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14-30 (Cont'd.)

2.  

Revenues

$262,194,000

Variable costs

 115,088,500

Contribution margin

 147,105,500

Fixed costs

 140,580,000

Operating income

$    6,525,500

3.

Number of room nights

Gold, 2,430 × 60

  145,800

Silver, 8,340 × 35

  291,900

Bronze, 80,300 × 10

  803,000

No program, 219,000 × 1

  219,000

1,459,700

Average room rate per night:

Average variable cost per night:  

4.

Sherriton Hotels has fixed costs of $140,580,000.  A key challenge is to attract a high number of repeat business customers.  Loyalty programs aim to have customers return to Sherriton multiple times.  Their aim is increasing the revenues beyond what they would be without the program.  It is to be expected that the higher the level of nights stayed, the greater the inducements necessary to keep attracting the customer to return.  However, given the low level of variable costs to room rates, there is considerable cushion available for Sherriton to offer high inducements for frequent stayers.

Sherriton could adopt a net present value analysis of customers who are in the different loyalty clubs.  It would be informative for Sherriton to have information on how much of each customer’s total lodging industry expenditures it captures.  It may well want to give higher levels of inducements to frequent stayers if the current program attracts only, say, 30% of each of its frequent customer’s total business in cities where it has lodging properties available.

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