Question

Memo 7 To: Pricing Manager, Central State Region From: Vice President, Marketing Re: Strategic Pricing Decision Our only competitor in the Central State region currently provides bundled services at $79.95. We are currently charging a 10 percent premium over its price, but there are rumors that it is contemplating a 10 percent price increase to bring its price in line with ours. We don't know its cost structure, so we don't know whether its price increase is driven by rising costs or a strategic move to gain margin. Historically, when we both charge the same price, our market share is about 65 percent. When we charge a 10 percent premium over its price, our market share declines to about 60 percent. It appears that in those instances when it charges a 10 percent higher price than us, our market share is about 70 percent. Please provide a recommendation regarding whether we should maintain our current price or reduce our price to $79.95. Please factor into your recommendation that we pay programming fees that amount to $49.50 per subscriber. In addition, maintenance, service, and billing costs are about $6.50 per subscriber. At present, there are 110,000 households in the relevant market.

          Memo 7
To:
Pricing Manager, Central State Region
From:
Vice President, Marketing
Re:
Strategic Pricing Decision
Our only competitor in the Central State region currently provides bundled services at $79.95. We are currently charging a 10 percent premium over its price, but there are rumors that it is contemplating a 10 percent price increase to bring its price in line with ours. We don't know its cost structure, so we don't know whether its price increase is driven by rising costs or a strategic move to gain margin.
Historically, when we both charge the same price, our market share is about 65 percent. When we charge a 10 percent premium over its price, our market share declines to about 60 percent. It appears that in those instances when it charges a 10 percent higher price than us, our market share is about 70 percent.
Please provide a recommendation regarding whether we should maintain our current price or reduce our price to $79.95. Please factor into your recommendation that we pay programming fees that amount to $49.50 per subscriber. In addition, maintenance, service, and billing costs are about $6.50 per subscriber. At present, there are 110,000 households in the relevant market.

Memo 7
To:
Pricing Manager, Central State Region
From:
Vice President, Marketing
Re:
Strategic Pricing Decision
Our only competitor in the Central State region currently provides bundled services at 79.95. We are currently charging a 10 percent premium over its price, but there are rumors that it is contemplating a 10 percent price increase to bring its price in line with ours. We don't know its cost structure, so we don't know whether its price increase is driven by rising costs or a strategic move to gain margin.
Historically, when we both charge the same price, our market share is about 65 percent. When we charge a 10 percent premium over its price, our market share declines to about 60 percent. It appears that in those instances when it charges a 10 percent higher price than us, our market share is about 70 percent.
Please provide a recommendation regarding whether we should maintain our current price or reduce our price to79.95. Please factor into your recommendation that we pay programming fees that amount to 49.50 per subscriber. In addition, maintenance, service, and billing costs are about6.50 per subscriber. At present, there are 110,000 households in the relevant market.

Added by Carla B.

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