Question

Motley Motel’s potential average room rate is calculated to be $62. Assume that this motel had three market segments. Vacation travelers use 75 percent of the room nights and are charged 100 percent of the rack rate. Business travelers use 15 percent of the room nights and are charged 90 percent of the rack rate. Sports teams account for 10 percent of the room nights and are charged 80 percent of the rack rate.

a. Calculate the room rate by market segment.

Answer 1

Assume Rack rate=$X

Average Room Rate=$62

Average Room Rate=0.75X+0.15*(0.9X)+0.1*(0.8X)=$62

0.75X+0.135X+0.08X=$62

0.965X=$62

Rack Rate=X=(62/0.965)=$64.25

Room Rate by Market Segment:

Vacation Travellers=100% of Rack rate=$64.25

Business Travellers=0.9*64.25=$57.82

Sports team=0.8*64.25=$51.40

	A	B	C=A*B
Market segment	Room rate	% of room nights	RoomRate*percentage
Vbacation Traveller	$        64.25	75%	$    48.19
Business Traveller	$        57.82	15%	$       8.67
Sports Team	$        51.40	10%	$       5.14
		Total	$    62.00