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Taylor Smith owns a small clothing company, Cuteness for You, that offers an online subscription and personal shopping service targeted at busy families with children aged newborn to five years old. Currently, Taylor has one level of subscription service, the standard service. For $100 a month, the standard service provides its customers a monthly delivery of 10 clothing items carefully chosen to match the child's size, gender, and emerging style. The online clothing subscription market is fairly new but is growing rapidly and thus Taylor is considering extending the product line to increase its market share and profits.
Taylor is debating whether to add a premium subscription service featuring profitable high-markup items for $125 per month, a basic subscription service that contains lower-markup popular items priced at $75 per month, or possibly both. Taylor knows that the new product lines provide an opportunity to attract more customers and possibly increase revenues and profit, but recognizes that new product lines, especially ones priced below the $100 standard service, might steal sales from the standard line through cannibalization.
To evaluate, Taylor creates a spreadsheet containing key marketing metrics including estimated firm sales revenue and units, firm profit, and industry sales revenue. Based on industry research, he estimates that basic subscriptions would cannibalize standard sales at 4X the rate premium would.
Market share = Firm's sales revenue / Total industry sales revenue (including the firm's)
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3. Taylor has decided that the goal really should be to maximize the number of subscriptions sold, regardless of whether the subscription is basic, standard, or premium. Given his new goal, which product line extension strategy should Cuteness for You pursue?
a. Add only the basic subscription product line extension.
b. Add only the premium subscription product line extension.
c. Do not add either the basic or the premium subscription product line extension.
d. Create an even lower priced limited subscription product line extension.
e. Add both the basic and premium subscription product line extensions.
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