Question

A manufacturer of microwaves has discovered that male shoppers have little value for microwaves and attribute almost no extra value to an auto-defrost feature. Female shoppers generally value microwaves more than men and attribute greater value to the auto-defrost feature. There is little additional cost to incorporating an auto defrost feature. Since men and women cannot be charged different prices for the same product, the manufacturer is considering introducing two different models. The manufacturer has determined that men value a simple microwave at $70 and one with auto-defrost at $80 while women value a simple microwave at $80 and one with auto defrost at $150.

A. If there is an equal number of men and women, what pricing strategy will yield the greatest revenue?

B. What if most of microwaves' shoppers are women?

Answer 1

A). Differential pricing strategy will work in this case, wherein the customers can be sold products at different prices, depending on how the consumer values the product. For example, simple microwave can be sold to men and women at price $70 and $80 respectively, while the defrost microwave can be sold at $80 and $150 respectively to men and women.

B) If women were the only buyers in the market then a competitive price of $80 or $150 can be charged according to the type of microwave.