Question

Help!!!!

1. Pear Inc. is introducing a new smart phone, xPhone. The cost of xPhone is $200 per phone. There are six millions of potential customers who are interested in buying xPhone. The two million Pear fans each have a value of $600 for the new phone. Their value for the new phone drops by $200 per 6 months they wait. The two million regular Pear customers each have a value of $500 for the new phone, and their values drops by $100 per six months they wait. The rest two million customers each have a value of $400 for the new phone, and their value drops by $50 per six months they wait. The xPhone will be on the market for 18 months. Please answer the following two questions for Pear Inc. First, suppose that Pear Inc. cannot change the price for xPhone over time, and it decides to adopt the value-based pricing strategy Q1. What is the optimal price (in dollars) per phone that maximizes Pear Inc.'s profit from xPhone? If two prices result in the same amount of profit, please answer with the lower price. (1 pts) Q2. What is the corresponding total profit (in billion dollars) under the optimal price? (1 pts) Now, suppose that Pear Inc. can adjust its price once every six months (and the price adjustments will not negatively impact its reputation). Pear Inc. wants to apply the skimming pricing strategy, by first setting an initial price and then making adjustments at the beginning of the seventh month and at the beginning of the thirteenth month, to maximize its total profit over the 18 months. How should Pear Inc. price its new xPhone in this case? In particular: Q3. What should the initial price (in dollars) be? (0.5 pts) Q4. What should the price (in dollars) at the beginning of the seventh month be? (0.5 pts) Q5. What should the price (in dollars) at the beginning of the thirteenth month be? (0.5 pts) Q6. What is the optimal profit (in billion dollars) that Pear Inc. can make through the skimming pricing strategy? (0.5 pts

Answer 1

As per the given scenario, below table defines the profitability scenario wise

	(a)	(b)	(c)	Mn $
Period(Month)	Sales Price/ Unit($)	Cost Price/ Unit($)	Sales Unit(Mn)	Revenue(a*b)	Cost(b*c)	Profit	Profit%
0	600	200	2	1200	400	800	67%
6	500	200	4	2000	800	1200	60%
12	400	200	6	2400	1200	1200	50%
18	350	200	6	2100	1200	900	43%

Q1) Optimal price is $ 500 or $400 where total profit is same. However if company has to fix one price, company should fix the price to be $500 as with lower effort, they would be able to garner same profit that is $1200Mn.

Q2) $1200Mn as explained above.

	(a)	(b)	(c)	Mn $
Period(Month)	Sales Price/ Unit($)	Cost Price/ Unit($)	Sales Unit(Mn)	Revenue(a*b)	Cost(b*c)	Profit	Profit%
0	600	200	2	1200	400	800	67%
6	500	200	2	1000	400	600	60%
12	400	200	2	800	400	400	50%
Total				3000	1200	1800	60%

Q3) If prices can be reduced over time, then initial price should be $600

Q4) If prices can be reduced over time, 7th month price should be $500 as it will bring additional 200 customers.

Q5)If prices can be reduced over time, 13th month price should be $400 as it will bring additional 200 customers.

Q6) In skimming price methodology, total profit would be $1.8 Bn (Explanation given in above table)