Quantitative Marketing in United States: Data Getting Driven Marketing - Term Paper Example

? QUANTITATIVE MARKETING AND DRIVEN MARKETING Question phase one Part I The sale of the subscription at $275 will actually bring in more money than selling the set up at $400. This can be shown in the following calculation; To sell the subscription at $400, only 20% of 500 people will be willing to buy. In this case, it means that only a hundred people will buy thus giving a total of $40,000 per year. When the same is sold at $275, 30 percent of the five hundred people are willing to buy. In this case, 150 people will buy the subscription thus giving revenues of 41250. Part ii One of the main concern that arises from this study is the fact that the sample is quite small considerate the size of the market that is being investigated. Given that the service bend sold is a product that can be sold to all people across the United States, taking a sample of only one thousand people may not have provided a reliable sample to represent the whole population that that is the target market. The other issue that arises from the survey is that it was not targeted at a particular market segment. In this regard, the results are not entirely reliable because some of the respondents may not have answered the questions with openness. To be more effective, the survey should have tried to narrow done to a specific segment of the market. This should have been done by identifying which segment of the market, depending on gender, age, or social class that the subscription would be most relevant to. This, combined with a bigger survey sample would have given a more reliable result. Such a survey can be very subjective if the sample is not big enough and if the sample is not chosen correctly. This is specialized product and therefore doing a shopping mall survey is not the best way to get the relevant information regarding the market for the product because the sample was most likely contaminated by questioning the wrong cohort of respondents. The other issue with the study is that the demonstration that was given to the respondents was not enough and this could mean that they did not have enough time to process the product and make an informed decision. By this virtue, there is a high possibility that most of the customers answered the questions based on gut feeling. For instance, because they did not have enough time to understand the products, they were only concerned about the cost as opposed to understanding the products and then judging the cost based in value the product it is giving them compared to the cost. Phase II Given the elasticity of demand as shown, it would be better to decrease the price of the subscription to increase the rates of subscription. This would mean that the company would need to lower the rates of subscription to the lowest rate possible to increase the revenues through increased subscriptions. There is one special thing about the said product. Since this product is a content product which means that it will be affected by the Metcalfe law of networks which indicates that the usability or relevance of a network increases with the number of network users. For instance, in this case, the more the number of network users, the more useful the network will be and the more it will be able to attract even more subscribers thus increasing the revenues. As the number of subscribers increase, the company will be able to reduce the subscription rates and still make enough profits. The above recommendation is subject to whether or not the demand will continue to be elastic to the maximum or the elasticity of the demand will stop at certain point. If the demand is not as elastic as it is thought to be, it may mean that the recommendation will not be right and that a better pricing strategy would need to be looked at. At the same time, it is important to note that the there will be other factors that may arise as time goes by. For instance, if a similar product comes into the market, the competition will bring new challenges to the market. In this kind of a scenario, it would be better to be able to have a better pricing strategy that would be able to take care of the extra problems in the market place. Phase III Question 1 Selling the phone and the service separately would lead to increased profitability because it would give the customers better choice of the product. As a result, unbundling the service from the phone would mean higher subscription rates for the different contents offered. If the service and the phone are bundled and the customer is forced to buy the phone and the basic content together, it would mean that the customers would have to be forced to have the basic content together with any other content they want. As a result, this would lead to at least two types of customers. The first set of customers is those who would be willing to pay for the basic content in order to access to additional content that they are interest in. The second set of customers includes those who would refrain from the content because even thorough they are interested in the additional content that they can buy once they have bought the basic content, they are not willing to pay for the basic contents. There are those who still would prefer to be able to buy the content using any other platform apart from LG. the advantage that the firm would get by bundling content with the LG phone would be the fact that it would increase the sale of the phone and the basic content. However, there is no guarantee that this will be useful in profit maximization and the firm may actually end up losing if the most number of customers will be unwilling to pay for the basic content in order to access their interest content. This will however be a big trade off and the firm should be able to tread very carefully around the bundling issue as well as the pricing issue. As a result, it is increasingly important to make sure that the pricing does not affect the way the market responds to the products. The revenues in this scheme are higher than the revenues in scheme two. This is because in this scheme, the customers are given a lee way to choose what they want. This makes sense because once the consumers are given the freedom to choose the product they want to buy they end up even spending even more that they would have spent in a plan where they are forced to buy specific products. This is an important lesson in pricing such products because it means that maximizing the products takes a while different attitude and it is easier to make a mistake with the analysis because the analysis may fails to capture some of the most important aspects of such a market ad such a product. Question 2 The total cost would be 88.2 which are the total costs plus the 60 percent gross margin. This price however does not take care of the seasonal rental costs. During the high season, the business would have to come up with another strategy of pricing the daily cost of child care because the costs would shift drastically. This price may not really maximize profit because it would mean that more potential customers may be tempted to go for alternative ways to look for their babies because the costs are too high. Sixty percent of the expenses put the cost of childcare in this facility at 88.2 and this cost is a bit too high. At this rate, it would be easier for most parents to higher an in-house baby sitter which would actually give a better service to their child due to the personalized care that their child would get rather than having them in a childcare for a price that is enough to hire a personal babysitter. In setting the price of the daycare price, it is important to note that the main reason that most parents would choose to use daycare services is the fact that the services are cheaper than having a personal hired caretaker for the child. In that regard the cost must be so low as to encourage parents to choose the daycare services as opposed to having their own caretakers at home. The other factor to consider is that most parents who tae their children in daycare are those who have work and therefore they cannot afford to be at home during the day. If the parents see as the prices of taking the child to a child daycare as too expensive as compared to what their day job pays, they might choose to forego their jobs to take care of their child themselves. As a result, it is good to look for a way to make the demand more elastic and take advantage of the elasticity to not only increase revenues but also as a way to expand the customer base. Increasing the customer base will be as important as increasing the profits because in this kind of an industry, failing to have a broad customer base would be a big threat to the business especially due to the fluctuating nature of the business. The best thing here is to have a profit margin that is not too high as to discourage potential customers to bring their children but at the same time making sure that the profit margin is also wide enough to not only bring profits but also to make enough money to sustain the business and the proprietor. In this case, the breakeven point analysis will be important in setting the prices. The challenge however is the fluctuating nature of the business that is leading to varying rental costs. According to the analysis offered, this is very evident that the ratio of the rental costs increase during the winter season is too high and this brings a logistics problem when it comes to setting a standard price. In this regard, it would be necessary for the business to come up with a way to take advantage of the situation. Pricing is sometimes a matter of compromise between the customers and the business. In this case, due to the high costs of rent that having extra room during the winter season, the prices may shift rapidly during these seasons and this can lead to the customers feeling that the business in not reliable. Instead of allowing this to affect the business in a negative way, the daycare business may offer a reduced rate for those parents who will bring their parents during the other season when the demand is not high and the rental costs are not high too. In doing this, the business will be indirectly charging different costs to different customers thus being able to keep the constant customers and at the same time making sure that the customers who come during the high season will not feel that they are being overcharged in comparing to the other parents. The solution however will be on trying to come up with an optimum price that encourages customers to come but at the same time creates enough profits for the business. Question 3: pricing of printers and cartridges According to the analysis given in the table, it seems that the most profitable price if the printer and the cartridge are not sold as a unit is $dollars per unit. If the company sells at this price, the market segment that is speculated to buy the printer is 6000 hospitals. This is because at the price, if all the potential customers buy the product, the company will have made 1.2 million as compared to if the company was to sell the printer at $800 dollars per printer to all the possible potential customers (400) which would bear only $320,000. In this case, it is important that if the company chooses to sell the printer without the refill arrangement, it would be much better to sell at the price of $200. These pricing gives a number of important aspects of pricing such a product. First, it shows that most consumers are aware of maintenance costs and are more willing to spend more at first in order to minimize maintenance costs and thus total cost. Secondly, it shows how it is easy to reduce the price of a product by as much as 75% but still increase profitability. By selling the printer at only $200 which is only a mere 25% of the highest price possible of $800, it becomes easier for the firm to make even more profits because the firm is able to access a larger market. This is a very important show of how demand elasticity can be a useful way to maximize profits and how it can be used to increase and broaden the size of a product’s market. At the same time, if the company wanted to make the most money from selling the cartridges, the firm would still need to sell the printers at the same price of $200 per printer. In doing this, the company will be able to access a bigger market and these many hospitals will provide for good business when it comes to selling of cartridges. If sold at this price, the company will be able to access a total of six hundred hospitals that would then provide a good market for the refill cartridges. It would therefore be a good profit maximizing strategy to reduce the price of the printer to $200. If the company was to sell the printer at the highest price of 200, this would mean that the printer would only be able make $224,000 as opposed to the $1.2 million that it would be able to make over the course of five years of selling refilling cartridges to the six thousand hospitals at if it sold the printers at an initial cost of only $200. This would lead to more profits and therefore the taking advantage of the elasticity of the demand would be a better of maximizing the profits not by increasing the profit margin but by increasing the revenues and thus increasing the profits. This pricing strategy will achieve some form of price discrimination because it will mean that the same product will be sold to different buyers at different prices depending on the kind of customers. Those who will seek to buy the product without the refilling costs being considered will buy the product at a much higher price as opposed to those who will buy the product with the refilling plan in place. Those hospital that will look forward to have the printer and look forward to see how future refills will affect the overall cost of the product will be in a position to save on costs, not only in terms of the initial cost of the printer, but also in terms of the overall cost of the printer. In this regard, because different hospitals will choose to look at the cost of the printer ion two different ways, the cost of the printer will be determined by which arrangement that specific hospitals will be looking for and this will mean that the different hospital will have at least three different prices of the same printer between them. Price discrimination is achieved when a single product is sold to different customers at different prices. In the case of the printer that is being sold, the price discrimination is achieved due to the fact that the printer has two sets of costs to the end consumers. Due to the fact that product has two sets of prices, it will depend on which costs the customers will want to focus on. If the customer wants to focus on the initial cost and ignore the maintenance cost, it will be easier for the firm to sell the printer to the customer while ignoring these costs and therefore selling at a higher lower initial cost but the customer will end up paying a higher maintenance cost. As a result, this is not exactly price discriminating but it is a form of price discrimination nonetheless. This kind of price discrimination however will help the firm to be able to sell the printer without being affected by which kind of prices the customers will want to focus on. Read More