A manufacturer of microwaves has discovered that male shoppers have little value
ID: 1195122 • Letter: A
Question
A manufacturer of microwaves has discovered that male shoppers have little value for micro-waves 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 dif-ferent 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.If there is an equal number of men and women, what pricing strategy will yield the great-est revenue? What if women compromise the bulk of microwave shoppers? A manufacturer of microwaves has discovered that male shoppers have little value for micro-waves 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 dif-ferent 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.
If there is an equal number of men and women, what pricing strategy will yield the great-est revenue? What if women compromise the bulk of microwave shoppers?
Explanation / Answer
If the population comprises of equal number of male and females then the optimal pricing strategy would involve charging a price which attracts both male and female shoppers.Thus the price charged for simple microwaves must be $70 such that both male and females purchase the product .Similarly for auto defrost model they should charge $80 so as to attract both males and females.
However if females comprise bulk of the population and they value microwaves highly optimal pricing strategy involves charging $80 for simple microwaves which would attract only female buyers.And charging $150 for auto defrost ones since bulk of population is female that values auto defrost ones highly.
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