Westmont Retirement Harvard Case Solution & Analysis

Market Condition:

In London Ontario, there is a significant increase in demand for assistance and supportive living options this increase in demand affects positively on the retirement home industry and hence in result the industry experiencethe significant growth. It is estimated that due to the growth in Canadian population and increase in demand for admitted facilities the required beds in long-term health facilities will move from 184300 to 565000 till 2031.

To support the demand curve many new players enters in the retirement home industry at London hence the increase in supplier increase the available options to the consumer. Therefore we can say that after the change in themarket, theprice of the facility will be considered as the main competitive factor in this industry.

From the given data of the Westmont Retirement Company,we can conclude that the company generates approximately $245569 of revenue in 2005 however it provides services to the 160 residence hence the price per residence is equal to approximately $15347. Moreover, the current profitability ratio of the company is approximately 2.34%. In retirement industry, it is the norm that the retiree spent approximately 21% in residency cost while the price of Westmont is in between the 38% and 61% of retiree average income. Hence by reducing its price, the company can compete effectively in the market.

% of price of Westmont @ Average Income of retiree
  Minimum Maximum
Average Income of retiree 25000 40000
% @ price of Westmont 61.39% 38.37%

 

The financial look of Canadian retiree:

In Canada, most of the elderly population relies on the Canadian pension plans such as registered retirement savings plans, Federal Government old age security provision, income bearing investments and other identical income sources. From these sources they normallygenerate incomein between 25000 to 40000 along with this,there are some other sources as well from which a Canadian retiree may generate the income such as thesale of his home, family support and etc.

These retirees spend approximately 21% of their income as the residency cost.Therefore if a retiree earns $25000 then he may spend amaximum of $5250 as the residency cost however if earns $40000 then he may spend approximately $8400 as the residency cost. Hence from this analysis, we can concludethat a retiree may go somewhere else if a company charge more than this threshold.

Revenue       2,455,569
No of Residence                 160
Net Income            57,446
Price per Residence            15,347
Net profit margin 2.34%

 

Price Sensitivity
  Minimum Maximum
Average Income of retiree 25000 40000
Price Sensitivity 5250 8400

Alternatives:

Current System:

Westmont Retirement currently estimates the cost per residentusing the room size it categories its rooms into three broad categories studio, one-bedroom and two-bedroom which are 400, 500 and 600 square foot respectively. Along with this the company also provide some personal services to the clienteles such as meal and snack service, housekeeping, medication, nursing care and etc.

In the current system the company divides the total expense with the number of residence to determine the cost per residence after this the company multiply this number with the inflation rate of 5% to 8%the resulted cost is defined as the cost of studio which the called the base figure after that to determine the cost of one-bedroom and two-bedroom the company multiply the base figure with the multiplier of 1.25 and 1.50 respectively. In the current system, the company does not allocate the cost on the reasonable basis..............

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