This is a fictional task in the sense that there is no concrete plan from Iacom as described in the task text. It applies information about costs and investments.
Iacom will in 2010 launch a mobile broadband with extreme transmission - 100 Mbits / second - based on the new 4G network. Management has asked for a report and recommendation with regard to what price they should be put on the product (annual subscription). The price will be justified in including the expected development in the market, competitors, distributors and segments.
They have invested about 950 million Norwegian kr in upgrading the network so that the new technology might work. Coverage will be equivalent to that for mobile phones. Assume that the variable unit cost is 200 kr (per year subscription), and that mobile broadband department (as do all sales and marketing efforts, including customer service) has a fixed cost of 20 million a year. When the product is sold through distributors like (Elbuy. Expert, etc.) calculated a gross profit of 30% (that is, that the distributor has a gross profit of 30%).
It is also not expected that you put you in the technological details of the mobile broadband other than that you have a good understanding of the more general aspects of the technology curve.
Since this is a task for the marketing is expected that using theory from the marketing subjects to analyze and solve the problem.
This is a report to management in the company of Iacom, which means that you primarily have to think about logic and facts in the report itself.
One should not refer to the theory in the main text, but use footnotes to substantiate the theory that you think it is correct.
Footnotes shall be listed behind the report.
Iacom is having the task of deciding what price it should charge for its 100 MB/sec mobile broadband service. Different types of services are provided for internet access through portable modems, telephones or other similar devices. The technical standards offered by Iacom will be IMT Advanced as defined by ITU-R. Iacom also provides mobile phone service. The services provided by Iacom are attractive and better than those provided by competitors. These include super-fast mobile broadband, great mobile broadband coverage, and unlimited Wi-Fi. In terms of competition, Iacom's product will be unmatched. In other words Iacom is in a position to charge premium prices for the services it has developed.
Now for setting prices we need to examine the costs of Iacom. The variable unit cost is 200 kr per year; in addition there is a fixed cost of 20 million a year. Further, when the product is distributed the distributors charge 30% gross profit. Supposing the price of the Iacom service is Kr 400, and then the distributor gets Kr 120 at the rate of 30%. In other words Iacom gets a net price of Kr 280. Since the variable unit cost is Kr 200, there is a contribution of Kr 80 per unit towards the fixed cost. In this case we need to determine the breakeven point. It is Kr 20,000,000 divided Kr 80 or 250,000 units. If Iacom is able to sell 250,000 units a year it reaches the breakeven point. Similarly if Iacom sells 500,000 units it will make a profit of Kr 20 million. However, Iacom should remember that the company has invested Kr 950 million towards the up-gradation of the network.
If we consider the price of Kr 500, the distributor's charge 30% gross profit, Iacom would get a net of $350. Since the variable unit cost is Kr 200, there is a contribution of Kr 150. In this case we determine the breakeven point. It is Kr 20,000,000 divided by Kr 80 or 133,333.3 units. However, the investment in the network is Kr 950,000,000. If ...
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