Decision Making Mock (Shriya)
Decision Making Mock (Shriya)
Decision Making Mock (Shriya)
b) Two alternative Pricing strategies that could have been implemented at the launch of the packages.
1) Market Skimming
Skimming basically means charging high prices for a product when it is newly launched in market in order to maximise sho
Demand for this new product is initilly inelastic
Market Skimming Pricing strategy is mostly used when the product is unique or is a new electronic product.
RB Co is producing an accounting software which they claim to be ' off the shelf ' and hence early adopters or consumers a
In such pricing strategies price of the product is high in its initial stage and then lowered in later stages of the product cycle
2) Market penetration strategy
Penetration Pricing is charging low prices for a product that is newly launched in market in order to gain acceptance of the
Once the market acceptance and market share is achieved the prices are increased.
Penetration Pricing is an alternative approach to market skimming when it comes to launchig a new product.
Penetration Pricing is used when significant economies of scale is to be achieved and the deand is highly elastic and hence
P= a-b*q
where ,
a= $ 750 (price where demand is 0)
b= 0.01 (change in price to change in demand)
q= quantity
Hence,
P= 750-0.01q
TC = 1,200,000+320Q
Above equation is a linear cost equation which can be used to estimate future costs,
The Equation is y= a+b*x
Where,
y= Total Cost = Fixed Cost + Variable Cost
a= Fixed cost per unit
b= Variable cost per uit
x= Level of activity
Fixed Cost for RB Co is $80 and hence for 15000 packages Fixed Cost = $ 1,200,000
Hence a = 1,200,000
Variable cost per unit = Full cost - Fixed Cost
Hence b = 320
ecision, which also ensures that a profit is made provided the target volume is achieved. RB Co has adapted this strategy for the first tw
be delegated to junior management.
nd use similar mark up.
rised from this method may not be very realistic compared to what the customers are willing to pay for the product.
of production which is lower than the current capacity of production. This leads to multiple possibilties of selling price which makes th
if volume of sales is low, fixed costs are not guaranteed to be recovered.
f the packages.
electronic product.
nce early adopters or consumers are ready to pay higher prices to claim early ownership.
in later stages of the product cycle.
elling price which makes the decision making a bit uncertain and wrong.
Stow Health Centre
a) Budgeted contribution earned by Stow Health Centre for year ended 30 June 20X1
Client Days Client Fee per DaVariable CoContribution per Total Contribution per year
b)
1) Maximax
Maximax rule involves selecting the alternative that gives the maximum contribution.
This approach is usually suitable for an optimist and a risk seeking investor and hence the decision maker of Stow Health C
2) Maximin
Maximin rule involves selecting the alternative that maximises the minimum contribution.
This approach is usually suitable and appropriate for a risk averse pessimist who seeks to achieve the best results if the wo
Hence Stow Health Centre will choose a ontribution of $1,378,125 with a client fee of $ 200 which is the best outcome fro
3) Minimax Regret
Minimax Regret rule involves minimising the maximum Regret.
This approach is for a sore loser who does not wish to make a wrong decision.
Regret in this context is defined as the opportunity loss through having made the wrong decision.
Stow Health Centre can get Minimax Regret with the help of this following table-
Client Fee in $
Occupancy Level
180 200 220
High
Most Likely
Low
Maximum Regret
c)
Expected Value (EV) = Weighted average of all possible outcomes
Hence EV = $ 81.5