The Crowley Inn case (BUSINESS STRATEGY COURSE)

The Crowley Inn Case Name: Institution:  Issue 1 In their marketing plan, the Crowley’s were looking to increase their occupancy to 72 percent from 60%. This was before they even train their staff, increase expectation standards or have work inspections. Increasing the rates could mean the end for the business that is already experiencing a drought period as far as the customers were concerned. However this is the best chance they had of bringing back the motel to its feet. The option of cutting down the costs would not have the desire effect, since the only had the variable costs to adjust. This would mean that they less chance of improving the standards of the motel. Cutting down the costs would reduce the money available to the management to bring about the renovations among other changes that were a necessary investment. As such, reducing the variable cost in the business was a move that would probably cripple the business, considering it is still not up to standards. Their best chance of reviving this motel was, improving the standards of the facilities that they were offering at the hotel, which means from the boarding facilities to the dining services. This is a move that the management had been putting a lot of effort to improve on, as is evident that they had already started to renovate the physical conditions of the motel. The renovations took place sometime from the May of 1991 to the February of 1992, where the management bought some new furniture, drapes, chromed clothes hangers and rack, lamps, clock radios and TV sets that now had remotes. All of which were bought from a refurbishing contractor, with the cash flow the motel received. The roofs were also repaired along with the air conditioning and the floor, which cost them around 130,000. the improved quality would help the hotel stand a better chance at attracting customers of a higher caliber than they were currently getting. As Debbie had suggested to the management, it was in the best of the motel to increase the occupancy rates to 72. This would increase the amount of revenue that the motel would get, which would go a long way in to the renovations that they were carrying out. To further increase the profit margin, the motel could increase the number of the rooms from the current 59 to around 65. If they now worked with the same fixed costs as they had before with the ewer rooms. This would mean the overhead costs are spread out to all the rooms, but the revenue increases, since the occupational rate was higher. The contribution margin (sales –variable costs) at the time was around $24.18 per room, while working with the ADR of $32.50. However, we do not have the profit and fixed costs that the motel was working with, we can see that the revenues were stagnant and hence, it can be understood why Deddie championed for increased rates. The breakeven analysis of the motel will be reached when the cash accrued from income (total revenues) levels with costs plus the investments made. As always this does not mean that the motel will break even in the first month of implementing cost reduction strategies, however it will involve a breakeven plan projected over a period of 3 to say 5 years. Where in the end, the fixed costs plus the variable costs when expressed as a percentage of the total sales, should equate to the breaking even sales. For any business to be deemed profitable, it has to have an NPV value that exceeds zero. As such, it has also to have reached the breaking point. In the case of Crowley, by increasing the occupational rate by 1%, the profit margin increased by $15000 annually. When they in...