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Bundled Pricing for Cable

The reservation prices of three classes of demanders of the cable channels Lifetime, Disney, and ESPN are given below:

Class Lifetime Disney ESPN
30 Year Old Males $ 7 $1 $22
30 Year Old Females $20 $10 $15
7 to 12 year olds $ 3 $21 $12

It costs $6 to produce and distribute each channel. The cable company can sell each separately, sell them as a bundle, or both.

a. What bundling pricing strategy would you recommend?
b. What would be the second best pricing policy?

Solution Preview

The reservation prices of three classes of demanders of Cable Channels Lifetime, Disney, and ESPN are given below:
Class Lifetime Disney ESPN
30 Year Old Males $ 7 $1 $22
30 Year Old Females $20 $10 $15
7 to 12 year olds $ 3 $21 $12
It cost $6 to produce and distribute each Channel. The cable company can sell each separately, sell them as a bundle, or both.
a. What bundling pricing strategy would you recommend?

Pure Bundle - Price all three channels together
Lifetime (L); Disney(D); ESPN (E)
Assume 1 customer in each class
Strategy 1:
Minimum reservation price of all three classes
Price (LDE) = $30
All three classes will buy the bundle
Profit = 3*(30-18)=$36

Strategy 2:
Minimum reservation price of 7 to 12 year old
Price (LDE) = $36
Females and children will buy the bundle
Profit = 2*(36-18)=$36

Strategy 3:
Minimum reservation price of Females
Price (LDE) = $45
Only females will buy ...

Solution Summary

This solution shows how to select the best bundling strategy

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