Cambridge Software Corporation Case solution

2011 Words Mar 4th, 2014 9 Pages
CAMBRIDGE SOFTWARE CORPORATION CASE

QUESTION 1: IF CAMBRIDGE SOFTWARE IS OBLIGED TO LAUNCH JUST ONE PRODUCT, WHICH ONE SHOULD IT BE, AND HOW SHOULD IT BE PRICED?

For every single version, we have calculated the total contribution for each price that segments are willing to pay, and chosen the price that can maximize the total contribution.

SELL ONLY "STUDENT" VERSION

Price

Segments

unit cost

Unit Contribution

Seg. Dev. Costs

Demand

Total Contribution

\$200

Consultants

\$15

\$185

\$200,000

\$20,000

\$3,500,000

\$175

\$15

\$160

\$400,000

\$35,000

\$5,200,000

\$150

Large Corporate & Small business & Consultants

\$15

\$135

\$550,000

\$40,000

\$4,850,000

\$100

Corporate
And we also noticed that I version only caters for the first three segments, which means I version is more profitable among high-end customers. Meanwhile, under the optimal price, Student version (S) caters for all the segments and Commercial version (C) caters for the segments apart from students, which means S version can earn more from low-end customers and C version can earn more from middle-end customers.

Therefore, if CSC wants to make more profit, it can use I version to attract high-end customers and use C or S version to attract middle-to-low-end customers. So based on these logics, we have two choices, which are S+I and C+I. In these combinations, we cannot directly know which situation is the most profitable one since there are many situations where different versions cater for different segments. To achieve the precise result, we listed all the possibilities and calculated all the profits based on the assumption of consumer surplus to see which combination is most profit. (Detailed calculation process can be found in Appendix.)

S VERSION + I VERSION:

SEGMENTS

SITUATIONS

C VERSION + I VERSION:

SEGMENTS

SITUATIONS

From the above tables we can see that, S version + I version can achieve the biggest profit, which is \$21,180,000. And the price should be set at \$50 for S version and not more than 1950 for I version.

In conclusion, the Student version and Industrial