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Bundled Pricing for Cable

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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?

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Solution Summary

This solution shows how to select the best bundling strategy

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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 ...

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