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 $48. Each of the high-value consumers buys one doll and two accessories and is willing to pay $90 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 $64 Value, 1 Accessory Revenue from High-Value Customers $125 Value, 2 Accessories Total Revenue from Strategy ($)

Strategy 1
$32 doll + $32 accessory
Strategy 2
$3 doll + $61 accessory

Answer 1

Answer and Explanation:

The computation is shown below:-

Revenue from Revenue from Total Revenue

Low value High value

Strategy 1 $64 $96 $160

(32 D + 32 A) 32(1) + 32(1) 32(1) + 32(2)

Strategy 2 $64 $125 $189

(3 D + 61 A) 3(1) + 61(1) 3(1) + 61(2)

Where D indicates doll and A indicates Accessory

Therefore Strategy 2 gives more revenue in comparison to strategy 1