2. History of Westport Design
• Family business
• Model airplanes and model
airplane motors
• Limited Success
• Family changes and other
opportunities
3. The Business Today: Jordan Cottage
• Vacation rental located in the
Pennsylvania Wilds
• Marketed as a high end rental
• Full amenities
• Moderate success
• Needs better marketing plan
• Bookings need increased
4. Market Structure of Vacation Rentals
• Monopolistic competition (mjmfoodie, 2009).
▫ Large number of participants
▫ Differentiated products
▫ Easy entry and exit into industry
▫ Moderate amount of market control
5. Global Economic Conditions
• Jordan Cottage not usually
affected by foreign markets
• Issues with the recession
• Increase in rentals for living
and decrease in rentals for
vacation
6. Local Business Cycle
• Rural Pennsylvania
• Poor industrial town
• Hard times
• Resurgence?
• Cannot pinpoint exactly
7. Price Elasticity
• Not black and white
• Many different factors
• Elasticity changes based on
factors
• What this all means
8. Pricing Strategies
• Be as cost-effective as possible
• Know your market and consumer base
• Be aware of costs at all times
• Keep data on pricing strategies
9. Jordan Cottage Prices
• Simple strategy
▫ $100/night, double occupancy
▫ $10/night fee per extra person with max of 4
• Special circumstances
▫ Large groups
▫ Extended stay
10. Monthly Typical Pricing Strategy
$100 $100 $100 $100
$108.33 $108.33 $108.33 $108.33
($8.33) ($8.33) ($8.33) ($8.33)
($20)
$0
$20
$40
$60
$80
$100
$120
June 7-8 June 14-15 June 21-22 June 28-29
Typical Pricing Strategy Results
Price
Cost
Profit
Loss of $33.32 per
weekend
11. Slightly Altered Pricing Strategy
$110 $110 $110 $110$108.33 $108.33 $108.33 $108.33
$1.67 $1.67 $1.67 $1.67$0
$20
$40
$60
$80
$100
$120
June 7-8 June 14-15 June 21-22 June 28-29
Slightly Altered Pricing Strategy
Price
Cost
Profit
Gain of $6.68 per weekend
12. What the Graph Data Tells Us
• Marginal Revenue and Marginal Cost
• Current pricing strategy losing money
• Slightly altered strategy gains money with small
raise in price
• Determining the best strategy
▫ Raise price?
▫ Lower costs?
13. New Strategy
• Full weekend double occupancy does not equal
profits
▫ Current pricing strategy a failure
• Currently not at full weekend double occupancy
potential
▫ Huge losses!
• What to do?
▫ Marketing and a pricing strategy overhaul
14. Nonpricing Strategies
• Website overhaul
• Social media attention
• Generation of promotional materials
• Community involvement
• New services or amenities?
15. Conclusion
• Many factors affect businesses
▫ Be aware of all of them!
• Strategies for the future:
▫ Overhaul current pricing strategy
▫ Increase marketing potential
▫ Lower costs and raise prices
16. References
• Brue, S. L., Flynn, S. M., & McConnell, C. R. (2009).
Economics: Principles, problems, and policies (18th
ed.). Retrieved from The University of Phoenix
eBook Collection database.
• Krebs, J. (2007). Home. Jordan cottage. Retrieved
April 14, 2014, from
http://www.jordancottage.com/index.html
• mjmfoodie. (2009, August 01). Episode 25: market
structures [Video file]. Retrieved from
http://www.youtube.com/watch?v=9Hxy-TuX9fs
Editor's Notes
Family Business: My father had always wanted to start his own business and have a project he could call his own. About eight years ago, he decided to take his passion for planes and his tech savvy abilities into a business that focused on model airplanes.
Model planes/motors: My father designed his own planes and were primarily sold online. Two of his most popular models were Darth Smaul (pictured above) and the Dominatrix. Each had their own unique style and were sold in easy to assemble kits. The airplane motors (example above) were also of my father’s design and were handmade by him.
Limited Success: Although my father’s planes and motors were quite popular, managing a business on his own and producing kits and motors by himself was very time consuming. He also had a full time job and other family commitments that pulled him away from his business. If he could have focused his efforts on his business full time, he could have been highly successful. However, this would have not been financially feasible for our family.
Changes/opportunities: In 2004, my parents purchased a small cottage up the street from our home with the intent to move my grandparents into the property. Sadly, my grandfather passed away that same year and my grandmother did not want to move into the property. Although completely remodeled, the cottage sat empty for years. When my father’s business with the airplanes was failing, he decided to utilize this property and use it as a vacation rental. This would be much easier to manage and would help the local community grow.
PA Wilds: The Pennsylvania Wilds is a essentially a nature and wildlife centered vacation area in the heart of Pennsylvania’s state forests. Jordan Cottage is located in the Sproul State Forest which is a part of the Pennsylvania Wilds. The area is popular with hunters, fishermen, camping enthusiasts, and general nature enthusiasts. A huge draw to the area is the recently reintroduced wild elk population.
High end rental: Jordan Cottage is intended for individuals that want to spend time in the outdoors but would like a “civilized base camp” to sleep in and spend time in when they are not out enjoying what nature has to offer.
Amenities: The cottage is a one bedroom, one bathroom house with a kitchen, dining room, and living room, as well as a back porch and fire pit in the backyard. The house is set up for double occupancy, but can accommodate a total of four individuals via pull out couch and blow up mattress.
Moderate success: Bookings of the cottage are not near maximum occupancy. Despite this, returning customers are what keeps the business afloat plus my parents using their own personal funds to pay the cottage’s expenses.
Marketing/bookings: The biggest reason for the low number of bookings seems to be poor marketing, since not a lot of people know that the cottage even exists. It is my plan to create a better marketing strategy and to get Westport Design back on track and making money.
Monopolistic Competition:
There are many vacation rentals or hotels all over the world. Think of anywhere you are traveling to on vacation. Chances are you have stayed in a hotel or a vacation rental, whether it be a huge chain hotel like a Hilton or something family owned. When you rent a vacation rental you are essentially always receiving the same service. A place to sleep while you go on vacation. What sets hotels and vacation rentals apart from each other is what amenities they offer as well as their locations, which in turn affects price. Further, it is rather easy to enter this industry (at least on a small scale). Anyone can rent a room or a house as long as they have one to rent. The moderate amount of market control comes from the ability to offer different amenities and services. (mjmfoodie, 2009).
Jordan Cottage is usually affected by local and regional issues, so most things on a global scale in terms of the vacation rental market do not matter much. However, the recent global recession has caused consumers to forgo vacations and stay at home, leading to a decrease in bookings. Other types of rentals such as housing rentals are increasing because of the housing issues that brought about the recession, but that is somewhat unrelated to vacation rentals as well.
For vacation rentals as a whole globally, the market will improve as the recession improves
Jordan Cottage is located in rural Pennsylvania near the town of Renovo. This town used to be an industrial power in the early 20th century with huge successes in the railroad, coal, and lumber industries. Due to the rise of factory automation and the lowered need for trains, Renovo has fallen on hard times and has not been doing well economically in a long time. However, there are local businesses and revitilization initiatives that are helping to improve the community and increase tourism to this naturally beautiful area. Although it is hard to pinpoint where the area is during the business cycle exactly, I think it is safe to say that it is in a period of expansion.
The price elasticity of a vacation rental is not always either elastic or inelastic. It tends to change based on a number of factors. When considering price elasticity, one first and foremost has to consider the demand of their product or service. For example, most medications are inelastic because they will always be necessary and people will be willing to pay whatever price they are being sold for because they need them to improve their health. The demand can be high or low, but the demand has no effect on price, which makes medications an inelastic good. The demand for vacation rentals varies continuously. Economic conditions need to be considered because if there is a recession people are more likely to save their money and less likely to spend it on going vacation. Another factor is the attractions the rental is near. What if a rental is near a theme park, but the theme park’s most popular ride will be closed all summer to make much needed repairs? Speaking of summer, vacations rentals (Jordan Cottage especially) often depend on the summer months and other months where the weather is nice for their business. Due to this, demand for Jordan Cottage is higher in July than it is in December. Since the demand is so high, lowering prices would be a good idea because it would entice more people to rent the cottage. People are willing to pay varying prices for varying vacation rentals based on their prices and amenities they offer when vacation rentals are in high demand, making the price elasticity elastic. In the winter, the demand for a vacation rental in the Pennsylvania Wilds diminishes to an extreme degree. If someone really wants to rent it, they would most likely be willing to pay any price since it is reasonable to expect that such a business would not book a rental unless the cost of operating the rental for that period in time was cost effective. This ability to charge higher prices with people willing to pay them with low demand means that the price elasticity switches to being inelastic in a vacation rental’s off season.
An effective pricing strategy will ensure that money is being made at all times while costs are kept as low as possible. If your costs are exceeding your profits, you might have a poor pricing strategy. Choosing the best way to set prices in an industry depends on a many number of factors, but at the center of it all it is most important to understand what you are selling and who you are selling it to. Jordan Cottage is a higher end vacation rental and is of a higher quality than other rentals in the area. Due to this, it is not unfair or unexpected that Jordan Cottage’s prices may be a bit higher than other rentals in the area. Further, since Jordan Cottage is situated in a poor economic area, it is also safe to assume that the cottage is intended for tourists and not necessarily for locals.
For a pricing strategy to be successful, it is important to be aware of the costs it takes to run your business and keep note of fixed and variable costs. If costs fluctuate greatly, you would use a different pricing strategy than if costs stayed more stable. Always be aware of price changes and keep data on these changes in order to optimize your earnings potential.
Jordan Cottage has a simple pricing strategy that has not changed since bookings began. Currently, this strategy is being evaluated and is subject to change. Most often, the cottage is booked on weekends only, so there is not a lot of profit being made at the current time.
Jordan Cottage will alter its policies and strategy under special circumstances, however. Large groups with a higher maximum than four have stayed at the cottage, and usually these groups stay for an extended period of time. Once a research team from the Pennsylvania State University visited with 8 people and stayed for a total of twelve nights. Normally, the price would be $1920 for that time period. However, a discount was offered and the team was only expected to pay $1500 as a thank you for their service and to support their research efforts. Maid service was also reduced to lower a fixed cost. Maid service is $10/day. Maid service for the duration of their stay would have been $120, but was reduced so that it only cost $20. This pricing strategy, however, resulted in a loss, which is why the pricing strategy needs to be evaluated and changed.
The typical pricing strategy based on a double occupancy bookings per weekend results in a loss of $33.32 per weekend
The slightly altered pricing strategy of increasing the price $10 per booking for double occupancy weekends is a gain of $6.68 per weekend
Marginal revenue is how much profit is made per booking, and the marginal cost is how much it costs to “produce” one booking. With the current pricing strategy, the costs exceed the revenue to a high degree. Every weekend, $33.32 is lost. If Jordan Cottage was booked every weekend from June to August, there would be a loss of approximately $400.
The slightly altered pricing strategy sees a profit gain of $6.68 per weekend. Although this is not a huge gain, just a minor rise in price brought Jordan Cottage back into the black and out of the red. If Jordan Cottage was booked every weekend from June to August using this strategy, there would be a gain of approximately $80.
Although this does not seem to be the ideal strategy either, it is a step in the right direction. What is important is to determine what should happen in order to increase revenue and decrease costs. Should the price continue to be raised or should costs be lowered somehow? Maybe a mix of both?
Jordan Cottage does not run at even the lowest levels of peak occupancy, but even if it did under the current pricing strategy a significant amount of money is being lost. The current pricing strategy is a failure and needs to be changed.
A plan I have is to increase marketing through nonpricing strategies to increase the Cottage to the full weekend double occupancy with the hope of expanding into weekday occupancy. Simultaneously, I believe that prices should be raised and costs should be lowered if they can.
A great way to increase a business’s profit potential is to utilized nonpricing strategies to reach out into the consumer base and entice more customers. My plan for Jordan Cottage is a website overhaul. Although the current website is visually appealing and provides the necessary information needed for booking, I believe that adding information connected to local events or generating a guestbook would be a great way to increase traffic to the site. Further, Jordan Cottage has a Facebook page that is not getting the amount of views and likes desirable. Using Facebook’s tools for getting more views to your business’s page, I plan on revitalizing Jordan Cottage’s social media presence. Promotional materials such as pamphlets are also currently being generated to be handed out in local restaurants and area attractions. I also believe that it is important for Jordan Cottage to fit into the community at large, so sponsoring any local team or charity events might be a good strategy as well. Other plans are in the works such as offering electrically powered bicycles for rent for renters of the cottage as well, though these plans are in their infancy.
I have covered many aspects of what to consider when running a business during this presentation. However, I have barely scratched the surface! How to be successful is to at least be aware of business basics and pay attention to trends in your industry and the economy as a whole at all times. Make certain that you are keeping aware of rising and falling costs and adjust your pricing strategy accordingly.
Jordan Cottage needs a complete overhaul in order for it to be a successful business. The current pricing strategy is horrendous and is losing Westport Design a lot of money. Further, the marketing for the cottage is almost nonexistent and needs to be increased. Further, for the time being prices must be raised in order to put Westport Design in the black and costs need to be lowered if at all possible.
