Price to Maximize Sales Firm A plans to introduce a new smart phone, which has a

Question

Price to Maximize Sales

Firm A plans to introduce a new smart phone, which has a potential market of 1 million customers. The marketing research conducted by the firm shows that 40% of the customers will buy it if the phone is priced at no more than $300, and the other 60% of the customers will only buy it if the phone is priced at no more than $250. (1) What is the maximum possible revenue for the new phone? (2) Outline a strategy for the firm to achieve its maximum revenue.

(Hint: Think about price discrimination.)

Explanation / Answer

Maximum Possible revenue = 40% revenue from $300 and 60% revenue from $250 = (1Million * 40% * $300) + (1 Million * 60% * $250)

= $120 Million + $150 Million = $270 Million

Hence the maximum possible revenu = $270 Million.

Since there is uncertainity in the market, the possible strategy is to price the phone using the expected price.

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