Question 1: The scientists at Zipfer, an up and coming pharmaceutical company, have had a major breakthrough in painkillers and hope to replace frequent use of headache medicine by patients with severe recurring headaches. Currently, the average target consumer spends $ 100 for an office visit to get an initial prescription from a doctor appointment and $40 a month for the drug. However, Zipfer offers a single injection, Sweet Relief, that guarantees no headaches for three months but the injection will have to be administered during a doctor office visit only. The doctor office visit costs the patient $70 in addition to the price of the drug and the treatment has to be repeated every three months. It also requires an additional $15 a month in other medicines to curb side effects. What is the EVC of Sweet Relief for a single patient for 1 year? $270 Question 2 : (Product Line) Consider the Product line pricing problem discussed in class. Assume that every consumer in the market buys at most one toy. The following table gives you the WTP for two segments. TABLE: VERSIONS TOY A TOY B Variable Cost/unit $5 $15 Segment Size Children 100k $15 $35 Toddler 200k $10 $20 (i) If we are to launch only one version, which one should it be and what should be the price? TOY A Table: Price Margin Volume Profits
Toddler $10 $5 300k $1.5M Children $15 $10 $100k $1M TOY B Table: Price Margin Volume Profits Toddler $2o $5 300k $1.5M Children $35 $20 $100k $2M Answer: If we are to only launch one version, it should be Toy B and we should charge $35. The profit from toy B at $35 is higher at $2 million versus $1.5. (ii) Should this firm launch multiple versions? If yes, what prices should we choose and what would be total profits? If no, why not? TOY A: Price Margin Volume Profit $10 $5 200k $1M TOY B: Price Margin Volume Profit $29 $14 100k $1.4M *to get these numbers you would do: Toy A+Toy B Prices: $10 and $35 Children Toy A: $5 Children Toy B: $0 Answer: The firm should launch multiple versions. We should charge $10 for toy A targeting toddlers, and charge $29 for Toy B targeting children. This way, the profit will be at $2.4 Million instead of just $2 million when we launch only Toy B. Question 3 : Perceptual Maps:
Replicate the analysis done in the "MDS application - Business schools" using any product category of your choice (except perhaps business schools and beer category - as these are presented in module slides). Steps: 1) Think of a product category of your choice. 2) Think of 9-12 brands in that product category. 3) Follow the seven steps given in "b-school similarity perceptual map" spreadsheet to generate the perceptual map for the chosen category. 4) Copy and paste the perceptual map into your exercise word document. 5) Based on your experience with the product category, please provide with your thoughts on the possible x-axis dimension and y-axis dimension. A) For the top pf the y axis- common brand B) Bottom of the y axis- less common shoe brands C) Right of the x axis- less expensive shoe brands D) Left of the x axis - more expensive shoe brands
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