In: Operations Management
Sony Music Publishing Company wants to decide the price of Saylor Twift’s next album. The company conducted a survey of 1000 customers to estimate the willingness-to-pay (WTP) of the customers. The following table summarizes the results of the survey:
WTP |
Frequency |
$19.99 |
150 |
$18.99 |
200 |
$17.99 |
350 |
$16.99 |
150 |
$15.99 |
150 |
Total |
1000 |
a) If Sony decides to charge the customers $18.99 per album, then what will be the revenue per 1000 potential customers?
b) What is the best price to maximize the revenue?
If a customer is willing to pay $19.99 for an album, they would definitely buy it for less than $19.99.
Therefore at the pricing of 18.99, people willing to buy at 19.99, and 18.99 both will buy the album.
Customers at price point of $18.99 = 150+ 200 =350
Hence we have to calculate the cumulative frequency for customers who are willing to buy an item at a certain price point as shown in the figure below.
Also, Revenue = Price point * No. of albums sold.
For example at price 18.99, Revenue = 18.99 * 350 = $ 6646.5
We get the following table by performing similar calculations for other price points.
Price | WTP | Cumulative WTP out of 1000 customers | Revenue |
19.99 | 150 | 150 | 2998.5 |
18.99 | 200 | 350 | 6646.5 |
17.99 | 350 | 700 | 12593 |
16.99 | 150 | 850 | 14441.5 |
15.99 | 150 | 1000 | 15990 |
a. According to the table, Revenue per 1000 customers at 18.99 is $ 6656.5
b. According to the table, Revenue is the highest ($ 15990) at a price point of $ 15.99