Week 9 Pricing- Wellness Cruises Discussion Questions Wellness Cruises, Inc. packages exclusive cruises to Mediterranean destinations such as Athens and Barcelona. Like conventional cruises, the packages are designed to be fun. But the cruise is structured to help participants become healthier by breaking old habits, such as smoking and overeating. The Malta-based firm was conceived by Danielle Disessa, 30, a self-styled innovator and entrepreneur. Prior to this venture, she had spent several years in Italy promoting a behavior modification clinic. Disessa determined that many people were very concerned about developing good health habits, yet they seemed unable to break away from their old habits because of the pressures of day-to- day living. She reasoned that they might have a chance for much greater success in a pleasant and socially supportive environment, where good health habits were fostered. Accordingly, she established Wellness Cruises, Inc., hired 10 consulting psychologists and wellness specialists to develop a program, and chartered a ship. Efrain Avalo, a Madrid based management consultant, became the chairperson of Wellness Cruises. Seven of Disessa's business associates invested. $55,250 went for the initial advertising budget, $8,500 for other administrative expenses, and $187,000 had been paid for the ship rental, crew and psychologists. Maria Jimenez, an overweight Spanish schoolteacher, has signed up to sail on a one-week cruise to Barcelona, departing January 19. She and her shipmates will pay an average of $1230 for the voyage. Mary learned of the cruise on her Facebook feed in October. Switch Advertising had coordinated social media ads including Facebook and Instagram plus a PR push to travel and health writers at over 100 European and American newspapers and magazines. They had also placed ads in the travel sections of over a dozen major newspapers. Maria was fascinated by the idea of combining therapy sessions with swimming, movies, and a vacation atmosphere. Typical Mediterranean cruises cost about $1150 ($164 per day). There are more value-oriented cruises as low as $995 ($142/day). More luxurious cruise lines charge from $1,800 to $2,450 ($257-$350/day). There are some specialty 'party cruises' priced at $1500 ($220/day) that include famous DJs and open bar and small ship 'senior single' cruises at $1650 ($236/day). Switch account executive Massa Bah originally estimated that 300 people (the ship's capacity) would sign up for the cruise after the integrated marketing campaign, but as of December 9 only 200 had done so. Disessa and Wellness Cruises faced an important decision. "Here's the situation as I see," explained a disturbed Ms. Disessa at the Wellness Cruises board meeting. "We've already paid out more than a two hundred thousand to get this cruise rolling. Our variable costs are about $164 per passenger for the week, mostly for food. Switch 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 on all the fixed costs we've paid; (2) we run the cruise with the 200 and a few more that will trickle in over the next month, or (3) we shell some more money and hope that we will pull in more people. My recommendation to the board is that we try to recruit more passengers. There are simply too many empty rooms on that ship. Each one costs us a bundle." "As you all know, the formula for breakeven is fixed costs (Revenue per passenger-variable costs per passenger) So, we need at least 236 passengers to break even." At this point, Massa Bah addressed the board: "I've worked out two possible advertising campaigns for December. The first, the limited campaign, will cost $6,000. I estimate that it will bring in some 20 passengers. The more ambitious campaign, which I personally S recommend, would cost $15,000. I believe this campaign will bring in a minimum of 50 passengers. I realize our first attempt was somewhat disappointing, but we're dealing here with a new concept, and a follow-up ad might work with many potential cruisers who were curious and interested when they first saw our cruise." "One thing is absolutely certain," Bah emphasized. "We must act immediately if there's any hope of getting more people on board. We need to get those ads running on social to get some frequency, so people notice them. And we're pretty much at deadline to follow up with newspaper travel editors. If we don't get rolling in a few days, you can forget it, especially with the Christmas season ramping up. No one signs up in late December for a January 19 sailing date." Disessa interrupted, shaking her head. "I just don't know what to say. I've looked over Switch's media proposals and they're excellent, absolutely first-rate. But our one problem, to be blunt, is money. Our funds are tight, and our investors are already nervous. I get more calls each day, asking me where the 300 passengers are. It won't be easy to squeeze another $6000 out of these people. And to ask them for $15000-well, I just don't know how we're going to be able to justify it." A standard cruise in the Caribbean has an average weekly rate of $1100. Using the information from the Health Cruises case, develop 3 price points for Health Cruises - one value-based, one competition-based, and one cost-based price. For each price, explain how it represents its pricing strategy. Discuss the price would you recommend Health Cruises adopt and why 1. Should Wellness Cruises go ahead with the cruise since 200 people have signed up by December 9th? Why or why not? 2. The advertising agency has proposed two alternative campaigns to help fill the boat. One will cost $6000 and the other would cost $15,000. Which would you suggest? [show your breakeven calculations]. 3. Should Wellness Cruises consider running a price promotion for remaining cabins? Why or why not? What other factors could impact the go/no-go decision in addition to the break even? 4. Should Wellness Cruises rethink its pricing strategy for the second cruise later in the winter? Come up with three possible price points and recommend one and explain why you picked it.