Hurricane Island Outward Bound School

Introduction
As a non-profit organization, Island Outward Bound School seeks to reach a level of operating income sufficient to wholly support the school’s current operations and future growth initiatives while maintaining focus on their core mission to “serve youth and the underprivileged” (pg 10). Throughout its history, Hurricane has “never broken even on an operating basis (pg 3)”, falling short by $1.6 million in 1985.
Hurricane’s Director of Marketing, Philip Chin “had to develop and support marketing tactics that would help the school realize two strategic objectives: 1) maintain school leadership within the Outward Bound system, and 2) build off-season business” (pg 7). This paper will be limited to an analysis of Chin’s primary areas of focus, including: 1) Each course’s ability to contribute to meeting Hurricane’s objectives; 2) The tuition policy’s potential to increase operating income; and 3) Each marketing program’s effectiveness at increasing overall enrollment—particularly off-season enrollment—in a manner that “accurately reflect[s] the unique character and concerns of Hurricane Island Outward Bound” (pg 2).
Course Contributions
One problem that leads to Hurricane’s disappointing operating income performance is below-capacity enrollment in many of their courses: the average projected enrollment for 1986 is around 68% with some classes seeing enrollment as low as 34% (see Exhibit 2). A large part of this problem can be traced to the seasonal nature of the school—a majority of its potential applicants are only able to attend summer courses. In order to overcome this obstacle, Hurricane will need to either increase the capacity of popular summer courses, or market off-season courses to a customer base that is capable of attending at a season other than summer—such as professionals or government-contracted groups. Drawbacks to increasing the capacity of summer courses include: 1) the additional costs of property, instructors, curriculum and related class materials; and 2) the number of underused resources during the off-season is increased. One major deterrent to expanding the potential applicant base is that the school will need to offer courses to students that are neither young nor underprivileged.
Tuition
While some of Hurricane’s courses are very profitable (the Professional Development Program has a contribution margin of $155 per Student Program Day (SPD)), the average contribution margin of the courses is about $20 (See Exhibit 2). With fixed costs projected to exceed $2 million in 1986, it’s clear that Hurricane will need to increase its average tuition if it hopes to ever break-even. While Hurricane could raise tuition across the board, this could result in declining enrollment for courses that are already under-attended. If Hurricane were to increase tuition for all courses that have at least a 75% enrollment rate by 15%, this would result in an additional $200,000 of net profit (see Exhibit 2). Based on the popularity of the affected courses, it is unlikely that they will experience a decline in enrollment; in fact, such a change could increase the number of applications to the less popular but more affordable courses. It should also be noted that with any increase in tuition, a school runs the risk of turning away financially less-fortunate applicants; Hurricane could manage this by increasing the tuition fund slightly (perhaps by an additional $10,000) and directing these students to the under-attended courses.
Marketing Programs
Regardless of the course mixture or tuition rates selected for 1987, Chin is going to need to implement a marketing initiative that will help maximize enrollment. This analysis is limited to the four programs Chin selected to potentially be part of his marketing plan:
Expand “Alumni in Marketing” network
While alumni testimony adds credibility and alumni enthusiasm can add significant strength to the marketing efforts, it is difficult to track the financial impact of such a program—if it unclear how much revenue it is earning, it will become increasingly difficult to justify its existence. On top of the difficulty with directly linking financial growth to the success of this program, it is likely that students will often be interested in taking the same programs as the alumni participated in—thus creating an even bigger divide between enrollment in popular programs and that of off-season courses. Alumni are a precious asset to Hurricane—if a program like this is poorly managed, has unclear expectations or oversteps its bounds; it could burn bridges with influential people and potential contributors.
Build the corporate Professional Development Program (PDP)
With a contribution margin of $155/SPD and potential revenues of $200,000 (pg 11), developing this program could positively impact the bottom line by as much as $155,000 in 1987 alone. While implementing this plan would cost Chin around $31,000, his biggest obstacle would be justifying to the board the increased attention to the corporate world. One way around this might be to emphasize that the profits from this broader focus serves as a means to better serve the core customer of Hurricane.
Expand Direct Sales Recruitment
With a cost of $9000 and fairly impressive results (direct sales boasted an impressive 85% conversion rate), this option appears to be high on impact with low on risk. “The school projected the recruiting would generate 17% of 1986 applications and 20% of 1986 enrollments. (pg 11)” If the average contribution margin per student is around $101, this means that direct sales recruitment was responsible for just under $52,000 in net earnings (see Exhibit 3)—not too bad for a $9000 investment. Not only is it an effective way to recruit students, but it has the potential to better utilize member of the staff during the slow season.
Plan 4 – Build telemarketing capabilities
Prospective students have responded well to the previous telemarketing efforts; “students seemed to enjoy speaking with someone from the school…Chin and others believed that students who were contacted would be more likely to enroll (pg 11).” If Chin can find and attract salespeople that are both knowledgeable about the school and easy for the prospective students to talk to, he may have found another strong channel to assist in recruitment. However, the costs of such a program are still as unclear as the effectiveness. If the extended test can provide data that can help measure the effectiveness of such a program, it would be worth the $6,000 investment.
Recommendations
-Increase tuition 15% for courses operating at 75% of capacity or higher
-Do not expand AIM program
-Build the corporate Professional Development Program as outlined in the case
-Expand direct sales recruitment as described in the case
-Fund the proposed telemarketing extended test

Conclusion
By increasing tuition of popular courses, developing the PDP in the off-season and funding proven marketing programs, Philip Chin can increase profits by $355,000 in 1987 and further enable Hurricane Island Outward Bound School to “[provide] safe, challenging, educational experiences in a wilderness setting, carefully structured to improve self-esteem, self-reliance, concern for others and care for the environment.” (pg 3—Hurricane’s mission statement)

Glimpse of Marketing Strategey--Marketing Management

This paper takes a quick look at the relationship between the concepts of marketing strategy & profitable growth, customer satisfaction, and the product life cycle. If a company is marketing a product in the early growth stage, it should choose a ‘growing demand’ or ‘increase market share’ strategy—as both of these strategies are focused on adding new customers to the company’s customer base—something which is significantly easier in the early growth phase. An example of this can be seen by looking at the early days of the wireless telecommunications industry: in order to expand its customer base, wireless phone companies first had to convince customers that they needed a wireless phone (grow demand) and then, often simultaneously, persuade the consumers to choose them as their wireless service providers (increase market share).
As the product life cycle matures and reaches the late growth/early maturity stage, interesting opportunities lie in the paths of those companies that survived the initial shake-out. While increasing market share will continue to be desirable, increasing revenue per customer, lowering variable costs or increasing marketing efficiency may become more popular marketing strategies; this is a time when customer satisfaction will produce some of its greatest dividends: if customers are happy with the product/service they are receiving, their level of trust with the company may be high enough to persuade them to spend more money with the company. Verizon is able to realize very attractive margins because customers have learned that a wireless phone is of little value if you can’t get a signal; it further demonstrates that the market has matured enough to value prompt, empowered customer service—this is what customers expect and find with Verizon, which is why they have no reason to leave, and every reason to spend more money in the future with the company by purchasing additional features, more minutes and better phones. Cingular, on the other hand, has taken a different approach: purchase AT&T Wireless (along with the problems and dissatisfied customers) and increase profitability by sharing fixed marketing expenses.
As the marketplace enters a time when some of Verizon’s customers are starting to show dissatisfaction at Verizon’s seemingly stingy restrictions, and former AT&T customers are getting familiar with the friendlier face of Cingular, it will be interesting to see who emerges as the winner of the next round of the wireless provider battle.