Cambridge Software Corporation Case solution

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

Small business& Consultants

$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 R&D & large Corporate & Small business & Consultants

$15

$85

$650,000

$42,000

$2,920,000

$50

Student & Corporate R&D& Large Corporate& Small biz&Consultants

$15

35,15

$950,000

$42,000,500,000

$8,020,000

The optimal price for the "student version" is $ 50 at which all 5 segments would be included and the total contribution from selling this version amounts to $ 8,020,000.

SELL ONLY THE "COMMERCIAL" VERSION

Price

Segments

unit cost

Unit Contribution

Seg. Dev. Costs

Demand

Total Contribution

$1,200

Large Corporate

$25

$1,175

$150,000

$5,000

$5,725,000

$1,000

Corporate R&D& large Corporate

$25

$975

$250,000

$7,000

$6,575,000

$300

Consultants& Corporate R&D &large Corporate

$25

$275

$450,000

$27,000

$6,975,000

$225

Small Business &Consultants& Corporate R&D &large Corporate

$25

$200

$650,000

$42,000

$7,750,000

$60

Students& Small Biz & Consultants& Corporate R&D &large Corporate

$25

$35,$11

$950,000

$42,000,500,000

$6,020,000

The optimal price for the "Commercial version" is $ 225, at which four segments, excluding the "student segment" would serve and the total contribution from this version equals $7,750,000.

SELL ONLY THE