Annie's Homemade is considering starting a Fan Club to grow its revenues, particularly during the winter months. Each member of the Fan Club would pay a monthly fee to obtain the following benefits:
1. One free t-shirt received at the time of enrollment. Each t-shirt costs Annie's $9.00.
2. One free ice cream flight per month. Each flight consists of two-ounce servings of four flavors. Annie's cost per flight is $1.60.
3. Eligibility to spin the prize wheel after each increment of 12 servings purchased. Annie's estimates each member will buy four servings of ice cream per month; therefore, being eligible to spin the prize wheel once every three months, or four times a year. The average cost of each prize awarded when a fan club member spins the prize wheel is $5.00.
In addition, Annie's uses $1.00 per member per month to “buy” ice cream for $5.00 per serving. The company then donates the ice cream purchased by fan club members to community organizations such as Big Brothers/Big Sisters, public schools, and first responders. Annie's cost per pre-packaged, donated serving is $1.40.
Annie's estimates customers who are not members of the fan club buy two servings of ice cream per month, whereas the fan club’s benefits motivate loyal members to buy four servings per month. The price per serving and ingredient cost per serving are $5.00 and $1.20, respectively.
The company is asking your recommendation whether it should charge members $12 per month (or $144 for an annual membership) or $10 per month (or $120 for an annual membership).
Calculate the incremental revenue per member, per year under both pricing scenarios via membership dues received and loyalty revenue (Fan Club members buy two additional servings per month compared to non-member customers)