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

Practical Management Science
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ISBN:9781337406659
Author:WINSTON, Wayne L.
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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"

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