Question

Memo 1

To:                       Pricing Manager, Tri-State Region

From:                  Regional Vice President, Tri-State Region

Re:                       Revenue from EPIX

We recently added the EPIX Movie Channels as part of a new tier of programming for our digital video subscribers. The EPIX channels are sold as an add-on package for $9.75 per month, but we would like to potentially increase our revenue from our subscriber base. Currently we have about 15,059 subscribers, generating monthly revenue of $146,823.

Some have suggested we should cut price, as customers tend to be fairly price sensitive for add-on packages. However, in this case, if we lower price for our new subscribers; we really need to cut it to all of our existing subscribers as well. I have some concerns that lowering price will be counter-productive.

The marketing department calculated some subscription levels at various price points in this region, and I need you to perform the analysis. Specifically, I want you to estimate the price sensitivity of customers at the current price. Please address the following questions: (1) If we lower the price, do you think this is likely to lead to higher revenue, and (2) how much potential revenue can we generate and how low should we go with our price?

Thanks for your help.

Answer 1

1)

If you’re considering a pricing strategy change and you don’t know how your market will respond, survey your market to predict the results.

Select a group of current customers and lost prospects with whom you established a relationship during the sales cycle.

You’re trying to determine how many new units existing customers would purchase, and how many new units current customers would purchase, if you increased and decreased your prices by x% (let’s say 5%, 10% and 20%). Finesse the language of your questions based on your relationships and how you decide to position the survey. Shoot for a statistically significant number, and summarize your results.

You don’t need to plot your results on a supply and demand graph to project your optimal price – the one that delivers the greatest profit – but you can still get a feel for how elastic your demand curve is, which is fancy language for saying how responsive the market is to price changes. If you have an elastic demand curve:

• When you raise prices slightly, volume goes down substantially.

• When you lower prices a slightly, volume goes up substantially.

Conversely, if your volume stays roughly the same when you increase your prices, you have an inelastic demand curve. This can be very powerful, and it typically results from having a premium brand, solid distribution, few competitors or simply being under-priced.

Multiply price by quantity at each new price to determine your revenue and profit projections. Be sure your projections show greater profit before you decide to lower your prices.

Here are some step-by-step plans and calculators for determining your optimal pricing strategy and calculating revenue and profit.

2)the amount of price go down doesnot situates a loss position

we have to decrease the profit percentage on a product to increase more sales and generate hiegher revenue

the price go down was not less than the its total cost to manufactuer a product

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