Should the additional rooms be constructed? What level of room quality is required?

Question

What will be an ideal response?

Answer 1

In answering this question, students should consider both marketing and financial perspective. From the marketing view, adding the rooms would increase the chances of attracting tour groups to Nottoway. With the decrease in revenues from tours and gifts during 1994, the need for attracting tours seems critical.

In looking at the financial aspects of the additional rooms, the student needs to calculate the cost of construction, capacity, expected additional revenues and contribution, and payback. The instructor must emphasize the need for clearly stating assumptions; student assumptions may differ significantly from those given below.



Back to the marketing perspective, the student needs to consider whether 6308 room nights can be sold to tours at $70 per night. To reach this level of utilization, Nottoway would have to book tours at least 252 days a year!

The business segment can help reach this level of utilization, plus this segment would be more likely be willing to pay more than $70 per room night and might pay additional fees for meeting rooms. Students might calculate the payback for the business segment alone or some combination of the two segments.

While maintaining Nottoway’s image is important, rooms for tour groups and even business meetings may not need to be as elaborate as those in the plantation home itself. The external look of the additional buildings may be more critical than the room interiors.

Some students might suggest converting more rooms in the mansion into sleeping rooms as an alternative to adding buildings. After all, the mansion contained 64 rooms. Thirteen rooms in the mansion are already in use (nine sleeping rooms plus four additional rooms occupied by the suites). Some students may have noted that the prior owner is still living in one suite of rooms. A few of the remaining 45 or so rooms may be usable as sleeping rooms, but probably not an additional 22 to 28 rooms. Students who suggest this must realize that the existing 13 sleeping rooms are already rented at over 60 percent of capacity, so tour business would push out current customers.