Damai Lovina Villas: Can Eco-Standards and Certification Create Competitive Advantage for a Luxury Resort

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The Green Hotel Initiative is similar to Best Green Hotels in that neither VEP has any costs associated with it. Damai could join the Green Hotel initiative without having to invest additional resources. Therefore, Damai would not need an increase in occupancy to justify joining this VEP.

The other three VEPs under consideration (Eco Lodge, Green Globe 21, ISO 14001) have more stringent membership requirements. When deciding whether to join these VEPs, Damai must take into consideration the additional resources required to meet VEP standards.

Damai would need to involve their guests in their sustainability program. Up to this point, Damai has not incorporated guests, guest rooms, or the restaurant in their sustainability program. There is room for improvement in this area. Damai should implement a towel and sheet reuse program in the guest rooms. Damai must also better educate guests on their environmental policies. Guests are often oblivious to their impact on the environment while they are staying at the resort. Damai should implement a program to better educate guests and endorse the benefits of being environmentally friendly.

Damai must also implement a program to better educate employees. A sustainability program is much more effective when employees are educated on the program and committed to ensuring the program succeeds. Employees must also be properly trained on the various sustainability practices and given a chance to voice their opinion on ways the program could be improved.

In addition to these investments, Damai must assess how much occupancy must increase in order to offset the membership costs of each VEP. Eco Lodge charges a 10% commission on all rooms booked from their website. This pricing strategy allows Damai to avoid incurring sunk costs on membership fees and guarantees a return on their investment as they only owe Eco Lodge when a room is booked. The downside of this pricing strategy is that Damai has to pay commissions on rooms that may have otherwise been booked by regular customers where no commission is required. This could especially present problems during peak season. For this reason, I do not think it is in the best interests of Damai to join this VEP.

Green Globe 21 charges a $220 fee per site plus $395 in benchmarking and certification costs for a hotel of Damai’s size. There is also a cost for independent assessment for certification that typically costs between $2,000-$3,000. Due to the small size of Damai, $2,000 is estimated for assessment costs bringing the total costs of the VEP to $2,615. Net profit margin for the company is 60%. Assuming this margin remains steady, the company would need an increase in revenue of $4,358 to breakeven on the VEP cost of $2,615. Revenue and occupancy increase proportionally. Current revenue is $765,131 and current occupancy is 65%. To increase revenue by $4,358, Damai would need to increase occupancy by 0.57%.

ISO 14001 costs between $270-$1,370 per employee depending on how extensive a company’s existing sustainability program is. Due to the sophistication of Damai’s current environmental efforts, it is estimated joining ISO 14001 will cost $270 per employee. With 57 employees, Damai’s total cost would be $15,390. With a 60% profit margin, Damai would need to increase revenue by $25,650 to breakeven on VEP costs. Damai would need to increase occupancy by 3.3% to achieve the $25,650 increase in revenue.

I believe VEP participation would aid Damai in leveraging their sustainability program to achieve the company’s long-term goals. While Damai has already established an impressive sustainability program, they have not succeeded in transforming their reputation into that of a green brand. VEP participation could improve Damai’s sustainability program and also raise awareness of the program in the minds of environmentally conscious consumers. VEP membership will give Damai’s sustainability efforts legitimacy and creditability. Self-promotion of these sustainability efforts is not effective because consumers distrust hotel marketing claims of being green. A VEP, particularly one with third party monitoring, would give the consumer confidence that Damai’s claims were accurate. This would be critical to an attempt to alter Damai’s brand perception and reposition it in the market as a luxury and environmentally friendly retreat.

Repositioning itself as a luxury green boutique hotel will expand Damai’s potential customer base and create opportunities for the company to increase occupancy and revenue. According to Knape, Damai’s sustainability efforts are unmatched by any other hotel in Bali. The only hotels in Bali that have similar sustainability efforts are budget hotels or are otherwise considerably larger. A VEP will educate the consumer on Damai’s offerings and allow it to position itself as the only luxury green hotel that is small enough to offer a cozy and intimate experience. This product differentiation will allow Damai to charge premium prices for their offerings.

A VEP will aid Damai in changing consumer perception of the hotel to align with changing consumer preferences. Consumers are becoming increasingly more environmental conscious and this has an impact on their purchasing decisions. A survey referenced by Knape suggests 16% of consumers had an inclination to make purchases from environmentally friendly organizations. It is estimated these eco-friendly customers would be willing to pay price premiums of $30. It is expected this number will continue to rise in the future. Price and quality have always been factors in consumer decision making but environmental impact is progressively playing a larger role in consumer purchasing decisions. A VEP will allow Damai to take advantage of these changing perceptions and increase occupancy while at the same time charging premium prices.

Raising awareness about Damai’s environmentally friendly practices may also raise occupancy rates by building customer loyalty. Environmentally conscious customers are more likely to become repeat customers once they witness the level of Damai’s commitment to sustainability. A WEP will give Damai the opportunity to connect with these customers and build a long-term relationship with them.

The opportunity to lower costs, increase revenue, and gain a competitive advantage provide incentive for Damai to improve its sustainability program. There is also a moral obligation to become a more environmentally conscious company. There is much debate about the social responsibilities and expectations of corporations. Consumers are becoming increasingly environmentally conscious and expect corporations to follow suit. Disregarding sustainability could do irreparable harm to a company’s reputation.

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