Question 1: The launch of a new wireless content technology
The following overview describes the three phases of a marketing research campaign you are spearheading for your firm. Answer questions in each phase based on information provided ONLY in that phase.
You have been hired to take charge of pricing for a relatively new wireless service enabling consumers to watch a live feed of television content on a mobile phone device. The actual device is sold and managed separately by a partner hi-technology firm. Since the phone device is currently sold at close to what is considered to be a “throw-away” price, you are not tasked with considering the role of device pricing. Ignoring the pricing of the device is clearly a very strong assumption to make. But, due to time constraints, your firm has asked you to focus solely on subscription pricing. Thus, your responsibilities pertain only to the pricing of the service subscription contracts. Currently, your firm offers a single subscription plan consisting of content from the following television channels: NBC, CBS and ESPN. The product has already been on the market for a few months. But, early revenue numbers have been a bit disappointing, prompting the firm to hire you. Your job consists of determining the appropriate subscription pricing policy for the firm.
Before launch, the firm conducted a number of informal surveys that directly elicited the willingness-to-buy of 1,000 subjects intercepted in shopping malls across the US. Each subject was first given a demonstration of the phone device itself. In addition to the demonstration, each subject was allowed several minutes to watch the different types of content on the device. Afterwards, each subject was told the current price of the device bundled with a 1-year service subscription (i.e. total price for one year). Subjects were then asked whether or not they would buy the device with the
one-year service subscription at that price. The specific price was drawn at random, with a 50%
chance of being $400 or $275. For the 500 subjects shown $400, 20% said they would buy. For the
500 subjects shown $275, 30% said they would buy.
Phase I Tasks:
1) Based on the survey results, recommend a percentage mark-up for the subscription pricing.
Please show your work.
2) What concerns, if any, do you have with this survey and its ability to provide meaningful information for the pricing of the subscription plan? Explain.
Prior to launch, the company also contracted the services of a third party to track subscription sales during the first few months. The data consist of weekly sales and the monthly subscription prices across the 4 major census regions in the US. Since some retailers offered promotions on the subscription price, the reported price is the overall average for that week in each census region.
The results generate an estimated own-price elasticity of demand of -0.75 with a standard error of
Phase II Tasks
1) Make a price recommendation based on these estimates. Please explain any concerns or caveats you might have with your recommendation.