Question

Suppose Mattel, the producer of Barbie dolls and accessories (sold separately), has two types of consumers who purchase its dolls: low-value consumers and high-value consumers. Each of the low-value consumers tends to purchase one doll and one accessory, with a total willingness to pay of $72. Each of the high-value consumers buys one doll and two accessories and is willing to pay $139 in total. Mattel is currently considering two pricing strategies: • Strategy 1: Sell each doll for $36 and each accessory for $36 • Strategy 2: Sell each doll for $5 and each accessory for $67 In the following table, indicate the revenue for a low-value and a high-value customer under strategy 1 and strategy 2. Then, assuming each strategy is applied to one low-value and one high-value customer, indicate the total revenue for each strategy. Revenue from Low-Value Customers $72 Value, 1 Accessory ($) Revenue from High-Value Customers $139 Value, 2 Accessories Total Revenue from Strategy Strategy 1 $36 doll + $36 accessory Strategy 2 $5 doll + $67 accessory The strategy that generates the most revenue is strategy .

Answer 1

Strategy 1

Sell each doll for $36 and each accessory for $36

Low value customer purchase 1 doll and 1 accessory.

So, low value customer will pay ($36 + $36) $72.

High Value customer purchase 1 doll and 2 accessories.

So, high value customer will pay [$36 + (2 * $36)] $108

Total revenue = $72 + $108 = $180

Strategy 2

Sell each doll for $5 and each accessory for $67

Low value customer purchase 1 doll and 1 accessory.

So, low value customer will pay ($5 + $67) $72.

High Value customer purchase 1 doll and 2 accessories.

So, high value customer will pay [$5 + (2 * $67)] $139

Total revenue = $72 + $139 = $211

Following is the complete table -

Revenue from High-Value Revenue from Low-Value Total Revenue from Customers Customers Strategy $72 Value, 1 Accessory ($) $139 Value, 2 Accessories ($) ($) Strategy 1 $36 doll $36 72 $108 $180 accessory Strategy 2 $5 doll$67 accessory $ 139 $ 72 $ 211

As the above table shows,

The strategy that generates the most revenue is Strategy 2.