Swakopmund Coast Lodge: Reposition for Families or Research First?
Swakopmund Coast Lodge has 24 rooms. Peak-season occupancy is 78% and off-peak 42%; the average room rate is N$850 and variable cost per occupied room is N$220. Fixed costs are N$380,000 per month. About 60% of guests are international backpackers, 25% self-drive couples and 15% corporate travellers; travel agents take 12% commission. The owner is considering repositioning to families. This would need N$450,000 for family rooms and a pool fence, raise variable cost to N$280 per occupied room, and support a N$1,250 rate. A short online survey of 120 past guests found 48% likely to return for family facilities, 30% said the rate would be too high, and 22% were unsure. Respondents were mostly former backpackers. The owner has N$180,000 cash and can borrow N$300,000 at 14% over three years. The bank wants evidence of demand before lending. Decide whether to fund a larger survey, refurbish now, or keep the current position.
1. Assess the usefulness of the 120-guest survey for the repositioning decision.
Read the worked answer
The survey is cheap exploratory evidence, but it is weak for a N$450,000 decision. Of 120 respondents, 48% is about 58 people saying they are likely to return; 36 are price-resistant and 26 are unsure. A bare majority is not strong support, and 30% price resistance directly challenges the N$1,250 rate.
The main weakness is sampling bias. Respondents were mostly former backpackers, not families. Backpackers may like the idea of family facilities but are not the target market and may not book family rooms. The survey was online, so it likely over-represents people with internet access and prior attachment to the lodge. It measures stated intention, not actual booking behaviour.
The survey is useful for identifying price sensitivity and generating hypotheses. It is not sufficient for the bank because it gives no evidence on family party size, school-holiday demand, length of stay, competitor family rates, or willingness to pay in off-peak months. A larger survey of actual families, tour operators and Namibian travel agents would be more valid.
2. Calculate contribution per occupied room-night under the current and family formats, and estimate the occupancy needed to cover fixed costs plus the loan. Use a 30-day month and assume commission applies to all bookings.
Read the worked answer
Current format
- Room rate: N$850
- Commission: 12% x N$850 = N$102
- Variable cost: N$220
- Contribution: N$850 - N$102 - N$220 = N$528 per occupied room-night
Family format
- Room rate: N$1,250
- Commission: N$150
- Variable cost: N$280
- Contribution: N$1,250 - N$150 - N$280 = N$820 per occupied room-night
Loan repayment: N$300,000 at 14% over 36 months is approximately N$10,250 per month.
Occupancy needed
Monthly capacity = 24 rooms x 30 nights = 720 room-nights.
Required room-nights = (N$380,000 fixed + N$10,250 loan) / N$820 = 476 room-nights.
Occupancy = 476 / 720 = 66.1%.
At the current average of 60% occupancy, family contribution is 432 x N$820 = N$354,240, against N$390,250 fixed plus loan, so the lodge would still make a small monthly loss. The family format needs about 66% occupancy just to break even, before any loss of existing backpacker business. If commission is avoided on direct bookings, the required occupancy is lower, so the booking channel matters.
3. Recommend a course of action, referring to risk and the bank's position.
Read the worked answer
Recommendation: Do not refurbish immediately. Fund a larger, targeted survey first, using cash rather than borrowing. The current survey is too biased to convince a bank to lend N$300,000.
A focused study should sample at least 200 families, tour operators and corporate travel agents, and compare family rates and occupancy at competing Swakopmund establishments. It should test off-peak family demand, because the lodge's problem is the 42% off-peak occupancy. A small pilot, such as converting two rooms, would test demand at lower risk.
If the evidence shows that family demand can lift occupancy above 66% at N$1,250 and fill off-peak months, the refurbishment is financially viable. If not, the owner should keep the current position or target self-drive couples, who may pay a higher rate without the N$450,000 family investment. The bank's requirement for evidence should be treated as a useful discipline, not just a hurdle.