The Midnight Motel

Copyright © 1995-2005 by Calabash Educational Software. All Rights Reserved.


The Case Theories & Concepts Things to Consider Questions


The Midnight Motel is a single-storey, independent 60 room motel located 20 miles from a major, family resort area. The motel offers clean, basic accommodation for the traveler, including colour, cable television and in-room, direct dial telephones. Local calls are free. The motel is located at the exit of a major highway. In fact, the motel is visible from the highway. For a fee of $75 a month in each case, the motel has arranged to have billboards placed on farm land along the highway about one mile from the exit in both directions. The bright yellow (background) and black (text) signs identify the name of the motel, its location at the next exit, and the price for a single room per night. All of the information is clearly visible to the cars passing the locations, even at night, since the billboards are illuminated from above.  The motel does not advertise and it does not maintain a website.

Nightly room rates are $49.95 for a single, $54.95 for a double, and $3.00 more for each additional person. Children under 12 stay free. There is a weekly rate which is set at the equivalent of 7 nights for the price of 6. A monthly (30-day) rate is available for the regular rate for 21 single-night stays. A corporate discount of 10% is also available for each of the rates. Payment can be made by means of cash or any major credit card (e.g., Visa, MasterCard, American Express, Diners Club, Discover). Cheques (checks) of any type are not accepted for payment.

While much of the business is walk-in in nature (i.e., no advance booking), many of the regular clientele make future reservations before checking out during a previous stay. Telephone reservations are also accepted, if guaranteed by a major credit card. Cancellations up to 6:00 p.m. of the scheduled day of arrival are allowed without penalty. The one-night single rate is charged for non-arrivals under the guaranteed option. The motel does not belong to any corporate franchise reservation system, and it does not pay travel agent commissions for bookings through such a channel.

Although checkout time is 11:00 a.m., the motel is almost empty by 8:30 a.m. during the week. Most customers check out between 9:00 a.m. and 11:00 a.m. on the weekends. Most customers check in after 7:00 p.m. on any day. The motel offers a complimentary continental breakfast of donuts, muffins, coffee, tea, and orange juice from 6:00 a.m. until 11:00 a.m. each day of the week.

The motel is three years old. Since opening, the occupancy rate has steadily increased to and stabilized at 65%. Ninety-three percent of the customers stay only one night at a time; four percent stay for two to six nights at a time; two percent stay for a week at a time; and one percent stay for more than a week to a month at a time. No one has stayed for more than a month at a time.

The motel has many regular customers. The majority of the customers are sales representatives who either service the resort area or are just passing through the area.  Approximately 75% of the clientele for the motel are traveling on business.

The closest stores, gas stations, and restaurants are at least 5 miles from the motel. Occasionally, but very rarely, the motel owner or his staff will notice a pizza delivery or similar vehicle making a delivery to one of the rooms. The motel has no laundry or dry cleaning services available to the customers. There are no other motels or hotels within 10 miles of the motel in any direction.

An interesting, yet annoying, event which happens throughout the day, evening, and late at night is the flow of traffic into the parking lot of the motel. The traffic enters the parking lot, pauses for a few seconds, and then leaves. Most often, there are parents and young children in the cars. The highway exit at which the motel is located is the main route to the resort area.

The motel generally enjoys a stable occupancy level throughout the year and during weekdays.  Business drops quite a bit on the weekends and there is a bit of a slowdown during the winter months. Business during the winter months has been helped by the Festival of Lights event held in the resort area and by the opening of a new Casino, making it worthwhile for many of the businesses in the area to stay open during this time. The new Casino draws up to 20,000 visitors per day. In the past, many of the motels in the area closed during the winter months because of the lack of business. Christmas and New Year's Eve are the most serious down periods for the Midnight Motel.

The owner of the motel runs the operation with his wife, two part-time workers, who take turns on the 5:00 p.m. to midnight and midnight to 7:00 a.m. shifts, one maid who works Monday to Friday on a full-time basis, and one part-time maid who works Saturdays and Sundays.

Financially, the motel is earning a very small profit. The owner, however, would like to improve the motel's profit performance, but without jeopardizing the simplicity of the operation. He is quite concerned that a significant number of rooms remain empty night-after-night. He has surveyed the typical motel/hotel operations in the region and has determined that his room rates are quite a bit lower than those of the other establishments. The closest daily competitive rate for a single is $70. However, he also realizes that these establishments are located closer to the resort and business areas and other retail establishments, such as restaurants and convenience stores.



The Case Theories & Concepts Things to Consider Questions


Theories & Concepts - The Midnight Motel

List of Theories and Concepts Relevant to Case
Business Goals Market Segmentation Marketing Strategy Target Market
Demographics Attitude Initial/Repeat Purchase Marketing Mix
Product Life Cycle Consumer Goods Classification Convenience Good Shopping Good
Specialty Good Industrial Market Buying Process Straight Rebuy Quantity Discount
Price-Level Policy Flexible Price Policy Odd-Even Pricing Breakeven Analysis
Advertising Consumer Market Buying Process Direct Channel Traffic-User/Parasite
- Adoption Process Irregular Demand -

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Business Goals

Business goals are qualitative statements of what one wants to achieve. In this case, the owner has some very clear business goals. Specifically, he wants a simple operation and he wants to improve his overall performance. In this case, performance focuses on the level of occupancy (i.e., the percentage of rooms occupied, on average, per night) and on the level of profit. (Business objectives are quantitative statements of what one wants to achieve. No quantitative values are presented in this case with respect to what the owner wants to achieve; hence, the focus must be on business goals rather than on business objectives.)
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Market Segmentation

Market segmentation is an approach by which the marketer divides the consumer market into homogeneous groups, called segments, based on a consumer characteristic.  The individuals in each group are similar (i.e., homogeneous) on the selected characteristic (or characteristics).  This process also automatically creates heterogeneous groups across segments (i.e., the consumers across groups are different).  Segmentation is based on what are referred to as organismic variables [i.e., a characteristic that is inherent to the individual, which, by its very nature, cannot be randomly assigned to the individual (e.g, age, sex, hair color, shoe size, ethnic origin)].  Market segmentation is also used in the business-to-business market (i.e., industrial marketing).  In the latter case, firms, institutions, and/or organizations are used as the units of segmentation, rather than individual consumers.
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Marketing Strategy

A marketing strategy consists of the target market and the marketing mix.  The marketing mix comprises the four P's: product, price, place (distribution), and promotion.  The target market is generally considered to be the noncontrollable dimension of the marketing strategy and the marketing mix, under normal circumstances, is considered to be the controllable dimension of the marketing strategy.  Strategy decisions are at the policy level versus at the tactic level.  Tactics reflect very specific decisions designed to implement strategy decisions (e.g., actual price, actual color, actual retailers to sell product).
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Target Market

The target market represents the market segment to which the marketer seeks to offer its market offering (e.g., product, service).  A marketer may seek to attract more than one market segment.  This concept implies that a market does not normally try to satisfy all consumers.  By developing a marketing mix to attract a particular target market, the marketer will automatically repel other market segments (i.e., those for which the marketing mix isnot designed).
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Demographics

Demographics are variables that are inherent to individuals (organismic variables); they cannot be randomly assigned to the individual consumer (e.g, age, sex, income, education, ethnic origin, shoe size).  The level or nature of the demographic characteristic varies across individuals (e.g., male vs. female, age over 40 versus age 40 and under).  These variables are used to segment the market.
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Attitude

An attitude is defined as a predisposition to respond in a consistent manner.  Consumers form attitudes toward products and companies, etc.  It reflects what a consumer believes about this external object and how the consumer feels about the object.  Based on this evaluation, the consumer will be attracted toward or will be repelled from the object in question.  The existence of attitudes indicates that market behavior is not random in nature -- it is directive in nature (i.e., knowing a consumer's attitude can help the marketer predict the consumer's behavior).  Generally, attitudes are relatively stable entities.
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Consumer Goods Classification

The three basis types of consumer goods are:  convenience goods, shopping goods, and specialty goods.  Convenience goods are those items that are generally low priced, bought on a regular basis, and involve the expenditure of very little effort on the part of the consumer in their acquisition.  There are four types of convenience goods:  staples (milk, butter, bread, eggs, sugar, light bulbs, toothpaste, crackers - where brand preference is not important), emergency goods (gasoline when the tank is almost empty), impulse goods (snack food, candy, magazines), and unsought goods (encyclopedias, funeral services, life insurance).  The staple goods classification best fits the convenience goods definition, but the other three types of convenience goods also fit to the extent that minimal shopping effort is expended for their acquisition.  Inter-brand comparisons are not part of the shopping process for convenience goods.  If a purchase decision is to be made in this case, the consumer focuses on the acquisition of the product (i.e., the most readily available item that satifies the consumer's need or want).

There are two types of shopping goodshomogeneous shopping goods and heterogeneous shopping goods.  In this case, the consumer expends shopping effort by comparing the different brands within a product category.  From the consumer's perspecitve, a  homogeneous shopping good is an item where the different brands are perceived to be the same and the consumer's decision is based on the lowest price (e.g., gasoline).  In the case of a heterogeneous shopping good, the consumer perceives the different brands within a product category to be different on various attributes and makes a decision on the all relevant attributes, not just price (e.g., cola drinks, furniture, clothing).

A specialty good is an item that is chosen by a consumer for reasons other than price because the item is perceived to be unique in some way.  Brand preference is important in this situation.  Inter-brand comparisons are not part of this shopping process.  The consumer seeks out the desired product/brand.
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Industrial Market Buying Process

Consumer buyers (B2C: business-to-consumer market) and industrial buyers (i.e., business, government, organizations  - B2B: business-to-business market) face the same (types) levels of problem solving, only the terms differ.  [See the three levels of consumer problem solving below].

The three levels of problem solving for the B2B market are:  straight rebuy, modified rebuy, and new task.  In a straight rebuy situation, the business buyer buys the same product from the same supplier as before.  This is an automatic decision without any new information processing,  The buyer has complete information to make a decision.  In the case of a modified rebuy decision, the buyer has most, but not all information to make a final decision.  Additional informational search is therefore required (e.g., new brand, new supplier, new attribute, change in attributes).  In the case of a new task situation, the buyer has very little information to make a decision (e.g., buying a helicopter for the first time).  A great deal of information search is required.
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Flexible Price Policy

In a flexible price policy, the price charged to a customer depends on the bargaining power of the buyer or the status of the buyer (e.g., senior citizen rates, negotiating a house or car price, corporate car rental and hotel rates).  A one-price policy, where everyone is charged the same price, is a more common market practice.
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Initial/Repeat Purchase

The first time a consumer tries or purchases a product or service is considered to be the initial trial or purchase.  Any further purchases of the product or service are considered to be repeat purchases.  Almost all products require repeat purchases to survive.
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Straight Rebuy

This concept represents one of the levels of problem solving in the B2B (business-to-business, industrial) mrket.  In this case, the industrial buyer has complete information to make a decision.  No additional market information search is required.  The buyer buys the same product from the same supplier as before.  [See Industrial Market Buying Process for further details.]
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Odd-Even Pricing

Odd-even pricing is based on the premise that the ending digits of a price influence how a consumer responds to the price of an item.  Pricing items at  $5.95; $199.99; $9,999; or $299,999 instead of  $6.00; $200.00; $10,000; or $300,000 respectively is expected to lead to higher sales because the consumer is expected to perceive the odd-prices (i..e., those ending in "9") as being significantly lower than the corresponding even-prices (i.e., $6.00; $200.00; $10,000; and $300,000), even though the actiual price differences are minimal.  Odd-pricing is used when a marketer wants to reflect a low-price image.  However, if a marketer wants to reflect a higher price/quality image, then even prices are used.
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Marketing Mix

The marketing mix is one of the two dimensions of a marketing strategy (the target market is the other dimension).  The marketing mix comprises the 4 P's: product, price, place (distribution), and promotion.  Promotion comprises advertising, sales promotion, personal selling, and publicity.
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Quantity Discount

Quantity discounts are price reductions based on the quantity of a product/service purchased.  A non-cumulative quantity discount is based on the quantity purchased at a given time (e.g., the price of a dozen donuts is less than the price of a single donut x 12).  A cumulative quantity discount is based on the quantity of a product/service purchased over a given time period (e.g., government and business corporate car rental and hotel rates are based on an expected purchase level during the year).
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Breakeven Analysis

The basic breakeven analysis approach identifies  the number of units and the value in dollars [i.e., the breakeven point (BEP)] where total revenue (TR) equals total cost (TC). [i.e., where TR = TC].  At this point, there is no profit.  If the marketer is operating above the breakeven level, there is a profit.  If the marketer is operating below the breakeven level, there is a loss.  Above the breakeven level, the profit is equal to the number of units sold above the breakeven level times the fixed cost contribution per unit [(Actual Unit Sales - Breakeven Unit Level) x (Unit Price - Variable Cost Per Unit)].  The total loss facing a marketer operating below the breakeven level is calculated in the same way, with the fixed cost per unit representing the loss per unit below the BEP.
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Product Life Cycle

The product life cycle (PLC) reflects the sales (in $ or units) of a product or service over time.  The PLC comprises five sequential stages: Introductory, Growth, Maturity, Saturation, and Decline stages.  During the introductory stage, sales begin.  During the growth stage, sales are increasing at an increasing rate.  During the maturity stage, sales are increasing at a decreasing rate.  During the saturation stage, sales are stable.  And during the decline stage, sales are decreasing.
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Price-Level Policy

A marketer can set one of three price levels:  above market, at market, and below market.  With an above market price level, the marketer's prices are intentionally higher than its direct competitors (i.e., those firms selling to the same target market).  With a below market pricing policy, the marketer's prices are lower than its direct competitors.  Finally, with an at-market pricing policy, the marketer's prices are the same as its direct competitors.  Marketers tend to advertise whether they have the lowest prices in the market (i.e., a below market pricing policy) or will match the prices of competitors (i.e., an at-market pricing policy).  The actual price set represents a marketing tactic.
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Advertising

Advertising is that component of promotion which identifies the advertiser and which is paid for buy the advertiser.  Advertising is part of the marketing mix of the firm.  Advertising is considered to be a catalyst: It is designed to get something to happen which would not have happened had it not existed (e.g., customer becomes aware and/or purchases the product because of coming into contact with an advertisement.)
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Consumer Market Buying Process

This concept parallels the similar concept identified for the Industrial market.  There are three levels of problem solving in the consumer market:  routinized response behavior (habitual response behavior), limited problem solving, and extensive problem solving.  In the case of routinized response behavior, the consumer has complete information to make a purchase decision; there is no need for any external search for additional information.  Most market behavior of consumers reflects this level of problem solving; consumers just purchase the same products and brands as was done in the past. Limited problem solving means that the consumer has most but not all information to made a purchase decision.  In this case, the customer needs to engage in some external search for information to obtain the necessary information.  This situation may be due the market entry of new brands, the development of new characteristics for the brands product category under consideration, or a change in the characteristics in currently existing brands.   Extensive problem solving means that the consumer has very little, if any, information about the products and/or brands under consideration.  In this case, the consumer needs to engage in a great deal of external information search in order to make a decision.  This situation occurs when the consumer has never made a purchase decision in the area of consideration.
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Direct Channel

A direct channel means that a marketer directly controls the interactions within the channel, there are no independent intermediaries to take into account.  The marketer can gain control in a channel by taking over its competitors (i.e., through horizontal integration) and/or by taking over intermediaries at other levels in the channel (i.e., through vertical integration).  An indirect channel means that the firms at the different levels in the channel (e.g., manufacturers, wholesalers, retailers) are independent firms.
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Traffic-User/Parasite

Retailers that survive by drawing on the customer traffic generated by other retailers are considered to be traffic-users or traffic-parasites.  Such retailers need to intercept the traffic that passes by their location.  Retailers that attract their own customer traffic are known as traffic generators.
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Adoption Process

The adoption process identifies the different stages the individual consumer goes through with respect to the adoption of a brand, product, or service.  The sequential stages are as follows:  (nonawareness), awareness, interest, evaluation, trial, decision, confirmation.  While the first stage of the adoption process is considered to be awareness, logically, the consumer must be unaware of the brand, product or service before becoming aware of its existence.  Interest means the consumer is paying attention to communications pertaining to the product or service.  Evaluation means that the consumer is processing information about the product or service in order to form an attitude.  Trial means the consumer has decided to try (i.e., to use) the product or service for the first time.  Decision means the consumer has decision to use the product or service on a regular basis. Confirmation is the stage at which the consumer reevaluates the decision as to whether or not to continue using the selected product or service or to change to another product, service, or brand.
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Irregular Demand

Irregular demand is one of the eight demand stages a marketer can face.  Irregular demand means that the timing of the level of demand is not the same as the timing of the level of supply of the market offering. Seasonal demand is one form of irregular demand where the demand level varies from the supply level during a period of time of the year.
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Things to Consider - The Midnight Motel

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Your task with this case is to serve as a consultant for the owner of the motel.  It is essential that you take into account the desires of the owner.  If you try to suggest a solution that is contrary to the owner's wishes, you may run into some very strong resistence, unless you can present the argument that there is no other solution.  Nonetheless, it is always best to take the route of least resistance, if it is possible.

In this case, you will actually find three problem areas.  One is very minor, one will become very complex if you try to deal with it, and one which will deal with the major concerns in the case.  Focus on the latter problem.  Only if it is impossible to solve the the third problem would you even consider the second problem.

The first problem deals with a tactical issue.  The second problem deals with a strategic issue.  The third problem also deals with a strategic or policy issue.  Once the strategic issue is dealt with, focus must then be directed toward the related tactical issue.

Above all else, evaluate the case situation objectively, don't let your personal desires guide your analysis.  Your role is that of a consultant, not that of a consumer.

As a final note, this case may appear to be simple to solve, but it is not, unless you gain the appropriate insight of the situation under consideration.  It is easy to be misguided during the analysis of this case.  Start with a complete theoretical and conceptual analysis of the case; then attack the problem.


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Questions - The Midnight Motel

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1. Conceptually describe the nature of the target market attracted to this motel.
   
2. Describe the nature of each of the components of the market mix for this motel.
   
3. What are the business goals of the owner of the motel?
   
4. Conceptually, describe the profit situation of the motel.
   
5. What demand state does the motel face on a yearly basis? [i.e., no demand, negative demand, latent demand, full demand, overfull demand, faltering demand, irregular demand, unwholesome demand]
   
6. What pricing concepts are relevant to the case?  Ilustrate.
   
7. Using the consumer goods classification, describe the consumer market attracted to the motel.
   
8. Using the industrial market buying process, describe the purchase behavior with respect to motel selection of the sales representatives who stay at the motel.
   
9. What is the attitude of the patrons of the motel?  What are their beliefs and what motel attributes are important to them? What motel attributes are not or are less important to them?
   
10. What are the three problems in the case? One of the problems is very minor; the other two problems are major problems.  One of the latter problems is relatively easy to solve.  If this problem could not be solved appropriately, then consideration of the other problem would be necessary in order to address the concerns in the case.  This latter situation, however, would be very complex.]
   
11. What are the symptoms of the problem(s) in the case?  Explain how the symptoms relate to each of the problems.


12. Identify the alternative solutions for each problem.  [Maintaining the current situation is always one of the alternative solutions.]
   
 13. For each alternative solution, what are the advantages, disadvantages, and implications if the alternative is implemented?  What is the decision with respect to each alternative [i.e., accept, reject, or hold (i.e., unable to make final decision due to lack of information or other reason)]? Suggesting that more information is required is usually not a sound alternative; all it means is that you are delaying making a final decision.
   
14. Identify the recommended solution for each problem.
   
15. Develop the plan of action for implementing the recommended solution for each problem.
   

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Copyright © 1995-2002 by Calabash Educational Software. All Rights Reserved.