Question

Suppose Mattel, the producer of Barbie dolls and accessories (sold separately), has two types of consumers who purchase its dolls: low-value consumers and high-value consumers. Each of the low-value consumers tends to purchase one doll and one accessory, with a total willingness to pay of $64. Each of the high-value consumers buys one doll and two accessories and is willing to pay $125 in total.
Mattel is currently considering two pricing strategies:

• Strategy 1: Sell each doll for $32 and each accessory for $32
• Strategy 2: Sell each doll for $3 and each accessory for $61
In the following table, indicate the revenue for a low-value and a high-value customer under strategy 1 and strategy 2. Then, assuming each strategy is applied to one low-value and one high-value customer, indicate the total revenue for each strategy.

Revenue from Low-Value Customers

Revenue from High-Value Customers

Total Revenue from Strategy

$64 Value, 1 Accessory

$125 Value, 2 Accessories

($)

($)

($)

Strategy 1
$32 doll + $32 accessory
Strategy 2
$3 doll + $61 accessory
The strategy that generates the most revenue is strategy ?

Answer 1

Answer:

strategy 2

Explanation:

 According to the scenario, computation of the given data are as follow:-

Particular  Revenue from Low-value customers  Add  Revenue from high-value customers Total revenue from strategy

                                           Accessories 1  Accessories 2                        

Strategy 1

($32 doll+$32 accessory) $32 ×1 + $32 × 1      + $32 × 1 + $32 × 2

                                               $32 + $32                      $32 + $64

                                                = $64                          = $96

Total = $64 + $96 = $160

Strategy 2

($3 doll + $61 accessory) $3 × 1 + $61 × 1 + $3 × 1 + $61 × 2

$3 + $61 $3 + $122

= $64 = $125

Total = $64 + $125 = $189

According to the analysis, strategy 2 gives more revenue than strategy 1.