Asked by Sadie Clark on Jul 07, 2024
Verified
Your company sells health food products, and you have recently developed a new high-protein drink (HPD) as well as a high-carbohydrate energy bar (HCE). As the product manager for the firm, you are responsible for setting the pricing policy for the new products. You are considering a bundled package that includes both products, and you assume the marginal cost of production is zero for planning purposes. You have identified four basic types of consumers who may buy these new products, and their reservation prices for the two new products are provided in the following table:
a. Suppose you sell the two products separately, and each buyer is expected to purchase one unit of the product per day. Which prices for HPD and HCE maximize daily revenue? What is your daily revenue from selling both products to the four customers under separate pricing?
b. If you offer the two products under a pure bundling strategy, what is the revenue maximizing bundle price? What is the daily sales revenue from the pure bundling scheme?
c. Please develop a mixed bundling strategy that generates higher daily sales revenue than the pure bundling strategy. What is the daily sales revenue generated under mixed bundling?
Marginal Cost of Production
The increase in total production cost that arises from producing one additional unit of a good or service.
Reservation Prices
The maximum price a consumer is willing to pay for a good or service, beyond which the consumer will forgo the purchase.
- Examine the application of bundling as a method to enhance sales earnings among different segments of customers.
Verified Answer
SD
Shelbie DunlapJul 12, 2024
Final Answer :
a.For HPD, you sell one unit at $1.40 (TR = $1.40), two units at $1.00 (TR = $2.00), three units at $0.80 (TR = $2.40), and four units at $0.50 (TR = $2.00). So, the maximum daily sales revenue is generated at the $0.80 price. For HCE, you sell one unit at $1.80 (TR = $1.80), two units at $1.10 (TR = $2.20), three units at $0.90 (TR = $2.70), and four units at $0.30 (TR = $1.20). So, the maximum daily sales revenue is generated at the $0.90 price, and the total revenue earned from selling both products separately is $5.10.
b.Under a pure bundling strategy, you would sell one package at $2.30 (TR = $2.30), three packages at $1.90 (TR = $5.70), and four packages at $1.70 (TR = $6.80). So, the pure bundling strategy with package price $1.70 is best and generates higher daily sales revenue than the separate pricing strategy.
c.For example, suppose you sell HPD at $1.40, HCE at $1.80, and the bundled package at $1.90. In this case, customers A-C purchase the bundle (TR = $5.70) and customer D buys HPD only (TR = $1.40), and the total daily sales revenue is $7.10.
b.Under a pure bundling strategy, you would sell one package at $2.30 (TR = $2.30), three packages at $1.90 (TR = $5.70), and four packages at $1.70 (TR = $6.80). So, the pure bundling strategy with package price $1.70 is best and generates higher daily sales revenue than the separate pricing strategy.
c.For example, suppose you sell HPD at $1.40, HCE at $1.80, and the bundled package at $1.90. In this case, customers A-C purchase the bundle (TR = $5.70) and customer D buys HPD only (TR = $1.40), and the total daily sales revenue is $7.10.
Learning Objectives
- Examine the application of bundling as a method to enhance sales earnings among different segments of customers.