3. If Clearwater looks for a price that generated margin indifference between buying an additional 20-seat box or a 20-seat upgrade, what should be the price be? Show the details please..

Unit $500 $900 VAR 524 Case Group E Pricing Sva TABLE 1 20 30 $17,250 Unit Cost Original Unit Cost TABLE 2 77.5% 87.5% 900% 89.6% of Seats 900 $900 89.6% 700 20 30 THE UPGRADE Initially, the expectation had been that the 30-seat unit would be the largest volume In order to gain economies of scale in manufacturing, reduce inventory configurat reduce engineering design and testing expense to a single assembly, Clearwater decided manufacture only the 30-seat server with the appropriate number of seats "enabled" f seller ions, and mory and absorbing the higher tra me was effectively "giving a rather than manufacturing the various sizes. If a customer wanted a 10-seat server, the cost company shipped a 30-seat capable unit, with only the requested 10 seats enabled through software configuration. The proposed upgrade was, in reality, allowing customers to access capability already built into the product (Table 2) Clearwater knew that many original customers were ready to use the additional capacity in the QTX. Some customers had added seats by buying a second box, but because the orig- inal product contained the capability to expand by accessing the disabled seats, Clearwater saw an opportunity to expand the product line and increase sales to a captive customer base. Customers could double or triple their seat capacity by purchasing either a 10- or a 20-scat upgrade and getting an access code to enable the additional number of seats. No other com- petitor offered the possibility of an the customer purchased and installed an additional box. Because customers perf significant amount of acceptance testing, which they would have to repeat before sw ing brands, the likelihood of changing brands to add capacity was low. upgrade. To gain additional seats from the competitor. The objective of this morning's meeting was to set the price for the two upgrades. As QTX product manager Rob Erickson stopped to collect his most recent nots his desk, he reflected: What a way to start the week. Every time we have one of these meetings, senior management only looks at margins. I spent the whole weekend cranking numbers and I'm going in th using the highest margin we've got today. He grabbed his notes, calculator, and coffee and headed down the From the other wing of the building, financial analyst Hillary Hanson How can anybody say that's too low? hall lobby toward the conference room. She was thinking about the conversatscussing was crossing the she had late Friday afternoon with her boss, Alicia Fisher, Clearwater's CFO. They this upcoming meeting and Alicia had given Hillary very clear instructions. I want you to go in and argue for the highest price possible. We should absolutely mize the profitability on the upgrade. The customers are already committed to us an Unit $500 $900 VAR 524 Case Group E Pricing Sva TABLE 1 20 30 $17,250 Unit Cost Original Unit Cost TABLE 2 77.5% 87.5% 900% 89.6% of Seats 900 $900 89.6% 700 20 30 THE UPGRADE Initially, the expectation had been that the 30-seat unit would be the largest volume In order to gain economies of scale in manufacturing, reduce inventory configurat reduce engineering design and testing expense to a single assembly, Clearwater decided manufacture only the 30-seat server with the appropriate number of seats "enabled" f seller ions, and mory and absorbing the higher tra me was effectively "giving a rather than manufacturing the various sizes. If a customer wanted a 10-seat server, the cost company shipped a 30-seat capable unit, with only the requested 10 seats enabled through software configuration. The proposed upgrade was, in reality, allowing customers to access capability already built into the product (Table 2) Clearwater knew that many original customers were ready to use the additional capacity in the QTX. Some customers had added seats by buying a second box, but because the orig- inal product contained the capability to expand by accessing the disabled seats, Clearwater saw an opportunity to expand the product line and increase sales to a captive customer base. Customers could double or triple their seat capacity by purchasing either a 10- or a 20-scat upgrade and getting an access code to enable the additional number of seats. No other com- petitor offered the possibility of an the customer purchased and installed an additional box. Because customers perf significant amount of acceptance testing, which they would have to repeat before sw ing brands, the likelihood of changing brands to add capacity was low. upgrade. To gain additional seats from the competitor. The objective of this morning's meeting was to set the price for the two upgrades. As QTX product manager Rob Erickson stopped to collect his most recent nots his desk, he reflected: What a way to start the week. Every time we have one of these meetings, senior management only looks at margins. I spent the whole weekend cranking numbers and I'm going in th using the highest margin we've got today. He grabbed his notes, calculator, and coffee and headed down the From the other wing of the building, financial analyst Hillary Hanson How can anybody say that's too low? hall lobby toward the conference room. She was thinking about the conversatscussing was crossing the she had late Friday afternoon with her boss, Alicia Fisher, Clearwater's CFO. They this upcoming meeting and Alicia had given Hillary very clear instructions. I want you to go in and argue for the highest price possible. We should absolutely mize the profitability on the upgrade. The customers are already committed to us an