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Netflix and Blockbuster Cost Function Estimation Methods

Develop cost function estimates for Netflix and Blockbuster using :
Account classification
High-low
Regression analysis methods

In your opinion, which method best estimates cost functions for both Netflix and Blockbuster? Explain.

Which of Netflix's or Blockbuster's costs might you appropriately estimate using the account classification method? Why?

Which of Netflix's or Blockbuster's costs might you appropriately estimate using the high-low method? Why?

Which of Netflix's or Blockbuster's costs might you appropriately estimate using the regression analysis method? Why?

Are there any other methods of estimating cost functions?

In general, which cost function estimation method is likely to be the best and why? Under what conditions is, or are, the best method(s) inappropriate?

Solution Preview

Which method do you feel best estimates cost functions for both Netflix and Blockbuster? Why?

I believe the regression method is best since it takes advantage of all the data points and not just the "high" and the "low" points. Account classification might be a good way but it is dependent on how clean the cost behaviors are in each account and how well the manager doing the estimating understands those costs. High and low point is just a point estimate and so is very crudge.

Which of Netflix's or Blockbuster's costs could be appropriately estimated using the account classification method? Why?
Technically, they could all be estimated using this method. The ones that might be the more obvious would be those with homogeneous costs, that is ...

Solution Summary

Your discussion is 474 words and gives the types of costs that each technique is likely best for and why.

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