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) highlighted yellow fields can be changed to test out Questions: 2. Taylor conducts additional market research and discovers that the target market would be willing to pay $140 for the premium subscription without a negative impact to demand. Assuming that increasing market share is the primary goal for his firm, is the premium subscription product line extension the best strategy? a. Yes, because with the $140 premium subscription price, market share increases by 0.26% b. Yes, because increasing the price of the subscription service increases profit by $29,500. c. No, because changing the price of the subscription service has no impact on market share. d. Yes, because the $15 price increase without a drop in the demand for the product, indicates that the product was underpriced.
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)
highlighted yellow fields can be changed to test out
Questions:
2. Taylor conducts additional
a. Yes, because with the $140 premium subscription price, market share increases by 0.26%
b. Yes, because increasing the price of the subscription service increases profit by $29,500.
c. No, because changing the price of the subscription service has no impact on market share.
d. Yes, because the $15 price increase without a drop in the demand for the product, indicates that the product was underpriced.
e. No, because even with a $140 premium subscription price, Cuteness for You's market share is only 10.09%.
INTRODUCTION -
In this scenario, Taylor Smith is the owner of a small clothing company, Cuteness for You, that provides an online subscription and personal shopping service for families with children aged newborn to five years old. The standard subscription service costs $100 per month and includes 10 clothing items. Taylor is considering expanding the product line to increase market share and profits by offering either a premium subscription service for $125 per month or a basic subscription service for $75 per month, or possibly both. To evaluate the impact of these potential new product lines, Taylor has created a spreadsheet containing key marketing metrics such as estimated sales revenue and profit, and industry sales revenue. He has also conducted additional market research and discovered that the target market would be willing to pay $140 for the premium subscription service without a negative impact on demand. The question at hand is whether the premium subscription product line extension is the best strategy for the company, with the primary goal of increasing market share.
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