D 28 Case D 13 Wellness Getaways Inc The Challenge Of Settin

D 28case D 13 Wellness Getaways Inc The Challenge Of Setting A Pri

What is the minimum number of passengers that Wellness Getaways must sign up by November 20 to break even, with the cruise? (Show your calculations.)

Should Wellness Getaways go ahead with the cruise, since 200 passengers had signed up as of November 14?

Would it be worthwhile for Wellness Getaways to spend either $12,000 or $30,000 for advertising on November 20? If so, which figure would you recommend?

How realistic are Carolyn Sukhan’s estimates of 20 more passengers for the $12,000 advertising campaign and 40 more passengers for the $30,000 campaign?

Should Wellness Getaways consider cutting its prices for this maiden voyage?

Paper For Above instruction

Introduction

The case of Wellness Getaways Inc. presents a strategic challenge centered around pricing and promotional decisions in the context of a health-oriented cruise. With initial investments already made, the company faces the critical decision of whether to invest further in advertising to fill remaining cabins or to accept the current booking level and proceed with the cruise. This paper analyzes these strategic choices by calculating the breakeven point, evaluating the current booking figures, assessing the proposed advertising investments, and considering the implications of pricing strategies and accuracy of estimates.

Calculating the Breakeven Point

To determine the minimum number of passengers required to break even, it is essential to analyze the fixed and variable costs associated with the cruise. The total fixed costs, including ship rental and crew, amount to $440,000. Variable costs, primarily food, are approximately $400 per passenger. The total revenue per passenger varies based on the accommodation choice, with the average ticket costing $3,000 and the most desirable staterooms at $4,400. To simplify the calculation, we assume an average ticket price of $3,000.

Break-even occurs when total revenue equals total costs:

Total Revenue = Total Costs

Let x = number of passengers needed to break even.

Revenue = $3,000 * x

Variable costs = $400 * x

Total costs = Fixed costs + Variable costs = $440,000 + $400 * x

Setting revenue equal to costs:

$3,000 x = $440,000 + $400 x

Solving for x:

$3,000x - $400x = $440,000

$2,600x = $440,000

x = $440,000 / $2,600 ≈ 169.23

Thus, Wellness Getaways must secure at least 170 passengers to break even on the cruise.

Assessment of Current Booking Levels

As of November 14, only 200 passengers have signed up, exceeding the breakeven point of 170. This suggests that the cruise is financially viable even without additional advertising expenditure, assuming the other assumptions hold. However, the company faces uncertainties regarding whether this level of booking will sustain or increase, impacting overall profitability and investor confidence. Therefore, proceeding with the cruise seems justified from a purely breakeven perspective, but strategic considerations around maximizing occupancy and profit margins warrant further analysis.

Advertising Investment and Strategic Decision-Making

The proposed advertising campaigns—$12,000 for 20 additional passengers and $30,000 for at least 40 more—present a critical investment decision. To evaluate whether these investments are worthwhile, consider the incremental profit each new passenger would generate.

If the average revenue per passenger is $3,000, and the additional cost involves only the advertising expense, then each new passenger contributes approximately $2,600 in profit after variable costs ($3,000 revenue minus $400 variable costs). The fixed costs are already covered by the current bookings, making each additional passenger above breakeven highly profitable.

Investment in advertising could potentially increase occupancy to near full capacity (assuming the ship's total capacity is around 300-350). The $12,000 campaign estimating 20 new passengers yields a cost per additional passenger of $600, which is highly cost-effective given the profit margin.

Similarly, the $30,000 campaign targeting 40 additional passengers results in a cost of $750 per passenger, still a profitable investment, especially if it ensures maximum capacity utilization.

Given these calculations, both campaigns seem justified, but the $30,000 campaign offers higher incremental gains and aligns with the company's goal to maximize occupancy and revenue. The decision ultimately depends on available cash flow, risk appetite, and investor expectations. Since the current booking exceeds the breakeven threshold, investing in advertising to maximize occupancy appears advantageous.

Realism of Estimates

Sukhan's estimates of an additional 20 passengers for the $12,000 campaign and 40 for the $30,000 campaign are optimistic but plausible, given the initial response to advertising. Small increases in tourist interest—particularly for innovative health-oriented cruises—can be significant, especially if targeted marketing efforts are executed swiftly.

The initial lower response may reflect a cautious market or limited initial outreach. The follow-up ads' success depends on factors such as timing, message appeal, and reader curiosity. Historically, advertising response rates vary widely, but in niche markets like wellness cruises, well-targeted campaigns can indeed produce these incremental bookings. Still, uncertainties remain, and the company should consider market research feedback and previous campaign data to refine expectations.

Pricing Strategies for the Maiden Voyage

Considering whether Wellness Getaways should cut prices involves analyzing price elasticity and the potential impact on revenue and brand perception. Lowering prices could attract more passengers, potentially increasing total revenue if the additional volume offsets the lower per-ticket price. Conversely, it could diminish the perception of exclusivity and health-oriented value.

Given the current booking levels, price reductions might stimulate demand and fill remaining cabins, especially if the company aims for full capacity. However, the premium nature of the cruise—highlighting health benefits and social support—may restrict the effectiveness of price cuts. Therefore, targeted discounts or value-added offers might be a more strategic approach than across-the-board reductions.

In essence, price cutting should only be considered if the marginal increase in passengers significantly improves overall profitability and aligns with brand positioning. If the aim is to maximize profit margins, maintaining higher prices with targeted marketing could be more effective.

Conclusion

In conclusion, Wellness Getaways Inc. has surpassed its breakeven point with 200 bookings and should consider proceeding with the cruise to optimize profitability. The potential advertising investments of $12,000 and $30,000 are justified given the high profit margin per additional passenger, with the $30,000 campaign offering a more aggressive approach to maximize occupancy. The estimates provided by Sukhan are plausible but carry inherent uncertainties typical in new market segments. Strategic pricing adjustments should be carefully evaluated, favoring targeted discounts over broad cuts to preserve brand value while ensuring full capacity and profitability.

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