9483
AiS

Session 2b
Debrief

Joshua
Foster



Agenda

  1. Quick Case: Joy4Home Brands: Pricing Matters.
  2. Debriefing of Pricing Strategies

Table 1 from Case (with costs)

Segment KitchenJoy SpaceJoy
1 $5 $25
2 $22 $25
3 $24 $23
4 $24 $12
MC $16 $12

Optimal price for KitchenJoy

KitchenJoy Quantity
Demanded		 Revenue Cost
(MC=16)		 Profit
Price Option #1 $5 4 $20 $64 ($44)
Price Option #2 $22 3 $66 $48 $18
Price Option #3 $24 2 $48 $32 $16

Optimal price for SpaceJoy

SpaceJoy Quantity
Demanded		 Revenue Cost
(MC=12)		 Profit
Price Option #1 $12 4 $48 $48 $0
Price Option #2 $23 3 $69 $36 $33
Price Option #3 $25 2 $50 $24 $26

Optimal prices including Bundle

Segment KitchenJoy SpaceJoy Bundled Value
1 $5 $25 $30
2 $22 $25 $47
3 $24 $23 $47
4 $24 $12 $36
MC $16 $12 $28

Optimal prices including Bundle

Quantity
Demanded		 Revenue Cost Profit Segments
that buy
Bundle Price #1 $30 4 $120 $112 $8 1, 2, 3, 4
Bundle Price #2 $36 3 $108 $84 $24 2, 3, 4
Bundle Price #3 $46 2 $92 $56 $36 2, 3
SpaceJoy Alone: $25 1 $25 $12 $13 1
KitchenJoy Alone: $24 1 $24 $16 $8 4

Total profit with no bundle $=18+33=51$.

Total profit with bundle $=36+13+8=57$.

Value Space

Value Space with a Pure Bundle

Value Space with a Mixed Bundle

Optimal single price for Food Service Customers

Quantity Demanded Total Quantity
Demanded
Price 1 2 3 4 5
$15 155 205 265 220 73 2605
$16 165 227 257 195 63 2485
$17 173 241 235 180 48 2320
$18 183 221 217 155 15 1971

Optimal single price for Food Service Customers

Price Total Quantity
Demanded		 Revenue Cost
(MC=$8)		 Profit
$15 2605 $39,075 $20,840 $18,235
$16 2485 $39,760 $19,880 $19,880
$17 2320 $39,440 $18,560 $20,880
$18 1971 $35,478 $15,768 $19,710

Optimal quantity discount policy

Quantity Demanded
Price 1 2 3 4 5
$15 155 205 265 220 73
$16 165 227 257 195 63
$17 173 241 235 180 48
$18 183 221 217 155 15

Revenue = Price $\times$ Customers $\times$ Quantity Demanded

Cost = MC $\times$ Customers $\times$ Quantity Demanded

Profit = Revenue - Cost

Optimal quantity discount policy

Profit = Revenue - Cost
Quantity Demanded
Price 1 2 3 4 5
$15 $1,085 $2,870 $5,565 $6,160 $2,555
$16 $1,320 $3,632 $6,168 $6,240 $2,520
$17 $1,557 $4,338 $6,345 $6,480 $2,160
$18 $1,830 $4,420 $6,510 $6,200 $750

Optimal quantity discount policy

Profit = Revenue - Cost
Quantity Demanded
Price 1 2 3 4 5
$15 $1,085 $2,870 $5,565 $6,160 $2,555
$16 $1,320 $3,632 $6,168 $6,240 $2,520
$17 $1,557 $4,338 $6,345 $6,480 $2,160
$18 $1,830 $4,420 $6,510 $6,200 $750

Optimal one-step policy:

  • $\$$18 for 1, 2, or 3 units
  • $\$$16 for 4+ units
Revenue = Price $\times$ Customers $\times$ Quantity Demanded
Quantity Demanded
Price 1 2 3 4 5
$15 $2,325 $6,150 $11,925 $13,200 $5,475
$16 $2,640 $7,264 $12,336 $12,480 $5,040
$17 $2,941 $8,194 $11,985 $12,240 $4,080
$18 $3,294 $7,956 $11,718 $11,160 $1,350
Cost = MC $\times$ Customers $\times$ Quantity Demanded
Quantity Demanded
Price 1 2 3 4 5
$15 $1,240 $3,280 $6,360 $7,040 $2,920
$16 $1,320 $3,632 $6,168 $6,240 $2,520
$17 $1,384 $3,856 $5,640 $5,760 $1,920
$18 $1,464 $3,536 $5,208 $4,960 $600