Question

It is a common practice of Kodak in markets outside of the United States to sell slide film only bundled with development, i.e., when the customer buys Kodak film, she gets Kodak development for "free." In the U.S., however, slide film and slide film development are sold separately. Why might this be? Let us investigate the market in Malaysia.

Kodak's marketing research department has identified four broad categories of consumers in Malaysia interested in slide photography: the Malays (type A), the Chinese (type B), the Tamils (type C), and American tourists (type D). Because of the tropical climate and the limited photo opportunities, all photographers demand only one 36-slide roll per month. The four types differ in their relative preference for Kodak film and Kodak development. Because of deep-seated cultural traditions, the Malays (type A) tend to value the film much more than the development; the Chinese value the development much more than the film; the Tamils value both about equally and low; American tourists, however, value both high.

Given below are four alternative reservation price/marketing composition/cost scenarios. In each scenario, the relevant demand data are given as triples of numbers. The first number in each triple is the reservation price for a 36-slides roll of Kodak film, the second number is the reservation price for Kodak developing this roll of film, and the third number is the segment's size as a fraction of the picture-taking population. For example, in (1) below, A's willingness- to-pay for film is $3, its willingness-to-pay for development is $1, and this segment constitutes 10% of the population. Note we assume consumers can buy film and development separately.

(Please highlight the optimal pricing strategy.)

(i) A ($3, $1, 0.10) B ($1, $3, 0.10) C ($1, $1, 0.70) D ($3, $3, 0.10) Unit cost of film: $0.50; Unit cost of development: $0.50

(ii) A ($3, $1, 0.25) B ($1, $3, 0.25) C ($1, $1, 0.25) D ($3, $3, 0.25) Unit cost of film: $0.50; Unit cost of development: $0.50

(iii) A ($3, $1, 0.25) B ($1, $3, 0.25) C ($1, $1, 0.25) D ($2.5, $2.5, 0.25) Unit cost of film: $0.50; Unit cost of development: $0.50

(iv) A ($3, $1, 0.25) B ($1, $3, 0.25) C ($1, $1, 0.25) D ($2.5, $2.5, 0.25) Unit cost of film: $1.50; Unit cost of development: $1.50

(1) Determine the profit-maximizing selling strategy in each scenario above.

(2) From this analysis, what can we say about why Kodak has different marketing policies in the U.S. and Malaysia?

Answer 1

Answer 1= Total profit from strategy 1-

(0.1*((3-0.5) + (1-0.5))+ (0.1*((1-0.5) + (3-.0.5))) +(0.7*((1-0.5) + (1-0.5))) + (0.1*((3-0.5) + (3-0.5))) =1.8

Total profit from strategy 2=

(0.25*((3-0.5) + (1-0.5))) + (0.25*((1-0.5) + (3-0.5))) +(0.25*[(1-0.5) + (1-0.5))) + (0.25*((3-0.5) + (3-0.5)))=3

Total profit from strategy 3=

(0.25*((3-0.5) + (1-0.5)))+ (0.25*[(1-0.5) + (3-0.5)))+(0.25*((1-0.5) + (1-0.5))) + (0.25*((2.5-0.5) + (2.5-0.5)))=2.75

Total profit from strategy 4=

(0.25*[(3-1.5) + (1-1.5)))+ (0.25*((1-1.5) + (3-1.5))) +(0.25*((1-1.5) + (1-1.5)))+ (0.25*((2.5-1.5) + (2.5-1.5)))=0.75

So from above it is clear that the maximum proit is obtained from strategy 2 so the strategy that shoudl be selected is stated below=

Secenerio 1-  Type C (Tamils) & Type D (American) shoudl be in main focus as the highe rsegment of the population is covered by Tamils in comparison to Aericans on the other hand Americans are more likely to pay .

Scenerio 2=Type D should be in focus as they have greater profit form the company

Scenerios 3=Type D shoud be in focus as they have more profit and as population is same thus the chnace of economies of scale is not possible

Scenerio 4= Type D shoud be in focus as they have more profit and as population is same thus the chnace of economies of scale is not possible

Answer 2= the main reason is that the population segmentation is different in both the countries and the willingness to pay and profitability is also different in both the nations.