Question 1 is using Break Even Analysis

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

Question 2 is using profit analysis

Should Wellness Gateways go ahead with the cruise, since 200 passengers have signed up as of November 14? (Show your calculations.)

Case D-13: Wellness Getaways, Inc.: The Challenge of Setting a Price Wellness Getaways, Inc. packages cruises to Caribbean next month; or (3) we shell out some more money on islands such as Martinique and the Bahamas. Like con- advertising and hope that we can pull in more people. ventional cruises, the packages are designed to be fun. "My preference is that we try to recruit more passen. But the cruise is structured to help participants become gers. There are simply too many empty rooms on that healthier by breaking old habits, such as smoking or over- ship. Each one costs us a bundle." eating. The Miami-based firm was conceived by Susan At this point, Carolyn Sukhan said: "I've worked out Isom, 30. a self-styled innovator and entrepreneur. Prior two possible advertising campaigns for the November 20 to this venture, she had spent several years in North papers. The first, the limited campaign will cost $12,000. Carolina promoting a behavior-modification clinic. I estimate that it will bring in 20 passengers. The more Isom determined that many people were very concerned ambitious campaign, which I personally recommend, about developing good health habits, yet they seemed unable would cost $30,000. I believe this campaign will bring in to break away from their old habits because of the pressures a minimum of 40 passengers." of day-to-day living. She reasoned that they might have a "I realize that our first attempt was somewhat disap- chance for much greater success in a pleasant and socially pointing. But we're dealing here with a new concept, and supportive environment where good health habits were fos- a follow-up ad might work with many newspaper readers tered. Accordingly, she established Wellness Getaways, Inc., who were curious and interested when they read our first hired 10 consulting psychologists and health specialists to notice." develop a program, and chartered a ship. Seven of Isom's "One thing is absolutely certain," Sukhan emphasized. business associates contributed an initial capital outlay total- "We must act immediately if there's any hope of getting ing more than $600,000. Of this amount, $130,000 went for more people on board. The deadline for the Sunday pa- the initial advertising budget, $20,000 for other administra- pers is in less than 48 hours. And if our ads don't appear tive expenses, and $440,000 for the ship rental and crew. by this weekend, you can forget it. No one signs up in Mary Porter, an overweight Denver schoolteacher, has early December for a December 18 sailing date." signed up to sail on a 10-day cruise to Nassau, departing Isom interrupted, shaking her head. "I just don't know December 19. She and her shipmates will be paying an what to say. I've looked over Carolyn's proposals, and average of $3,000 for the voyage. The most desirable they're excellent. Absolutely first-rate. But our problem, staterooms cost $4,400. to be blunt, is money. Our funds are tight, and our inves- Mary learned of the cruise by reading the travel sectors are already nervous. I get more calls each day asking tion of her Sunday newspaper on October 16. On that me where the 300 passengers are. It won't be easy to date, the Pittsford and LaRue Advertising Agency placed squeeze another $12.000 out of these people. And to ask promotional notices for the cruise in several major metro- them for $30,000-well, I just don't know how we're politan newspapers. Mary was fascinated by the idea of going to be able to justify it." combining therapy sessions with swimming, movies, and an elegant atmosphere. Pittsford and LaRue account executive Carolyn Sukhan Questions originally estimated that 300 people would sign up for 1. What is the minimum number of passengers that the cruise after reading the October 16 ads. But as of Wellness Getaways must sign up by November 20 to November 14, only 200 had done so. Isom faced an im- break even with the cruise? (Show your calculations.) portant decision. 2. Should Wellness Getaways go ahead with the "Here's the situation as I see it," explained a disturbed cruise, since 200 passengers have signed up as of Isom. "We've already paid out more than half a million November 14? to get this cruise rolling. It's going to cost us roughly 3. Would it be worthwhile for Wellness Getaways to spend $400 per passenger for the 10-day cruise, mostly for either $12,000 or $30,000 for advertising on November food. Pittsford and LaRue predicted that 300 people 20? If so, which figure would you recommend? would respond to the advertising campaign, but we've 4. How realistic are Carolyn Sukhan's estimates of 20 only got 200." more passengers for the $12,000 advertising campaign Isom continued, I see three basic options: (1) we can- and 40 more passengers for the $30,000 campaign? cel the cruise and take our losses; (2) we run the cruise 5. Should Wellness Getaways consider cutting its prices with the 200 and a few more that will trickle in over the for this maiden voyage? Sentree: Wellness Getaways, Inc.. This case was prepared by Roger A. Kerin and Steven W. Hartley