McGregor should seriously consider the negative consequences that his business will face if he rejects Alward’s offer to fill the motel for two weekend nights in October at half the room rate. If McGregor declines, the motel will maintain its usual occupancy level of less than twenty-five percent during that weekend. However, with the church group at the motel, paying half the rate, it will seem like the motel is half-occupied. Additionally, refusing Alward’s offer will harm McGregor’s reputation in the community and result in lost future business from Alward’s group and other church groups, who would have paid the regular price. Consequently, Justin McGregor should accept Alward’s offer, but with two conditions: limited guest service to decrease costs and a stipulation that this is a unique, one-time agreement that will not be repeated for Alward or anyone else.
The quantitative factors dictate that McGregor should agree to Alward’s offer of accommodations for his church group, at half the room rate, for Friday and Saturday, October 26 and 27. Before 2008, the motel was rarely more than a quarter full from October 16 to May 14, while after 2008, the motel’s occupancy rates decreased by 7 to 15 percent throughout the year. So if McGregor declines Alward’s offer, the motel will be at its usual capacity of less than a quarter full during that weekend. However, with the church group there, paying half the rate, it will be as if the motel were half-full. Having half of the rooms occupied is better than having less than a quarter occupied, so logically, McGregor should accept Alward’s offer. The church group will bring in more guests at half the rate compared to regular guests paying the full price and occupying less than a quarter of the rooms. However, it is important to note that service costs and maintenance costs will be higher with Alward’s group compared to regular customers. In other words, McGregor’s maintenance and cleaning staff will be busier than usual, as they will be servicing a motel at full capacity. Paying for the maintenance and cleaning of all rooms at the motel will further decrease the amount of money that McGregor will earn from Alward’s group. Strictly considering quantitative terms, Alward’s offer is not a favorable option for McGregor.of rejecting the offer is too high for McGregor in this small resort community where quantitative factors are not the only considerations. Refusing Alward’s offer would result in negative consequences from church groups and other community members for McGregor. Hence, it would be wise to accept the offer from Alward, but with two conditions.
McGregor should accept Alward’s offer on two conditions: guest service must be limited to lower costs, and this must be a one-time deal for Alward or anyone else. These conditions are reasonable considering the motel is McGregor and his wife’s livelihood. McGregor should also request that Alward informs his church group that their discounted stay means they will receive reduced service. They should be clean, tidy, and not rely on the motel’s maintenance. This shouldn’t be a problem with kind, understanding churchgoers. Since the church group will only stay for two days, they are unlikely to create significant messes, saving McGregor money on cleaning expenses. Additionally, the group will likely spend most of their time at the church, using the motel only for sleeping. These measures are fair to McGregor, especially in a weak economy. As a “good man,” Alward should understand these factors (p.3).If I were McGregor, I would explain all the facts respectfully to Alward and appeal to his sense of fairness, asking for his cooperation.
The qualitative factors McGregor should consider pertain to Grand Bend, a small resort community. If McGregor refuses to accommodate a church group, it will lead to negative publicity for the Good Night Motel. As a consequence, McGregor will not only lose all future business (at regular prices) from Alward’s church group but also likely from other church groups. It is important to note that Alward is widely respected in the community (p. 3), making it necessary for McGregor to establish a good working relationship with him in order to attract more church groups in the future. This will enable McGregor to be in a better position to decline Alward’s half-price rate request if it arises again in the future. By doing so, McGregor can avoid excessive criticism from the community members, who are less likely to be as judgmental if McGregor refuses Alward’s initial request. In other words, in such a small resort community, decision-making should not solely rely on numbers but consider reputation, which holds significant importance, particularly when dealing with churchgoers. These individuals tend to travel and spread information about businesses that prioritize customer satisfaction over making profit.
When making a decision, managers must consider the opportunity cost and the marginal cost. According to our textbook, opportunity cost is the sacrifice of the best alternative for a given action, while an (accounting) expense is a cost incurred to generate revenue (p. 24). In this small town, the church group’s stay for only two days presents an opportunity cost of attracting more future customers. The marginal cost, defined as the cost of producing one more unit (p. 28), is not affected by cleaning the pool since most of the group’s time will be spent at the church. The only additional cost for accommodating the group is the cleaning service for the rooms. Additionally, McGregor must consider his fixed cost, which remains constant regardless of the amount of goods or services produced.
In summary, the importance of Alward’s good reputation and his involvement with churches make it crucial for McGregor to work with him. Even if McGregor doesn’t make a profit, he should still accommodate the church group to avoid negative consequences such as losing future business and facing bad publicity in a close-knit resort community. Essentially, the overall impact outweighs specific quantitative factors in this situation.
Addendum (Computations)
30 rooms with 25% occupancy: 8 rooms at $80,640
The remaining 22 rooms at $40 per room: 22 rooms at $40,880
Total Revenue: $1,520
Additional cleaning Expense (student Help): 2 days, 10 hours at $10/hour = $200.00
Cleaning and laundry supply $12,070.00
Maintenance supply and expense $11,890.00 Utility including Internet $74,850.00
Total Variable cost per year $98,810.00
Per day $270.71
For two days $541.42 $541.42 Total additional variable cost $741.42
The total revenue from the church guests, including accommodations costs, is $880 + $741.42.
