Your software company has just completed the first version of Spo- kenWord, a voice-activated word processor. As marketing manager, you have to decide on the pricing of the new software. You commissioned a study to determine the poten- tial demand for SpokenWord. From this study, you know that there are essentially two market segments of equal size, professionals and students (one million each). Profes- sionals would be willing to pay up to $400 and students up to $100 for the full version of the software. A substantially scaled-down version of the software would be worth $50 to consumers and worthless to professionals. It is equally costly to sell any version. In fact, other than the initial development costs, production costs are zero. Although you know there are two market segments, you cannot directly identify a consumer as belonging to a specific market segment. (a) What are the optimal prices for each version of the software? Suppose that, instead of the scaled-down version, the firm sells an intermediate version that is valued at $200 by professionals and $75 by students. (b) What are the optimal prices for each version of thesoftware? Is the firm better off by selling the intermediate version instead of the scaled-down version?
6.10. SpokenWord. Your software company has just completed the first version of Spo- kenWord, a voice-activated word processor. As marketing manager, you have to decide on the pricing of the new software. You commissioned a study to determine the poten- tial demand for SpokenWord. From this study, you know that there are essentially two market segments of equal size, professionals and students (one million each). Profes- sionals would be willing to pay up to $400 and students up to $100 for the full version of the software. A substantially scaled-down version of the software would be worth $50 to consumers and worthless to professionals. It is equally costly to sell any version. In fact, other than the initial development costs, production costs are zero. Although you know there are two market segments, you cannot directly identify a consumer as belonging to a specific market segment. (a) What are the optimal
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