You are serving as the chair for your community’s annual wellness campaign.  A key event is the annual Walk 3k, Run 10k, Ride 20k event.  The event is staged entirely by volunteers and the goal is to attract community-wide awareness of getting active as a key step to wellness.  In other words, the goal is not to raise money, but to prompt awareness.  As the chair, you set a financial goal to break even on the one and only cost of the event, a fitness bag with the community seal and the event motto, “I AM ON THE RIGHT TRACK!”

QUESTION

Discussion Set

1. You are serving as the chair for your community’s annual wellness campaign.  A key event is the annual Walk 3k, Run 10k, Ride 20k event.  The event is staged entirely by volunteers and the goal is to attract community-wide awareness of getting active as a key step to wellness.  In other words, the goal is not to raise money, but to prompt awareness.  As the chair, you set a financial goal to break even on the one and only cost of the event, a fitness bag with the community seal and the event motto, “I AM ON THE RIGHT TRACK!”

The cost of the bags, which must be ordered in batches of 100, are: (complete marginal cost, below).

Select any or all viable approaches below:

2. Your marketing department just undertook a major advertising campaign promoting the quality of your Best Brand Bike Shorts—BBB Shorts. They have provided you with an estimate of the success of the campaign stating: “the price elasticity of demand has decreased from -5.76 to -3.76.”

Before the campaign, your price was $240 per pair of BBB Shorts.  What should the new price be? (Show how you obtained answer).

3. You help couples book their perfect honeymoon.  You currently offer plans for a cruise and for a casino stay.

Your sales manager is getting her MBA and has suggested you might consider bundling as a way to boost profits.

The table below shows the customer preferences.  Your costs are $100 for the first booking and $50 for each additional booking.

“We Book Your Honeymoon Tour”

Given the preferences, would bundling improve profits over the high-cost strategy?  Support conclusion by showing if (by how) profits differ under each strategy.

4. Follow up (note that the dollar amounts have not changed from the previous scenario.)

You help couples book their perfect honeymoon.  You currently offer plans for a cruise and for a casino stay.

Your sales manager is getting her MBA and has suggested you might consider bundling as a way to boost profits.

The table below shows the customer preferences.  Your costs are $100 for the first booking and $50 for each additional booking.

“We Book Your Honeymoon Tour”

You know that about 21% of your customers decline cruises because of seasickness.  At least 12% decline the casino trip saying they do not believe in gambling.  As a rough approximation, you estimate that approximately 33% of your customers will never bundle.  Given the preferences distribution, will mixed bundling increase profits?  Show the calculations that support your conclusion.

ANSWER

Maximizing Profits and Enhancing Customer Satisfaction through Strategic Decisions

Introduction

As the chair of a community’s annual wellness campaign, I have been tasked with organizing the Walk 3k, Run 10k, Ride 20k event to promote physical activity and community engagement. In this scenario, the primary goal is to raise awareness rather than generate revenue. Additionally, I have been presented with two scenarios related to a fitness bag order for the event, pricing adjustments for BBB Shorts, and potential bundling strategies for honeymoon bookings. This discussion will analyze each scenario, evaluate the viable approaches, and provide calculations to support the decision-making process.

Scenario 1: Fitness Bag Order

To break even on the cost of fitness bags, we need to carefully consider the number of bags to order. The provided cost table presents fixed costs, variable costs, total costs, and marginal costs at different quantities. The viable approaches are as follows:

1. Use the profit-maximizing rule, MR ≥ MC, buy 300 bags.
2. Use the profit-maximizing rule, MR ≥ MC, buy 200 bags.
3. Use Qb = F / (MR – AVC), where Qb is the breakeven quantity to be determined, and the optimal quantity of bags is 300.
4. Use Qb = F / (MR – AVC), where Qb is the breakeven quantity to be determined, and the optimal quantity of bags is 200.

To determine the best approach, we need to evaluate the marginal revenue (MR) and average variable cost (AVC) at different quantities. By comparing the MR and MC or using the breakeven formula, we can identify the optimal quantity that ensures we break even on costs. The approach that satisfies this condition should be chosen to achieve the goal of the campaign.

Scenario 2: Pricing Adjustment for BBB Shorts

The marketing department conducted an advertising campaign for BBB Shorts, resulting in a decrease in price elasticity of demand from -5.76 to -3.76. Before the campaign, the price of BBB Shorts was $240 per pair. To determine the new price, we need to consider the price elasticity of demand and adjust accordingly.

Price elasticity of demand (PED) is calculated as the percentage change in quantity demanded divided by the percentage change in price. Given the change in PED from -5.76 to -3.76, we can use the midpoint formula to estimate the new price:

New Price = Old Price / (1 + (PED change / Old PED))

By substituting the values, we can calculate the new price, which will help maintain optimal demand while maximizing profits.

Scenario 3: Bundling Honeymoon Plans

Considering the preferences of customers and the associated costs, we need to assess whether bundling honeymoon plans would improve profits over the high-cost strategy. The table shows the prices customers are willing to pay for the cruise and casino options. Additionally, costs for the first booking and subsequent bookings are provided.

To determine the profitability of bundling, we should compare the profits generated by each strategy. By subtracting the costs from the total revenue generated for each customer under both strategies, we can identify the more profitable approach. If bundling generates higher profits, it would be a favorable strategy to pursue.

Scenario 4: Mixed Bundling for Honeymoon Plans

In this scenario, we have additional information about customer preferences and their inclination towards specific activities. Approximately 21% of customers decline cruises due to seasickness, while at least 12% decline the casino trip due to personal beliefs against gambling. Furthermore, an estimated 33% of customers never opt for bundling.

To determine if mixed bundling would increase profits, we need to analyze the customer preferences distribution. By considering the percentage of customers who decline specific options, we can calculate the potential revenue and costs associated with each option. By comparing the profits generated through mixed bundling with the profits from individual options, we can determine if mixed bundling would increase overall profitability.

Conclusion

In conclusion, the provided scenarios present opportunities to optimize profits and enhance customer satisfaction through strategic decision-making. By carefully analyzing the costs, revenues, and customer preferences, we can determine the optimal quantities for fitness bag orders, adjust prices based on price elasticity of demand, and evaluate the profitability of bundling honeymoon plans. Through these calculations and considerations, we can make informed choices that align with the goals of the wellness campaign and maximize overall success.