Question

Refer to the data in questions 1 and 2. As an executive, you’ve tried "required tie-in" sales, but you couldn’t solve the customer identification problem. Now, because you are also selling network service, you know that there are other strategies to try, and one of them is block pricing. You are planning to design two packages: 1) Package A: XAminutes plus the new Zphone for nonbusiness consumers and 2) Package B: XBminutes plus the new Zphone for business consumers. Your objective is to characterize the optimal block pricing strategy for these two packages and overcome the identification problem.

You are ready to solve your profit maximization problem and design your optimal packages.

Package A must include Question Blank minutes of talking time and the new Zphone for a price of. Package B must include minutes of talking time and the new Zphone for a price of $

Answer 1

To overcome the customer identification problem with optimal block pricing, Package A should target nonbusiness consumers with moderate minutes and a lower price point, while Package B should cater to business consumers with higher minutes and a higher price to match their greater willingness to pay.

Step-by-step explanation:

The optimal block pricing strategy for Package A and Package B should be designed considering the consumer surplus and the willingness to pay by different customer segments. Nonbusiness consumers typically have lower usage rates and are more price sensitive than business consumers who often require higher minutes for their operations. Thus, Package A could include a moderate number of minutes with the new Zphone at a lower price point, whereas Package B could comprise a substantially larger number of minutes paired with the Zphone but at a higher price point, reflecting the additional value and need of business consumers.

For example, if nonbusiness users have a maximum willingness to pay for a package that includes 200 minutes plus a Zphone, Package A could be priced accordingly to capture consumer surplus without exceeding that threshold. Conversely, if businesses are willing to pay a premium for a package including 1000 minutes and the same Zphone, Package B should be priced to capture the higher willingness to pay of this segment.

By tailoring each package to the specific utilities and price sensitivities of the target market segments, a company can better address the customer identification problem that it faced with tied-in sales and increase its revenue without forgoing potential consumer surplus.