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14-30 (Cont’d.)

Silver Program

Revenues

  8,340 20 ($200 0.90)

$30,024,000

  8,340 15 ($200 0.80)

 20,016,000

         Total revenues

 50,040,000

Variable Costs

  Hotel variable costs, 8,340 × 35 × $65

 18,973,500

  Wine costs, 8,340 × 35 × $5

   1,459,500

  Restaurant Costs

     8,340 20 $10

   1,668,000

     8,340 15 $15

   1,876,500

         Total variable costs

 23,977,500

Contribution margin

$26,062,500

Bronze Program

Revenues, 80,300 10 ($200 0.90)

$144,540,000

Variable costs

  Hotel variable costs, 80,300 10 $65

   52,195,000

  Wine costs 80,300 10 $5

     4,015,000

  Restaurant costs 80,300 10 $10

     8,030,000

     Total variable costs

   64,240,000

Contribution margin

$  80,300,000

No Program

Revenues, 219,000 × 1 × $200

$43,800,000

Variable costs, 219,000 × 1 × $65

 14,235,000

Contribution margin

$29,565,000

Loyalty Program

Total Revenues

Variable Costs

Contribution Margin

Contrib. Margin Total Revenues

Gold

$  23,814,000

$  12,636,000

$  11,178,000

    46.94%

Silver

   50,040,000

   23,977,500

   26,062,500

    52.08

Bronze

 144,540,000

   64,240,000

   80,300,000

    55.56

No program

   43,800,000

   14,235,000

   29,565,000

    67.50

Total

$262,194,000

$115,088,500

$147,105,500

The no-program group of customers has the highest contribution margin per revenue dollar.  However, it comprises only 16.71% ($43,800,000 $262,194,000) of total revenues.  The gold program has the lowest contribution margin per revenue dollar.  However, it is misleading to evaluate each program in isolation.  A key aim of loyalty programs is to promote a high frequency of return business.  The contribution margin to total revenue ratio of each program in isolation does not address this issue.

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