Assume F&S offers a deal whereby enrolling in a new membership for $1,000 provid

Question

Assume F&S offers a deal whereby enrolling in a new membership for $1,000 provides a year of unlimited access to facilities and also entitles the member to receive a voucher redeemable for 20% off yoga classes for one year. The yoga classes are offered to gym members as well as to the general public. A new membership normally sells for $1,470, and a one-year enrollment in yoga classes sells for an additional $750. F&S estimates that approximately 40% of the vouchers will be redeemed. F&S offers a 10% discount on all one-year enrollments in classes as part of its normal promotion strategy.

Explanation / Answer

Deal: new membership for $1,000 and yoga classes for 750*(1-20%) = 600. Total = 1,000 for new membership and $600 for yoga classes.

Normal condition: new membership for 1,470 and yoga classes for 750*(1-10%) = 675. Total = 1470 for new membership and $675 for yoga classes.

Suppose that there are 1,000 new members applying for F&S.

Revenue under normal condition = 1,000 members*(1470+675) = $2,145,000

Revenue from the deal = 1,000 members*1,000 = $1,000,000

only 40% of vouchers are redeemed for 20% and the rest 60% pays the full price.

revenue from yoga classes = 40% of 1,000*750*(1-20%)+60% of 1,000*750 = 240,000+450,000 = $690,000

Total = 1,000,000+690,000 = $1,690,000

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