Auberge de La Fontaine – E-Business Case Study

Publication Date: June 2004

• Introduction
• Context and Favourable Conditions
• Development Phases
• Strategic Scope
• Key Success Factors
• Barriers to Adoption
• Creating Value
• Performance Measurements
• Future Prospects
• Implications for E-business Development
• Technical Notes on the Business

Introduction

The Auberge de La Fontaine (Auberge) is a medium-sized inn with fewer than 25 rooms. It is located opposite Parc Lafontaine in Montréal. It has enjoyed real success as a result of adopting an electronic business (e-business) strategy, which has enabled it to increase its business volume by 30 percent. Its founder and current owner, Jean Lamothe, who worked for several years in real estate development, felt that they had not made the most of the inn's location. In 1989 and 1990, the Auberge underwent an important expansion when two former triplexes were combined.

Tourisme Montréal has given an honourable mention to the Auberge for its use of yield management, which is based on mathematical modeling that makes it possible to establish a pricing policy that takes several variables into account. Yield management is a practice widely used by airlines to adjust prices to demand. Mr. Lamothe attended several conferences, one of them organized by the Groupe d'intervention en tourisme at the Université du Québec à Montréal. This triggered his decision to adopt an e-business strategy. During a symposium on e-business, Mr. Lamothe also met several Americans, who made him aware of the potential of an e-business model, which would enable him to attract new customers, mainly Americans, interested in visiting Canada as tourists.

Context and Favourable Conditions

The e-business strategy relies on several favourable conditions, indicated below.

1. The founder and current owner is an economist who is interested in new information technology applications and, in particular, database management.
   
   
2. For several years, the Auberge engaged in direct marketing and integrated this experience into its database management operations.
   
   
3. The main clientele targeted is North American and many American customers own personal computers. A majority of the customers already engage in online shopping and are comfortable making reservations using the Internet.

Development Phases

Since 1996, the Auberge's owner has been interested in the Internet as a means of broadening his clientele. In 1998, a Web site was designed for the Auberge, followed in the summer of 2000 by a second site offering more complete information.

At the same time, two important initiatives were undertaken, i.e. the development of a database and the elaboration of a pricing system based on yield management. These two initiatives are the pillars in the development of the Auberge's e-business strategy.

Strategic Scope

1. Scope of Functionalities and Services

Extensive strategic researching of Web sites made it possible to ensure that the Auberge's site provides the most complete information among the sites in its category and that it helps users to make a purchase decision.

The site is also very user-friendly. Its developers sought to design a site that is usable by individuals who have no computer knowledge.

Among its functionalities, the site features complete information, including:

• a map;
• a currency converter;
• information on tourist and cultural activities in Montréal; and,
• links to Tourisme Montréal and Bonjour Québec.com.

The functionalities are aimed at providing simple tools that facilitate decision-making. It is the links to the information on tourist and cultural activities in Montréal that have enjoyed the greatest success and are enhancing the site's value.

However, it should be noted that reservations are not made online but rather by means of a form that the customer must send to the inn.

2. Market Scope

From a marketing standpoint, the objective is to find a way of attracting tourists to the 21-room inn when there are 21,000 rooms available in Montréal. Quiet, fairly trendy urban baby boomers are the target clientele, since the Auberge is located in the heart of the Plateau Mont-Royal district.

It should be noted that the Auberge receives secondary bookings stemming from the overall demand for Montréal. It is the demand for Montréal that significantly influences the demand for the Auberge.

The market strategy relies on cross-referrals to the Auberge Web site, through of 380 links. More specifically, the inn uses four cross-referral portals with similar levels of traffic, i.e. Bonjour Québec.com, B&B Select, Band &.com and Worldres. It is worth noting, however, that search engines provide the Auberge with most of its traffic.

3. Geographic Scope

From a geographic standpoint, everything is centralized on a single Web site (the Auberge has only one service outlet). In order to better serve a North American clientele, the site is trilingual, i.e. French, English and Spanish. A series of e-mails have already been translated into Spanish to ensure a prompt response to requests submitted in that language.
 
An Auberge employee speaks Spanish fluently and plays a support role when specific questions arise.

4. Scope of Skills

An in-house team comprised of the owner, the director of marketing and an Auberge employee with a basic knowledge of programming was entirely responsible for designing and developing the site.

Key Success Factors

1. The Auberge has had a Web site since 1998 and was ahead of most Canadian inns in this respect. Its e-business initiatives were precocious.
   
   
2. Experience with respect to direct marketing and, in particular, database management facilitated the adoption of the Internet. The Auberge has 380 links with other sites that provide cross-referrals. (The development of these links was difficult and the site also requires frequent updates.)
   
   
3. Yield management makes it possible to use a pricing policy that better satisfies the needs of the market.
   
   
4. Investments in the site's development were recouped quickly, within six to eight months. A marked increase in customers enabled the Auberge's site to pay for itself rapidly.

Barriers to Adoption

The Auberge faced few barriers to the adoption of an e-business strategy.

One of the barriers, which is indeed a consideration, was the delay in recovering the Auberge's investment in this endeavour.

Creating Value

1. Novelty

A key novelty was the ability to more readily sell the product by allowing customers to see the rooms. Providing access to the site presenting tourist and cultural activities in Montréal reduces the time spent on the telephone with customers. Moreover, the very high promotional costs stemming from the production of brochures has decreased. E-business makes it possible to reduce the number of discounted rooms and to offer last-minute discounts.

2. Lock-in

The business model adopted had little effect on lock-in since leisure travellers from outside Quebec usually visit Montréal only once or stay at a specific inn. However, lock-in did occur as a result of the numerous cross-referrals to the Auberge that potential customers obtained during the buying process. This enhances the inn's credibility and reputation with potential buyers.

3. Complementarities

One of the key benefits of the e-business strategy stems from the ability to attract the best customers through the Internet. These travellers plan their vacations and make reservations in advance, pay in strong currencies and are the least sensitive to pricing (e.g., American customers). It should be noted that the average room rate is higher on the Internet.

Performance Measurements

1. The Web site made it possible to increase the inn's clientele by 15 percent. Over the past year, 24 percent of the customers discovered the inn using the Internet (49 percent were from the United States, 42 percent from Canada and 3 percent from France).
   
   
2. More than half of the new customers (52 percent) directly accessed the aubergedelafontaine.com site, 9 percent relied on the bonjourquebec.com reservation centre, and the remainder visited 50-odd sites on which the inn is registered. It should be noted that the inn is registered on over 300 sites.
   
   
3. The model allowed the inn to recover its investment in a short time of between six and eight months.
   
   
4. Through this initiative, it was possible to increase the average price per room.
   
   
5. This site also makes it possible to offer discounts and attract last-minute customers who are more price-sensitive by offering 30 percent to 40 percent discounts off the regular rate.
   
   
6. The Internet, including old and new customers, generates 19.6 percent of all reservations, 20 percent of the nights sold and 22 percent of room revenues and earned revenue per room that is 10 percent above the annual average ($169 versus $153).
   
   
7. The model has made possible substantial savings with respect to advertising and promotion. Expenditures on advertising in directories and magazines were significant and have been almost completely eliminated. Previously, the inn mailed out roughly 10,000 brochures per year.

Future Prospects

The Auberge de La Fontaine developed a customized (one-to-one) marketing system aimed at grouping together independent hotels throughout Quebec. This initiative sought to generate Web traffic and to assemble a common database that would allow for customized offers.

An initial approach led to the grouping of 15 hotels, although only two of them were truly ready and possessed a database and a Web site that allowed them to receive customized electronic offers.

Implications for E-business Development

1. Develop a complete site that offers a solution to the customer's problems and allows the customer to make a decision.
   
   
2. It is not merely a question of maintaining a Web site. The most difficult challenge is to respond promptly and adequately to customer requests, which is all the more important since customers surfing on the Internet are often in the process of making a purchase and want to make a decision quickly.
   
   
3. The key is not to maintain a trendy site but instead one that operates smoothly and is user-friendly. Overly complex sites are hard to develop, update and make profitable.

Published in Partnership

This case study was prepared by CEFRIO as part of the project
"New E-business Models and SME Development", a project undertaken in cooperation with Industry Canada, the National Bank of Canada, TELUS, CANARIE and Canadian Heritage.

The research team included Mrs. Louise Côté, Professor from HEC Montréal, Mr. Vincent Sabourin, Professor from the Université du Québec à Montréal, and Mr. Michel Vézina, Professor from HEC Montréal. The research team completed this case study at the end of January 2004. The opinions expressed in this case study do not necessarily reflect those of Industry Canada and/or Canadian Heritage.

For more information, please go to the CEFRIO Web site — The Authority on Information Technology Appropriation  — at: www.cefrio.qc.ca/english/indexAccueil.cfm.