Bundling Strategy Ginnie’s Gym Refreshment Bar Hydration Power Drink Satisfying Smoothie
Question 1 Tying as a Bundling Strategy Ginnie’s Gym Refreshment Bar Hydration Power Drink Satisfying Smoothie Early 7.00 5.00 Late 6.00 10.00 Ginnie has observed that her signature item, the Satisfying Smoothie, is very popular with the late evening crowd at the gym, but it is not so popular with the early crowd. The early and late crowds have only slightly different preferences for her Hydration Power Drink. The gym has a very large clientele, and Ginnie can’t always tell who has the late-crowd preference and who has the early-crowd preference. In her graduate MBA class, they have been studying tying as a bundling strategy. Ginnie asked her professor, “Would bundling work for my business?” Her professor said, “I think you told me that the marginal costs for you two products differ significantly, so first, I would recommend that you look at the contribution margin for each. Sometimes, low prices may be more profitable and sometimes high prices will be more profitable, especially when there are large differences in the price elasticities of demand. Second, think about the example of the Happy Meal. People are really there for the hamburger, and the company is leveraging that one item to sell other parts of the menu. What is your lead product, the item customers can’t get elsewhere?” The MC for Hydration Power Drink is $1.00. The MC for the smoothie is $4.00. What is the contribution margin at each price for each product? a) Hydration High Price contribution margin is Blank 1 b) Hydration Low Price contribution margin is Blank 2 c) Smoothie High Price contribution margin is Blank 3 d) Smoothie Low Price contribution margin is Blank 4 Question 2 Continuing the analysis of Ginnie’s Gym Refreshment Bar: Hydration Power Drink Satisfying Smoothie Bundle Price Net Profit Early 7.00 5.00 Late 6.00 10.00 • Calculate the bundle prices and net profits. (10pt) • Determine which bundle price will maximize net profit. Show the steps to support the conclusion. (5pt) • Determine the net profit from a tying strategy. Show the steps to support the conclusion. (5pts) Question 3 You have developed a self-study certification system for those who need credit hours for recertification by your state’s social welfare office. The system operates at virtually no cost, i.e., there is no marginal cost. A marketing research team has assembled the following sales information. You are researching the options for pricing the courses. Your goal is to achieve maximum revenue to establish funding to maintain and update the system to reflect annual policy changes in licensing requirements. Complete the calculations for Total Revenue by determining how many customers will purchase at each of the segment prices. Online Self Certifications for Social Work License Certification in Online Counseling Certification as a Group Home Counselor Bundle Customers TR Counseling TR Group Home TR Bundle Segment 1 1000 $190 a $70 e $260 4a Segment 2 1000 $150 b $90 f $240 4b Segment 3 1000 $95 c $160 g $255 4c Segment 4 1000 $35 d $195 h $230 4d a) Blank 1 b) Blank 2 c) Blank 3 d) Blank 4 e) Blank 5 f) Blank 6 g) Blank 7 h) Blank 8 Question 4 Continuing with the Table of Certificate Programs, complete the calculations for Total Revenue by determining how many customers will purchase at each of the segment’s bundle price. Online Self Certifications for Social Work License Certification in Online Counseling Certification as a Group Home Counselor Bundle Customers TR Counseling TR Group Home TR Bundle Segment 1 1000 $190 a $70 e $260 4a Segment 2 1000 $150 b $90 f $240 4b Segment 3 1000 $95 c $160 g $255 4c Segment 4 1000 $35 d $195 h $230 4d 4a) Blank 1 4b) Blank 2 4c) Blank 3 4d) Blank 4 Question 5 Using the Online Self Study Certifications table, answer the following question: At what individual price would the revenue be maximized for the Certification in Online Counseling? Explain/support your answer based on the calculations in question 3. Question 6 Using the Online Self Study Certifications table, answer the following question: At what individual price would the revenue be maximized for the Certification as a Group Home Counselor? Explain/support your conclusion based on the calculations in question 3. Question 7 Using the Online Self Study Certifications table, answer the following question: What is the maximum profit from individual pricing? Question 8 Using the Online Self Study Certifications table, answer the following question: If you employed pure bundling what would be the maximum total revenue? Explain/support your conclusion based on the calculations in question
