1. Early Late Tying as a Bundling Strategy Hydration Power Drink 7.00 6.00 Satisfying Smoothie 5.00 10.00 Ginnie's Gym Refreshment Bar 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 cliental and Ginnie can't always tell who has the late crowd preference and who has the early crowd preference. Her marginal cost for the Hydration Power Drink is $1.00 and her marginal cost for her Satisfying Smoothie in $4.00. 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 significant, so first, I would recommend that you look at the contribution margin for each. Sometime, low prices may be more profitable and sometimes high price will be more profit, especially when 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 part so the menu. What is you lead product, the item customers can't get elsewhere?" a) What is the contribution margin at each price for each product? contribution margin=Price - Unit costs Hydration High Price contribution margin is 6 Contribution margin= 7-1=6 Hydration Low Price contribution margin is 5 Contribution margin= 6-1=5 Smoothie High Price contribution margin is 6 Contribution margin= 10-4=6 Smoothie Low Price contribution margin is 1 Contribution margin= 5-4=1 Early 7.00 5.00 6 Late 6.00 10.00 1 b) Determine which bundle price will maximize net profits. Show your steps. c) Determine the net profit from a tying strategy. Show your steps Hydration Power Drink Satisfying Smoothie Bundle Price Net Profit 2. You have developed a self-study certification system for those who need credit hours for re- certification 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 sale information. Online Self Study Certifications for Social Work License Certification Certification $70 $90 $160 $195 Bundle $260 $240 $255 $230 Customers In Online Counseling As a Group Home Counselor TR Counseling TR Group Home Segment 1 Segment 2 Segment 3 Segment 4 1000 $190 1000 $150 1000 $95 1000 $35 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 at of the segment prices. a) At what individual price would revenue be maximized for the Certification in Online Counseling? Explain/support your conclusion with the data from the table. b) At what individual price would revenue be maximized for the Certification as a Group Home Counselor? Explain/support your conclusion with the data from the table. c) The maximum revenue for individual pricing would be [ ] d) If you employed pure bundling what would be the maximum total revenue? Explain/support your conclusion with the data from the table