Question

# Question 1 You help couples book their perfect honeymoon. You...

Question 1

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.

Cruise Casino

Customer 1 \$7,000 \$3,000

Customer 2 \$2,000 \$6,000

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

Question 2

Follow up question (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.

Cruise Casino

Customer 1 \$7,000 \$3,000

Customer 2 \$2,000 \$6,000

You know that about 21% of your customers decline cruises because of seasickness. At least 12% decline the casino trip saying they don't 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? You must show the calculations that support your conclusion.

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