BASIC MARKETING 18th Edition by Jerome McCarthy William Perreault, Joseph Cannon

Exercise 52

GoodNight Inn
Anton Cahoon is trying to decide whether he should make some minor changes in the way he operates his GoodNight Inn motel or if he should join either the Days Inn or Holiday Inn motel chains. Some decision must be made soon because his present operation is losing money. But joining either of the chains will require fairly substantial changes, including new capital investment if he goes with Holiday Inn.
Anton bought the recently completed 60-room motel two years ago after leaving a successful career as a production manager for a large producer of industrial machinery. He was looking for an interesting opportunity that would be less demanding than the production manager job. The GoodNight Inn is located at the edge of a very small town near a rapidly expanding resort area and about one-half mile off an interstate highway. It is 10 miles from the tourist area, with several nationally franchised full-service resort motels suitable for "destination" vacations. There is a Best Western, a Ramada Inn, and a Hilton Inn, as well as many mom-and-pop and limited- service, lower-priced motels-and some quaint bedand- breakfast facilities-in the tourist area. The interstate highway near the GoodNight Inn carries a great deal of traffic, since the resort area is between several major metropolitan areas. No development has taken place around the turnoff from the interstate highway. The only promotion for the tourist area along the interstate highway is two large signs near the turnoffs. They show the popular name for the area and that the area is only 10 miles to the west. These signs are maintained by the tourist area's Tourist Bureau. In addition, the state transportation department maintains several small signs showing (by symbols) that near this turnoff one can find gas, food, and lodging. Anton does not have any signs advertising GoodNight Inn except the two on his property. He has been relying on people finding his motel as they go toward the resort area.
Initially, Anton was very pleased with his purchase. He had traveled a lot himself and stayed in many different hotels and motels-so he had some definite ideas about what travelers wanted. He felt that a relatively plain but modern room with a comfortable bed, standard bath facilities, and free cable TV would appeal to most customers. Further, Anton thought a swimming pool or any other nonrevenue-producing additions were not necessary. And he felt a restaurant would be a greater management problem than the benefits it would offer. However, after many customers commented about the lack of convenient breakfast facilities, Anton served a free continental breakfast of coffee, juice, and rolls in a room next to the registration desk.
Day-to-day operations went fairly smoothly in the first two years, in part because Anton and his wife handled registration and office duties as well as general management. During the first year of operation, occupancy began to stabilize around 55 percent of capacity. But according to industry figures, this was far below the average of 68 percent for his classification- motels without restaurants.
After two years of operation, Anton was concerned because his occupancy rates continued to be below average. He decided to look for ways to increase both occupancy rate and profitability and still maintain his independence.
Anton wanted to avoid direct competition with the fullservice resort motels. He stressed a price appeal in his signs and brochures and was quite proud of the fact that he had been able to avoid all the "unnecessary expenses" of the fullservice resort motels. As a result, Anton was able to offer lodging at a very modest price-about 40 percent below the full-service hotels and comparable to the lowest-priced resort area motels. The customers who stayed at GoodNight Inn said they found it quite acceptable. The hotels online reviews at sites like TripAdvisor, while not numerous, were generally pretty positive. But he was troubled by what seemed to be a large number of people driving into his parking lot, looking around, and not coming in to register.
Anton was particularly interested in the results of a recent study by the regional tourist bureau. This study revealed the following information about area vacationers:
1. 68 percent of the visitors to the area are young couples and older couples without children.
2. 40 percent of the visitors plan their vacations and reserve rooms more than 60 days in advance.
3. 66 percent of the visitors stay more than three days in the area and at the same location.
4. 78 percent of the visitors indicated that recreational facilities were important in their choice of accommodations.
5. 13 percent of the visitors had family incomes of less than $27,000 per year.
6. 38 percent of the visitors indicated that it was their first visit to the area.
After much thought, Anton began to seriously consider affiliating with a national motel chain in hopes of attracting more customers and maybe protecting his motel from the increasing competition. There were constant rumors that more motels were being planned for the area. After some investigating, he focused on two national chain possibilities: Days Inn and Holiday Inn. Neither had affiliates in the area even though they each have about 2,000 units nationwide.
Days Inn of America, Inc., is an Atlanta-based chain of economy lodgings. It has been growing rapidly and is willing to take on new franchisees. A major advantage of Days Inn is that it would not require a major capital investment by Anton. The firm is targeting people interested in lower-priced motels, in particular, senior citizens, the military, school sports teams, educators, and business travelers. In contrast, Holiday Inn would probably require Anton to upgrade some of his facilities, including adding a swimming pool. The total new capital investment would be between $300,000 and $500,000, depending on how fancy he got. But then Anton would be able to charge higher prices, perhaps $75 per day on the average rather than the $45 per day per room he's charging now.
The major advantages of going with either of these national chains would be their central reservation systems and their national names. Both companies offer nationwide, tollfree reservation lines, which produce about 40 percent of all bookings in affiliated motels. Both companies also offer Web sites (www.daysinn.com and www.holiday-inn.com) that help find a specific hotel by destination, rate, amenities, quality rating, and availability.
A major difference between the two national chains is their method of promotion. Days Inn uses little TV advertising and less print advertising than Holiday Inn. Instead, Days Inn emphasizes sales promotions. In one campaign, for example, Blue Bonnet margarine users could exchange proof-ofpurchase seals for a free night at a Days Inn. This tie-in led to the Days Inn system selling an additional 10,000 rooms. Further, Days Inn operates a September Days Club for travelers 50 and over who receive such benefits as discount rates and a quarterly travel magazine.
Days Inn also has other membership programs, including its InnCentives loyalty club for frequent business and leisure travelers. Other programs targeted to business travelers include two Corporate Rate programs and its new Days Business Place hotels. Not to be outdone, Holiday Inn has a membership program called Priority Club Worldwide.
Both firms charge 8 percent of gross room revenues for belonging to their chain-to cover the costs of the reservation service and national promotion. This amount is payable monthly. In addition, franchise members must agree to maintain their facilities and make repairs and improvements as required. Failure to maintain facilities can result in losing the franchise. Periodic inspections are conducted as part of supervising the whole chain and helping the members operate more effectively.
Evaluate Anton Cahoon's present strategy. What should he do? Explain.