8/9/2019 Cambridge Software Case Handout

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8/9/2019 Cambridge Software Case Handout

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MULTIVERSIONCASE:STUDENTANDINDUSTRIAL

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Unit Large, Corporate R&D Consul tants & Sm al l Students TOTAL NETcon tr ib ut io n mul ti di vi si on al & u ni ve rsi ty p ro fe ssi on al b usi ne sse s CONTRIBUTION

corporations laboratories companies

Segment Size 5,000 2,000 20,000 15,000 500,000

Segment Dev. Cost $150,000 $100,000 $200,000 $200,000 $ 300,000

Individual WTP

"Industrial" $2,500 $2,000 $600 $300 $100

"Student" $150 $100 $200 $175 $50

"Student"

$100,000; $15

$50 $35 ($30,000) $500,000 $325,000 $7,200,000 $7,925,000

$50 $35 $500,000 $325,000 $7,200,000 $7,925,000

$50 $35 $325,000 $7,200,000 $7,425,000

$50 $35 $7,200,000 $7,100,000

"Industrial"

$500,000; $35

$2,400 $2,365 $11,675,000 $11,175,000

$1,950 $1,915 $9,425,000 $3,730,000 $12,655,000

$450 $415 $1,925,000 $730,000 $8,100,000 $10,255,000

$175 $140 $550,000 $180,000 $2,600,000 $1,900,000 $4,730,000

"Student" at; Industrial" at

$50 $2400 $11, 675, 000 ($30,000) $500,000 $325,000 $7,200,000 $19,100,000

$50 $1950 $9,425, 000 $3, 730, 000 $500, 000 $325,000 $7, 200, 000 $20,580,000

$50 $450 $1,925,000 $730,000 $8,100,000 $325,000 $7,200,000 $17,680,000

$50 $175 $550,000 $180,000 $2,600,000 $1,900,000 $7,200,000 $11,830,000

TAKEAWAY FROM THIS CASE

Single-version

o Price is optimized over the range of WTPs across segments

o Money left on the table subsidizing some consumer segments

o Lost opportunity leaving some segments out of the market

Multi-version

o Decrease the two sources of lost revenue

Potentially increase in profits

o Prices for high-end product are not optimized over WTPs of

segments for that high-end product (Incentive Compatibility)

o Price of high-end product increases compared with the single-

version case

Benefitsandcostsofincreasingproductvariety

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