2 Question

Inc., packages cruises to Caribbean is- few more that will trickle in over the next month; or lanos such as Martinique and the Bahamas, Like conven- (3) we shell out some more money on advertising and tional cruises, the packages are designed to be fun. But hope that we can pull in more people. the cruise is structured to help participants become "My recommendation to this board is that we try to healthier by breaking old habits, such as smoking or over- recruit more passengers. There are simply too many eating. The Miami-based firm was conceived by Susan empty rooms on that ship. Every empty room is an Isom, 30, a self-styled innovator and entreprencur. Prior opportunity loss and costs us a bundle." to this venture, she had spent several years in North At this point, Carolyn Sukhan addressed the board: Carolina promoting a behavior-modification clinic. "T've worked out two possible advertising campaigns for Isom determined that many people were very concemed the November 20 papers. The first, the limited camabout developing good health habits, yet they secmed unable to paign, will cost $12,000. I estimate that it will bring in break away from their old habits because of the pressures of some 20 passengers. The more ambitious campaign, day-to-day living. She reasoned that they might have a which 1 personally recommend, would cost $30,000. I chance for much greater success in a pleasant and socially believe this campaign will bring in a minimum of 40 supportive environment, where good health habits were passengers. fostered. Accordingly, she established Life Cruises, 1 realize that our first attempt was somewhat disapInc., hired 10 consulting psychologists and health specialists to pointing. But we're dealing here with a new concept, and a develop a program, and chartered a ship. DeForrest follow-up ad might work with many newspaper readers who Young. a Miami management consultant, became the were curious and interested when they read our first notice. chairperson of Life Cruises. Seven of Isom's business 7 One thing is absolutely certain." Sukhan emphasized. associates contributed an initial outlay totaling over half "We mast act immediately if there's any hope of getting a million in sunk (non-refundable) costs. Of this amount, more people on board. The deadline for the Sunday pa$130,000 went for the advertising budget, $20,000 for other pers is in less than 48 hours. And if our ads don't appear by administrative expenses, and $440,000 for the ship rental and this weekend, you can forget it. No one signs up in early crew.MaryPorter,anoverweightDenverschoolteacher,hasIsominterrupted,shakingherhead.1justdontknowDecemberforaDecember18sailingdate." signed up to sail on a seven-day cruise to Nassau, departing what to say. Tve looked over Carolyn's proposals, and December 19. She and her shipmates will be paying they're excellent. Absolutely first-rate. But our problem, to $3000 each for the voyage, the uniform rate in any of the be blunt, is money. Our funds are tight, and our investors rooms on the ship. The ship can accommodate a maximum are already nervous. I get more calls each day, asking me of 500 customers. Mary learned of the cruise by reading the travel sec- squecze another $12,000 out of our investors. And to ask Sunday newspaper on Oetober 16 . On that them for $30,000-well, I just don't know how we're going thate, the Pittsford and LaRue Advertising Agency placed promotional notices for the cruise in several major metropolitan newspapers. Mary was fascinated by the idea of combining therapy sessions with swimming, movies, and an elegant atmosphere. Pittsford and LaRue account executive Carolyn Sukhan originally estimated that 300 people would sign up for the cruise after reading the October 16 ads, But as of November 14, only 200 had done so. Isom and Life Cruises, Inc., faced an important decision. "Here's the situation as I see it," explained a disturbed Isom at the Life Cruises board meeting. "We've already paid out more than a half a million to get this cruise rolling. In addition, it's going to cost us roughly $400per passenger, mostly for food and other supplies during the three-day cruise. Pittsford and LaRue predicted that 300 people would respond to the advertising campaign, but we've only got 200 . "I see three basic options: (1) we cancel the cruise and take our losses; (2) we run the cruise with the 200 and a Would it be worthwhile for Life Cruises to spend either $12,000 or $30,000 for advertising on November 20? If so, which figure would you recommend? Susan Isom wishes to make $1 million in profits from each cruise voyage. Assuming the same fixed costs, passenger fare, and ship capacity as the maiden voyage, is her wish a realistic one