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This question was created from Motel Location for Nature's Inn.docx


This is the Nature's Inn Case from Edition 3, page 226 Care: More! Location for Nature’s Inn Nature‘s lnn operates a motel chain with two types of motels. Under its brand Comfort Express
(CE). it offers a relatively inexpensive. spartan motel. Under its Famin Suites (FS) brand. it
offers a more expensive motel distinguished by various extra features. Both brands are associ-
ated with the latest ideas in green building design. attracting a segment of the customer market
that is willing to let considerations of sustainability influence its purchasing decisions.
Following a successful first round ofexpansion in the Northeast region. Nature's Inn is planning
another round of expansion. this time into the Midwest region. Working with a real estate consultant. Nature's Inn has identified ten potential sites for the
location of new motels. Each site can aeconunodate either 3 CE motel or it PS more] (but not
both}. Using historical data from the Northeast region. the consultant has estimated the net pre-
sent value (NPVi of the cash flows attainable over the next ten years at each location. with sep-
arate figures for CE and FS. EXHIBIT 15.1 Proximity Dora and Economic Estimates Locations Locations CE NPV PS NPV
Lmrnion within 30 miles within 40 miles (3 million) (5 million)
1 2 2.6 10.141I 11.899
2 l 1 12.191 11.242
3 4 4 13.359 10.?3]
4 3 3. 5 9.344 1519
5 — 4 I 1.388 14.235
6 9 l. 8. 9 6.935 9.636
'i' 8, 10 8. 10 [2.629 8.687
8 ”i, 9. 10 6. 'i’. 9. 10 l3.505 10.293
9 6. 8. It} 6. 8. l0 9.344 9.709
10 ”i. 8, 9 7. 8. 9' 8.249 11.46l The consultant has also carried out a survey to explore the extent to which demand might be
affected when two motels are located in close proximity. The first finding was that CE customers
and FS customers are different segments. for the most part. and little crossover demand occurs.
On the other hand. among CE and F5 customers. competition occurs when motels are locaed too
close to each other. The data suggest that competition becomes an economic timer for CF. motels
when they are located within 30 miles of each other and for F5 motels within 40 miles of each
other. Nature‘s Inn has therefore decided to respect these distances in their choice of locations: In
the Midwest. CE motels will not be located within 30 miles of each other. and FS motels will not
be located within 40 miles of each other. The results of the consultant‘s work are summarized in
Exhibit 6.1. The task for Nature‘s inn is now to develop a location plan for its Midwest expansion.

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