Q4b.What is your recommended price of Cocktail Pods to consumers? How many units of appliances are expected to sell?What would be the Gross margin for Pod at your recommended price?

Use Exhibit 5 data to determine the optimal price for Cocktail Pods.The demand for Cocktail Pods is a joint demand and purchase volume of Pods is contingent upon buying appliance. The following approach will help you make that decision.The joint demand can be estimated by multiplying the percentage of customers willing to pay for device and pods at a certain price.For example,

6.9%ofcustomersarewillingtobuythemachineat$199and51.5%ofcustomersarewillingtobuycocktailpodsat$4.Thisimpliesthat(6.9%)x(51.5%)=3.55%ofconsumersshouldbewillingtobuyadeviceat$199andpodsat$4.This computation is based on the concept of joint probability from your basic statistics class.

Cocktail Pod price

$6

$5

$4.5

$4

$3

$2

Appliance price

%willing to Pay

39.1%

45.5%

46%

51.5%

57.4%

72.8%

$499

1.6%

(.391*0.016)=

0.006256

0.625% of target mkt

(.728*0.016) = 0.011648

1.64% of target mkt

$399

2.1%

$299

3.8%

$249

4.7%

(0.515*0.047) = 0.0242

2.42% of target mkt

$199

6.9%

0.515*0.069)=

0.035535

3.55% of target mkt

$149

10.5%

(.515*0.105)=

0.054075

5.4% of target mkt

(.728*0.105)=

0.07644

7.644% of target mkt

Complete the calculation for all the cells in the above table (an excel sheet will make it faster).Based on the outcome from this computation, recommend a price for the pod.The total revenue from the Pod can be computed as follows:

Let us say your recommended Pod price of $4 and appliance price of $249, then 2.42% of your target will purchase the Pods.If the target mkt size is 15 Million households and they buy pods at a frequency of 6 Pods per week (from the data in the case), the sales potential of Pods will be = target market size * (percentage of target mkt willing to buy appliance at $249 and pods at $4) * (weekly usage rate of Pods*52) * price of each pod

= 15,000,000 * 0.0242 * (6 * 52) * $4 = $377.52 Million

Note:Weekly usage rate of Pods is multiplied by 52 to arrive at annual purchase volume of Pods.

Pricing Decison for Cocktail Pods E'wllat Is your recommended price of Cocktail Pods to consumers? How manyI units of appliances are expected to sell? what would he Ethe Gross margin for Pod at your recommended price? EUse Exhibit 5 data to determine the optimal price for Cocktail Pods. The demand for Cocktail Pods Is ajoint Edemand and purchase volume of Pods Is contingent upon buying appliance. The following approach will help EEyou make that decision. Thejoint demand can be estimated by multiplying the percentage of customers willing Etc pay for device and pods at a certain price. For example 6. 9% of customers am willing to buy the machine at $199 and. 51. 5% ofcustomers are willing to buy-cocktail pods at $4. Thi E 5 implies that [-5. 9%) x [51. 5%}= 3. 55% cfconsnmers should be willing to buy adevice at $199 Iurd pods at 54. This computation is based on the concept ofjoint probability from your basic statistics class. Cocktail Pod price $5 55 54.5 $4 $3 $2 Appliance price willing 39.1% 45.5% 46% 51.5% 57.4% 72.3% to Pay $499 1.5% [.391'0015}: [.723'0015} 0.005256 = 0.011543 0.525% of 1.54% of target mkt target mkt $399 2.1% $299 3.3% $249 4.7% [0.515*o.047} = 0.0242 Pricing Decison for Cocktail Pods target mkt 0.515*0.069]= 0.035535 3.55% of target mkt {515111.105}: [323*0405): 0.054016 0.07544 5.4% of target 164496 of mkt target mkt $199 $149 llComplete the calculation for all the cells in the above table {an excel sheet will make it faster}. Based on the lioutcome from this computation, recommend a price for the pod. The total revenue from the Pod can be llcomputed as follows: llLet us say your recommended Pod price of S4 and appliance price of $249, then 2.42% of your target will llpurchase the Pods. If the target mkt size is 15 Million households and they buy pods at a frequency of 6 Pods llper week {from the data in the case], the sales potential of Pods will be = target market size '9' {percentage of lltarget mkt willing to buy appliance at $249 and pods at 54] \" (weekly usage rate of Pods9'52] \" price of each ilpod ii: 15,000,000 ' 0.0242 * (6 * 52) " $4 = $377.52 Million llNote: Weekly usage rate of Pods is multiplied by 52 to arrive at annual purchase volume of Pods. Exhibit .5 Willingness to Play,r for Drinkworle; Machine and Pods, 201? omncwomrs MIME Prime 5499 $399 $299 $249 5199 $149 BE Million to P0? 1.6% 2.1% 3.3% 4.?'5 6.995 19.556 CD'EKI'NL PODS _m HON-ALE MlE PDD'S ____ BEER! CIDER PODS ___ $2.50 52.00 m 42.0% Source: Dn'nkwm'ks Research, October 201?. Note: N - 2300. Dale. are disguised to protect :ont-idmliality. Explanation of Exhibit 5 - Drinkwodcs appliance: 1.8% of respondents are willing to pay:r at least $499; 2.1% of respondents are willing to pa}:r at least $399 and so on; From page B1 you can see about 50% of respondents are not interested in buying this product at any price. You can infer that about 30% of the respondents are looking at a price below