Peaceful Rest Motor Lodge

Peaceful Rest Motor Lodge
Peaceful Rest Motor Lodge
Instructions for Case Analysis
1. Read the case.
2. Review the case grading rubric found in your syllabus.
3. Prepare your written analysis.
Use the following headings to organize your case analysis:
• Critical Issues
• Evaluation of Alternatives
• Support of Recommendations
Your literature review should be included throughout your analysis. You should cite references to substantiate your evaluation of alternatives and support of recommendations. You may also cite references which provide more depth in theory and knowledge regarding the case topic.
4. Things to keep in mind…..
Use marketing concepts from your chapters and references to analyze the case. Don’t spend too much time summarizing the case – a few sentences will b e sufficient since I have read the case already.
Your analysis should include a swot analysis which can be part of the critical issue section. Your alternatives and recommendation should link back to your critical issues and swot analysis.
The body of your analysis should not exceed 6 pages, double spaced, 12 point font. You also should include a title page and a reference page. Cite al of your references properly in APA format (APA 6th edition or higher).
Submit your case analyses in the appropriate dropbox. The document should be compatible with Microword 2007/2010/2013.
You should use a minimum of 5 external resources, not including your textbook, to support your analysis. You may not use Wikipedia and other encyclopedias. At least two of your references must be from referred journals.
RUBRIC FOR CASES: 100 Points Total
Criteria Identifies Major Issues of the Case Considers Stakeholders Analyzes Alternatives and Consequences Chooses an Action Total
Exceeds Expectations (25 Points) Identifies the major issues of the case AND related issue(s) IdentifiesstakeholdersAND discussespotentialimpactonstakeholders Clarifies TWO or More alternative actions and discusses possible consequences to the stakeholders Identifiesacourseof actionwithsufficientdetailthatindicatesathoughtfulreflectionofthebenefitsandrisksoftheaction.
Meets Expectations
(20 Points) Identifiesthe major issues of the case, but does NOT identifyrelatedissue(s). Identifiesstakeholdersbut failstodiscusspotentialimpactonstakeholders Identifies at least One
alternative action andpredictsthe consequences on stakeholders Identifiesacourseof actionbut fails to correctly discuss the benefits and risks of the action.
Needs Improvement
(15 Points) Doesnotidentifythe major issue of the case or identify related issue(s) Failstoidentifystakeholders DoesnotidentifyAlternativesorincorrectlyidentifiesalternatives. Doesnotidentifyan appropriateplanofaction.
Course Book: Basic Marketing
A Marketing Strategy Planning Approach
Nineteenth Edition
Case 9: Peaceful Rest Motor Lodge
This case describes the typical production-oriented businessperson who designs a product to satisfy himself. As a traveling businessman, he had been in many motels and now has bought one that would have satisfied him as a traveling businessman. Unfortunately, however, most of his potential customers are tourists and vacationers, and only a few traveling businesspeople.
His motel is probably seen as an emergency product by some tourists, and a homogeneous shopping product by others who are just looking for an economical place to stay. He is probably losing most of those who think of motels as heterogeneous shopping products (those who drive in and out again) and those who have advance reservations at preferred locations (specialty products).
If Tristan Knaus wants to continue with his present “economical traveler” strategy, he probably should consider raising prices some. There is no point in “giving away” his rooms. This will not increase the occupancy rate, but it may increase profits. Or, depending upon his present customer mix, he might decide to raise prices even higher and count on the “emergency product” business. Whether this is a good alternative depends upon the mix of his present customers. If most of them come in late in the evening and stay only one night, then he might want to rely on place convenience to attract enough of these people at higher rates to make his motel profitable. To help attract more of this kind of business, he might want to invest some money in signs away from his present location. In fact, this probably would be desirable whether he goes down the emergency product route or stays with his low price-oriented approach. People have to know where you are – or be able to find you – to buy – and his motel is not located in the heart of the resort area nor just off the new state highway.
Affiliating with Days Inn of America, Inc. is the “next step” beyond the possibilities discussed above. The major advantage of going with Days Inn is the additional business which would be generated by the reservation service and perhaps people who would pull in because they recognize the Days Inn brand. Because no other Days Inn is nearby, it is likely that additional business would be obtained – but not necessarily the 40 percent suggested in the case because Tristan may already be getting some of the typical “price-oriented” customers who happen to be in the area. And given that Tristan would have to pay 8 percent on the total gross room revenues (not just those generated by the reservation service) he should analyze the likely profitability with and without the reservation service. In fact, he should do this for the various alternatives discussed above as well as the two franchise alternatives he is considering. Such an analysis would probably show that the Holiday Inn alternative is less attractive than one or more of the others, because of the required improvements and the unlikely increase in sales given his poorer location (away from the resort area). In contrast, proximity to the interstate highway may improve the likely results of going with Days Inn. On the other hand, if being near this intersection is attractive to motel operators, he should expect to see one or more motels being placed near his motel – but closer to the intersection with the major highway. Then his slightly poorer location and lack of a national affiliation may turn out to be “killers.” That is, he would not be in the resort area or “just off the highway,” and he would not be affiliated with any national brand. He might be in an “empty box” on the market grid for motel service, and his losses could grow.
Depending on the instructor’s objectives, it is possible to push the analysis of the numbers in the case a bit further. This doesn’t bring some clear resolution to the issues and is not intended to be a substitute for a look at the qualitative issues, but it can help students realize that a “rough cut” at a profitability analysis can sometimes be useful even if there is a lot of missing information. For example, we know that the motel has 60 rooms and that it has a 55 percent occupancy rate. So, on average, that means Tristan is renting about .55 x 60 or 33 rooms a night. The rooms rent at about $45 a night, so the average daily sales revenue is about $1,485. If you multiply that times 365 days in a year that means the total revenue at present is about $542,025.
The profit picture with either Holiday Inn or Days Inn would depend on a variety of factors, but probably the most significant ones would be (1) the interest expense on any loan to make the capital improvements, (2) the occupancy rate actually realized, (3) the price per night that would be charged, and the fee earned by the chain (which at present is the same for either chain, 8 percent of gross revenue).
The case does not explicitly say what price Peaceful Rest Motor Lodge would charge per night per room if it were part of the Days Inn chain nor does it state what occupancy rate might be achieved. However, if the occupancy rate went up to the average level for this type of hotel (68 percent), that would be an increase in occupancy of about 24 percent (that is, 68 percent average occupancy minus 55 percent current occupancy is a 13 percent increase, and 13 percent divided by the current rate of 55 percent is about 24 percent growth). Most of the expenses of running the hotel are probably fixed, and the variable cost of renting out a room is not very high (laundry, wear and tear on linens, utilities, and maid service), so it is likely that this would result in much higher revenue for Peaceful Rest Motor Lodge, even after paying the 8 percent “commission” on gross sales. For example, if the room rate per night stayed the same as it is now and the occupancy rate only went up to the industry average, Peaceful Rest Motor Lodge’s revenue (after paying the fee) would be about $618,342. This is the result when you increase the current revenue by the 24 percent increase in occupancy (which gives you about $672,111) and then subtract 8 percent of that amount in fees (which is .08 x $672,111 = $53,768). Thus, under this scenario, revenue would increase from about $542,025 to about $618,342, or a change of about $76,317. That extra revenue would come at a cost since there would be about an extra 8 guests per night or about 8 x 365 = 2,920 extra guest nights per year. However, if you divide the extra revenue by the extra “guest nights” you get $76,317 / 2,920 or about $26 per guest night. Since it is unlikely that it would cost this much to clean the rooms and keep them in shape, this looks like it might be a more profitable arrangement than what is happening at present. If could be quite a bit more attractive if the room rate could be higher, the occupancy rate higher, or both happened at the same time. Note that the point here isn’t to be precise so much as it is to show that one can work with what little information is available to “get a handle” on the financial side of this issue.
The Holiday Inn arrangement requires more cash up front but that is offset by higher room rates. For example, if the occupancy rate went up to the industry average (68 percent) and the rooms could rent for $75 per night on average, the total revenue would go up to about $1,027,549 (after paying the fee). This is the result of multiplying 60 rooms x .68 occupancy rate which is 40.8 rooms (on average) per night or about $3,060 per night in revenue multiplied by 365 nights per year is about $1,116,900 gross revenue, from which 8 percent ($89,352) must be subtracted for the fee. So, if the average occupancy rate could be achieved at the higher price, the increases in revenue in the first year would almost be equal to the cost of making the improvements to the motel. Of course, there might be associated increases in other variable costs to meet the Holiday Inn standards, but it still appears that the break-even on the investment might not take as long as it might at first appear–and after that profits would be quite a bit higher. But, this is based on the assumption that the occupancy rate would really increase significantly, and that may be unrealistic even with the Holiday Inn reservation system kicking in. The Peaceful Rest Motor Lodge location is a bigger disadvantage – and one he can’t easily change–if he really wants to compete against the other better quality motels.
In net, this rough analysis suggests that either the Days Inn or Holiday Inn affiliation might be more profitable than what Tristan is achieving at present. It would take a more complete analysis, including other qualitative factors, to clearly determine which might be better. But, on the surface, it looks like it would be a “big leap” for Tristan to compete effectively against other higher-priced motels in the area. In that regard the Days Inn arrangement looks like a potentially better fit.
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