a manager of the Hillside Hotel what would you consider
a hotel to a guest requires an understanding of the guest’s ‘needs’,
as the strengths of the hotel?
‘wants’ and ‘demands’.
2. How would yield management be applied in the case of the
Potential guests looking for a hotel room make a number of deci-
Hillside Hotel?
sions when choosing where to stay. The process that they go through
in the selection of a product is important for hotel managers to under- 3. Discuss the current segmentation of the market in relation
stand. As suggested by Lewis (1984), management should accept: 1) to the Hillside Hotel and suggest new and innovative ap-
That a particular hotel will be evaluated differently by different guests, proaches to this.
2) Where a particular guest is satisfied with one hotel they may be dis- 4. With a large fluctuation in room occupancy there is a need
satisfied with another, and 3). The perceptions of guests change over for flexibility. The hotel has a small number of full time staff
time and with experience. The decision process is complex. Lockyer and the rest of the employees are made up of part time staff.
(2005) developed a model which comprised items which he calls ‘must What issues can you see from such a situation?
haves’, such as cleanliness, fittings and fixtures and ‘trigger points’ such 5. The experience of the management at the Hillside Hotel has
a facilities and price. been that where one person in a group staying at the prop-
Human Resource erty will have an enjoyable time there are those in the same
group that have the opposite view. What are ways in which
As a business, a hotel’s major asset is its employees. The process
market segmentation and the understanding of different
of recruiting, selection, training, and so on, is expensive and requires
markets assist in reducing dissatisfaction?
considerable care. Because of the characteristics of the hotel industry,
human resource is a vital part of its management. Many of the staff in 6. How can you as the manager of the Hillside Hotel develop
a hotel have direct relationships with the guests. This type of relation- your marketing plan for the next five years?
ship is more acute in smaller operations than large ones as there is 7. In considering the Hillside Hotel how could being part of a
a much smaller number of staff and each has a closer direct service larger group of properties assist in the development of new
relationship. Managers need to motivate their staff so that they can markets?
undertake many complex processes and give satisfaction to the guest.
International research (Cho & Wong, 2001) indicates that a lot of jobs
within hotels are filled by those who are there on a part-time basis. Re-

26 Volume 2, Number 4
References
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Booms, B., & Bitner, M.J. (1981). Marketing strategies and organizational
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Journal of Hospitality & Tourism Cases 27