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Case Study Analysis should not exceed 5 pages and include a 200 word abstract with separate title and reference pages. It should be written with the assumption that the reader is unfamiliar with the details of the case.  You will complete a first draft; then revise and resubmit a final version.Each case will have several key issues faced by a firm or a manager that are relevant to the nature of the business.

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-Relate your assessment to the assigned readings and two additional resources.

-Conclude by recommending actions that the firm/manager should take, and explain your reasoning.

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Case Study: The Royal Dining Membership Program Dilemma

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610 Case 17 ▪ The Royal Dining Membership Program Dilemma

The Royal Dining Membership
Program Dilemma

Sheryl E. Kimes, Rohit Verma, Christopher W. Hart, and Jochen Wirtz

Length: 7 pages

The Royal Dining membership program is highly popular with diners and generates significant
revenues. However, it might be displacing regular, full-price paying customers and could have
a negative effect on the painstakingly built and maintained high-end luxury image of the Hong
Kong Grand Hotel. In addition, quite a few managers and servers expressed unhappiness with the
program, the conflicts it creates with diners, and the type of customers it attracts.

C A S E

1717

https://www.worldscientific.
com/doi/suppl/10.1142/y0024/
suppl_file/y0024_Case17_free.
pdf

Study Questions

1. In Erica Liu’s shoes, what would you present to the executive committee?

2. As Erica Liu, what analyses would you run to assess the financial performance
of the Royal Dining (RD) membership program?

3. What effect does the RD membership program have on the brand and value
perception of its local customers in Hong Kong and its full-paying hotel guests
and diners? How could the hotel address these issues?

4. Review the rules set for the RD program. How would you go about setting rules
for the program that protect the hotel against abuse, but does not make RD
members feel that the program is unnecessarily restrictive and difficult to use?

5. How could negative server attitudes toward RD customers be handled?

Download the full case:

Case Studies C17.1

P
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The Royal Dining Membership
Program Dilemma
Sheryl E. Kimes, Rohit Verma, Christopher W. Hart, and Jochen Wirtz

The Royal Dining membership program is highly popular with diners and generates significant
revenues. However, it might be displacing regular, full-price paying customers and could have a
negative effect on the painstakingly built and maintained high-end luxury image of the Hong Kong
Grand Hotel. In addition, quite a few managers and servers expressed unhappiness with the
program, the conflicts it creates with diners, and the type of customers it attracts.

© 2016 by Sheryl E. Kimes, Rohit Verma, Christopher W. Hart, and
Jochen Wirtz.

Sheryl E. Kimes and Rohit Verma are with the Cornell University
School of Hotel Management while Christopher Hart was formerly

Erica Liu, program manager for the Royal Dining
(RD) Membership Program at the Hong Kong Grand
Hotel, hung up the phone after a call from a disgruntled
customer. Just then, Jerome Tan, vice president of Hotel
Operations, walked into her office. “I tell you, Jerome,”
sighed Erica, “I’ve been getting calls from customers
complaining about all the rules we have for the RD
program. It’s driving me nuts.” “Tell me about it,” Jerome
replied. “These RD members really annoy our staff. All
they’re looking for is free stuff I heard the ultimate one
yesterday. Some guy walked into the Cantonese Café with
10 little kids and wanted them all to eat for free! Yes, we
have a rule that kids under five can eat for free, but not
the whole city! It turned out it was his son’s birthday
party. Can you believe that?” Erica sighed again. “I
guess that means we’re going to have to create another
rule for members to complain about. I mean, I think it’s
a great program and all, and it definitely brings in a lot
of business, but how are we going to deal with all these
problems?”

THE HONG KONG GRAND LAUNCHES
A DINING MEMBERSHIP PROGRAM
The Hong Kong Grand, a 140-room landmark hotel on
Hong Kong Island, opened in the late 1800s and was
considered a national monument. It was one of the world’s
well-known grand hotels and had received numerous
awards, including Best Luxury Hotel and Best Hotel in
Asia. Its guest list has included luminaries such as Queen
Elizabeth II, Bill Gates, and James Michener, and it was
one of the most photographed sites in Hong Kong. The
hotel had four restaurants, ranging from the 56-seat
Hollywood Road Deli to the fine-dining 112-seat Kabuki.
All the restaurants took reservations and were open for
lunch and dinner. The adjoining convention center, the
second largest meeting space in Hong Kong, provided an
ideal setting for upscale conferences, and the adjoining
shopping mall offered a multitude of shopping and dining
options. For more information on the Hong Kong Grand
restaurants, see Exhibit 1.

Exhibit 1 The Hong Kong Grand’s restaurants

Restaurant
Name

Cuisine
Restaurant

Type

Average
Check
(HK$)

Number
of Seats

à la Carte
or Buffet

Average
Lunch

Duration
(hours)

Average
Dinner

Duration
(hours)

Hours of
Operation
for Each

Meal

Cantonese Café Local/Buffet Local/Buffet $76 106 Both 1.0 1.0 5

Kabuki Japanese Fine Dining $250 112 à la Carte 1.0 1.5 5

Hollywood
Road Deli

American
Style

Casual $104 56 à la Carte 0.5 0.5 5

Dragon Boat International Smart Casual $109 72 Both 1.0 1.0 5

C A S E
1717

with the School, and Jochen Wirtz is with the National University
of Singapore.

The names of the hotel, restaurants, and membership program have
been disguised.

C17.2 Case 17 ▪ The Royal Dining Membership Program Dilemma

The ownership of the Hong Kong Grand had changed
recently. Previously, the company that owned the
shopping center also owned the hotel and had restricted
the number of restaurants that operated in the mall. Once
they sold the hotel, that restriction was lifted and the hotel
restaurants had to contend with much more vigorous
competition, and as a result, its restaurants were often
empty. As a response, the Hong Kong Grand launched
the Royal Dining (RD) membership program.

The RD program was designed to encourage Hong Kong
residents to dine in the restaurants at a discounted rate.
With a food cost as a percentage of sales that averaged
32% of gross revenue, even a 50% discount yielded a
reasonable gross margin. In addition, the RD program
required the purchase of annual memberships, which
provided a substantial revenue stream with practically
no variable cost.

THE ROYAL DINING MEMBERSHIP
PROGRAM
The Royal Dining (RD) membership program offered
members the opportunity to receive discounted meals
and rooms at the restaurants and bars located in the
Hong Kong Grand. The program was an immediate hit.
Within the first year, more than 1,000 memberships were
sold. Local residents welcomed the opportunity to dine at
the four hotel restaurants at major discounts. The hotel’s
restaurant revenue increased sharply from the added
sales. By 2015, the program had a total of 4,200 members.

The RD membership card gave customers a 50%
discount when two adults dined at one table and ordered
at least one dish per person (starter, main course, or
set menu). Typically, members dined for free; their
dining companions paid for the meal. If members
dined alone, they received only a 10% discount. The
discount was calculated on the total food bill and did
not include beverages, taxes, or service charges. It also
was not available for takeaway orders or private dining
events. Children dining with members also received the
discount. Children under five ate for free in the buffet
restaurant. In addition, special children’s menus were
available in the à la carte restaurants (see Exhibit 2 for
the complete program rules).

The card came with other benefits, including discounted
ro om rates at the Hong Kong Grand (subjec t to
availability), birthday and wedding vouchers, and

discounts at several stores. Members could not use the
card on Valentine’s Day, Mother’s Day, Christmas Eve,
Christmas Day, and the first few days of the Chinese New
Year. Although RD program rules stated that restaurants
could restrict seating availability during busy periods,
this was rarely done.

Types of Memberships
Two types of memberships were available: Royal Dining
Traditional (HK$1,588 per year) and Royal Dining
Epicure (HK$2,588 per year). The majority of members

Exhibit 2 Royal Dining membership rules

Royal Dining Annual Membership Fee:
HKS$1,588 (ca. US$205)

PRICE REDUCTION SCHEDULE:

Member plus 1 guest (2 adults) 50%*
Member plus 2 guests (3 adults) 33%
Member plus 3 guests (4 adults) 25%
Member plus 4 guests or more (up to a total of 10 adults) 20%
Member dining alone 10%

* 50% discount is applicable only when there are two adult
dining parties at a table and when a minimum of two food
items are ordered (e.g., one set menu and one starter, or one
main course and one starter). Two dining parties may not
necessarily order a main course but at least two starter orders
are required. In the event that only one food item is ordered
for sharing and there are two parties dining, a 10% discount
is applicable instead of the 50% discount. Members and their
guests have to order a dish per person in order to enjoy the
varying discounts. Side dishes are excluded from this discount
benefit.

Conditions:

• The price-reduction structure is calculated on the total food
bill only, excluding beverages, government taxes, and service
charge. Reduction does not apply to private dining and take-
away.

• One card per table, per party, per occasion. Not valid with any
other discounts or promotions.

• A 10% reduction will also be applied to bar snacks, where
applicable.

OTHER BENEFITS

• A flat 20% discount will be given to members during Chinese
New Year blackout dates when dining with a minimum of five
or more people at one table at all restaurants except Kabuki.

• One Special Occasion voucher for 50% discount on total food
bill in any one of the hotel’s restaurants when dining in a party
of six to 12 people. Not available during Chinese New Year
period, from the eve to the 15th day of Chinese New Year.

• Discounted room rates at the Hong Kong Grand (subject to
availability).

• Birthday and wedding vouchers, and discounts at several
stores in the hotel.

Case Studies C17.3

P
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opted for the Epicure membership as it included a free
night at the hotel.

In addition, RD cards were given for free to all premium
members of a well-known credit card company. The
credit card company paid the Hong Kong Grand a
discounted rate (HK$275 per year) for each member in
the Traditional program and HK$400 per year for Epicure
memberships, which were given only to their most valued
customers. Both the Hong Kong Grand and the credit
card company saw a mutually beneficial partnership
evolving from the alliance of the two highly regarded
brands. About 85% of all members were premium
customers of the credit card company and thus did not
pay for their RD cards. Of the credit card members,
3,214 were Traditional members and 310 were Epicure
members (Exhibit 3).

Not surprisingly, the purchased RD cards had a higher
likelihood of being used — about 75% — and were used
more frequently — about once every month-and-a-half
— than those given to credit card holders. The 25% of
credit card members who used their memberships used
it at an average of once every four months. The average
party size was comparable (about 2.5 customers); as was
the average net revenue — HK$225 — except for the
credit card Epicure members, whose average revenue was
HK$325. The average discount for all RD transactions
was 35% (Exhibit 3).1

The percentage of restaurant revenue derived from the
RD program ranged from under 3% at the Hollywood
Road Deli to over 60% at Kabuki (Exhibit 4).

Exhibit 3 Royal Dining membership

Membership Type
Number of

Members

% Active
Cards

Average Visits
p.a.

Average Party
Size

Average %
Discount

RD–Traditional 78 71% 6.7 2.4 35%

RD–Epicure 641 76% 6.5 2.7 38%

Credit Card–Traditional 3,214 28% 3.5 2.5 35%

Credit Card–Epicure 310 20% 2.5 2.6 32%

Totals 4,243 49% 4.8 2.5 35%

1 For a list of commonly used restaurant terminology, see Appendix
A.

Competing Programs
Food and dining out were important parts of Hong Kong’s
national identity. Along with shopping, eating out was
often seen as a national pastime. Indeed, Hong Kong
has frequently been referred to as a “gourmet paradise”
and “the World’s Fair of Food”.2 In response to Royal
Dining (RD), several other hotels had developed dining
programs in an attempt to emulate the Hong Kong Grand
and tie into the local passion for eating out.

2 https://en.wikipedia.org/wiki/Hong_Kong_cuisine

Exhibit 4 Royal Dining program share of restaurant revenue

Restaurant

Last
Financial

Year
Revenue

(Millions of
HK$)

% of Revenue from:

RD
Members

Credit
Card

Members

Hollywood Road Deli $23.3 3.4% 2.4%

Dragon Boat $20.1 4.0% 5.9%

Kabuki $53.5 42.8% 19.6%

Cantonese Café $15.4 1.3% 1.4%

THE PROGRAM DILEMMA
After finishing a meeting, Susan Li, vice president of
finance, decided to stop by Erica Liu’s office to say hello.
Jerome Tan was there and the two were in a heated
conversation that abruptly stopped when she knocked.
“Let me guess. The two of you are arguing about the RD
program again!” Their looks confirmed her suspicion.
“I don’t see why you have so many problems with it. It’s

C17.4 Case 17 ▪ The Royal Dining Membership Program Dilemma

produced a lot of incremental revenue that has boosted
our bottom line.” (See Exhibits 5 to 7.)

“But Susan,” Jerome exclaimed, “the RD members are
displacing lots of our regular customers, especially during
busy periods, and we’re practically giving away free meals.
I feel that we should develop other programs to fill the
restaurants and increase revenue — without all these
cheapskates.” Erica jumped in. “Jerome, I keep telling
you this, but you’re forgetting about all the money these
people spend to become members. That is pure profit —
hardly any cost involved. And the members deserve to get
value for their money — or they won’t renew their annual
memberships. What do we give them, though? More
rules that make them feel like anything but members.
I’m telling you, I can understand why they complain.”

“Erica, you just don’t know what it’s like to be working
in the restaurants,” Jerome replied. “These RD members
are so pushy and always ask for more, more, more — and
they try to game the system. For example, remember that
rule about how only one discount card per table can be
presented, even if there are two parties and each of them
is a member? Well, since we have so many members, it’s
pretty common for several people at the table to have
membership cards. And then, they all want to use their
cards so they can save more money. When we tell them
that it’s against the rules, they say it’s unfair because it
penalizes people for dining together, that if they had
come as couples and sat at separate tables, each table
would have received a 50% discount. To get around the
rule, guess what they’re doing?” Pausing for effect, he
said, “I’ll tell you what they do. They show up separately
and then ask to be seated at adjacent tables. Once seated,
they push the tables together and try to get double the
discount! How do you handle that situation if you’re the
server? Doesn’t exactly fit with the ambience we’re trying
so hard to create, does it? And it does a number on the
servers’ attitudes.” (See Exhibit 8 for sample comments.)

Jerome was getting visibly upset. The more upset he
got, the more flustered Erica became. Her program was
adversely affecting people whose attitudes and behavior
were vital to creating the dining experience. As Susan
tried to calm him down, Carmen Teo, vice president
of marketing walked in. “I heard you from my office
around the corner! I thought I’d better come down before
someone had to call security!” she said with a laugh. Erica
quickly said, “What do you think of the RD program,

Exhibit 5 Table configuration of Hong Kong Grand restaurants

Table Size
Cantonese

Café
Kabuki

Hollywood
Road Deli

Dragon
Boat

Tables
2 5 2 16 8

4 20 15 3 12

5 0 0 0 0

6 0 0 2 0

8 2 2 0 1

10 0 0 0 0

Bar 10

Tempura
Table
for 10

Teppanyaki
Table
for 12

Exhibit 6 Number of customers for each restaurant by meal
period and day of week

Cantonese
Café

Kabuki
Hollywood
Road Deli

Dragon
Boat

Average Number of Lunch Customers

Monday 195 298 250 203

Tuesday 190 336 291 228

Wednesday 228 327 333 254

Thursday 228 344 333 269

Friday 244 370 375 277

Saturday 325 242 375 306

Sunday 244 225 354 337

Average Number of Dinner Customers

Monday 325 190 260 170

Tuesday 358 249 286 198

Wednesday 293 257 286 161

Thursday 341 272 286 246

Friday 317 372 312 359

Saturday 317 327 312 320

Sunday 325 301 234 218

Case Studies C17.5

P
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Carmen?” Carmen thought for a long moment and then
said, “I certainly can see the point of the program, but
I just don’t know. We spend so much money trying to
build and maintain our luxury image — and then we
offer a discount program that is very much at odds with
it. I know it generates profits that we otherwise would
never see, but what are the costs? Our guests pay a lot to
be here and expect a wonderful experience. I don’t know
if we can provide this experience when we have coupon-
wavers in there with them.”

Jerome chimed in. “Especially when our customers
have become so much more creative in getting around
the rules.” Erica agreed, saying, “Yes, and that’s why we
have so many rules now — and that’s why I get so many
calls complaining about them! Again, these people are
spending a lot of money for their memberships and we’re
making it very difficult for them! I can see why they’re
annoyed.”

Carmen said, “The question we need to think about is
how to provide good value to our RD members that
keeps the revenue flowing while protecting the hotel
from possible abuses of the program and negative impact
on the guest experience. The answers are anything but
obvious.”

Susan jumped in, “Let me give you an alternative view. We
have owners who are very much focused on the bottom
line. Imagine their reaction if we suddenly dumped the
program. I’m thinking that maybe we should extend the
discount to beverages since our cost of sales is so much
lower. Right now, our food cost percentage is 32%, but
the beverage cost percentage is only 24%.3 I think it
would be a strong contributor to financial performance.”
Jerome groaned. “But Susan, one of the only things that I
can possibly see as a good thing for this program is that
while we’re basically giving the food away, we at least get
a decent profit from the beverages. That would cost us
more money!”

Erica checked her watch and noticed that she and Jerome
were due at another meeting. “Well, it’s nice that we’re all
in agreement. Anyone want to take over my job?”

Exhibit 7 Average revenue for each restaurant by meal period
and day of week

Cantonese
Café
Kabuki
Hollywood
Road Deli
Dragon
Boat

Average Lunch Revenue

Monday $17,937 $39,107 $26,692 $25,563

Tuesday $17,199 $42,576 $27,485 $30,170

Wednesday $16,166 $38,231 $30,791 $29,003

Thursday $16,751 $44,450 $32,208 $27,484

Friday $18,052 $46,411 $35,783 $30,596

Saturday $15,404 $40,234 $38,381 $28,890

Sunday $19,227 $39,324 $41,110 $27,629

Average Dinner Revenue

Monday $20,754 $100,088 $21,437 $21,581

Tuesday $25,671 $81,638 $25,738 $22,238

Wednesday $24,438 $96,045 $20,451 $29,778

Thursday $25,664 $109,375 $32,395 $28,136

Friday $31,273 $113,909 $47,283 $31,160

Saturday $28,678 $126,059 $40,559 $29,790

Sunday $18,986 $112,027 $28,715 $24,368

Exhibit 8 Sample server comments about the Royal Dining
program

• “My RD customers love the program. For many of them, this is
the only reason they come out to The Dragon Boat.”
— Dragon Boat

• “I am sick of this program! I hate having to explain the rules
to people trying to use multiple cards per table.”
— Cantonese Café

• “While it’s sometimes tough to have to explain rules to
customers, I have to admit that the program benefits the
restaurant and helps make my job more secure and earn
more service fees and tips.” — Kabuki

• “I think it’s embarrassing! I’m working at the Hong Kong
Grand and I have to deal with tacky discounts?!” — Kabuki

• “I’m sure it makes sense to management but dealing with
customers who don’t understand how the program works is
the worst. The rules should be more clear to the customers.”
— Hollywood Road Deli

• “The RD discount ruins the tip. I work for half as much!”
— Dragon Boat

3 Please note that the 32% cost is on all food items and the 24%
cost is just for beverage items. For example, consider a total bill
of $60 of which $50 is for food and $10 is for beverages. The food
cost would be $16 (32% of $50) and the beverage cost would be
$2.40 (24% of $10). The total cost would then be $18.40.

C17.6 Case 17 ▪ The Royal Dining Membership Program Dilemma

Erica shook her head as she walked out the door and
thought about the meeting she would have with the
hotel executive committee in 2 days. Jerome, Carmen,
and Susan all were members, and high on the meeting’s
agenda was the future of the RD program. She thought
to herself, “I need to present a comprehensive analysis of

Study Questions
1. In Erica Liu’s shoes, what would you present to the executive committee?

2. As Erica Liu, what analyses would you run to assess the financial performance of the Royal Dining (RD)
membership program?

3. What effect does the RD membership program have on the brand and value perception of its local
customers in Hong Kong and its full-paying hotel guests and diners? How could the hotel address
these issues?

4. Review the rules set for the RD program. How would you go about setting rules for the program that
protect the hotel against abuse, but does not make RD members feel that the program is unnecessarily
restrictive and difficult to use?

5. How could negative server attitudes toward RD customers be handled?

the program’s costs and benefits and recommendations
about where to go from here. How will I resolve all the
differing views?”

“Better get to work,” Erica thought, as she reached for a
bottle of aspirin.

Case Studies C17.7

P
A
R
T
6

APPENDIX A
RESTAURANT TERMINOLOGY
• Cover: A customer.

• Average check: The average amount paid p er
customer.

• Party: The number of customers at a particular table.

• Total check: The total check amount from a party.

• Server: A waiter or waitress.

• Seat occupancy: The percentage of seats occupied
during a given period.

• Table occupancy: The percentage of tables occupied
during a given period.

• Revenue per available seat-hour (RevPASH): Total
revenue divided by the number of seat-hours
available.

• Meal duration: The length of a meal. Varies based
on the type of restaurant and the meal period (e.g.,
lunch, dinner). Dinners average 150% the time spent
at lunch.

• Meal period: The length of time that the restaurant
is open for a given meal. Depending upon the part
of the world, most restaurants offer lunch from 11.00
a.m. to 2.30 p.m. or 3.00 p.m., while dinner is typically
offered from 5.30 p.m. or 6.00 p.m. until 10.00 p.m.

• Restaurant types (in the context of the Hong Kong
Grand):
– Fine dining: Full service, sit-down restaurant

with a comprehensive menu and served in a fairly
luxurious setting. High average check per person.
The type of restaurant that most people visit a few
times per year.

– Upscale casual: Full service, sit-down restaurant
with a comprehensive menu and served in a casual
setting. High average check per person. The type
of restaurant that people might visit once a month.

– Casual: Full service, sit-down restaurant with a
somewhat limited menu and served in a casual
setting. Moderate average check per person. The
sort of restaurants that people might visit once a
month.

– Fast casual: Limited service restaurant with a fairly
limited menu. Customers can either take their
food with them or eat it in the restaurant. These
restaurants are fairly casual with a low to moderate
average check. The type of restaurant that most
people might visit a few times per month.

– Quick s er vice (fast fo o d): Limited s er vice
restaurant with a limited menu. Customers can
either take their food with them or eat it in the
restaurant. These restaurants are very casual with
a low average check. The type of restaurant that
most people might visit on a weekly basis.

Note: This case study is part of the teaching materials accompanying Services
Marketing: People, Technology, Strategy, 9th edition. The case can be used by the

authors and in courses that use this textbook as their main reference. For other courses
and uses, copyright has to be cleared with Jochen Wirtz, email: jochen@nus.edu.sg.

The full book is available
on Amazon. Click to order:

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