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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 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

$2.19
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Combined Bundle Package Benefits

A cable company offers two basic packages: sports and kids, and a combined package. there are three different types of users: parents, sports fans, and generalists. The following table show the maximum price that each type of consumer is willing to pay for each package.

Sports Package Kids Package
Parents 10 50
Sports Fans 50 10
Generalists 40 40

a. If the cable company offers any one package for $50 or the combined bundled package for $70, who will buy each package?

b. Explain why the company will make a higher profit with this method than if the bundled package option were not offered.

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