CAMBRIDGE SOFTWARE CORPORATION – A CASE STUDY
Cambridge Software Corporation, a small software company was trying to expand its revenue and profit by bringing out multiple versions of Modeler, a powerful, multi-module, Lotus 1-2-3 compatible modelling software product. The key questions in front of the corporation were how many versions to come up with, which segments to target and how to price the different versions. There were three options available as far as the number of versions goes-the “student” version, the “commercial” version and the “industrial” version. A market research firm identified five different market segments for the product, namely large multidivisional corporations, corporate R&D and university laboratories, consultants and professional companies, small businesses and students. The firm also came up with estimates of size of each market segment and the fixed and variable cost that will be incurred while developing each segment. From these available data, this report tries to come up with a pricing and product differentiation strategy for Cambridge Software Corporation. Data Analysis
When the company offers a single version Here the fixed cost consists of the segment development cost as well as the product completion cost. The variable cost is the product of the number of units sold and the variable cost per unit. Profit is the difference between the revenue and the sum of fixed and variable cost. In case of the students segment, the company gets only 60% of the revenue because the rest is given to bookstores in the form of 40% commission. For example, if the company launches the “Students” version at $150, the consumers belonging to the students segment and the corporate R&D and university laboratories segment will not buy the product as they are not willing to expend more than $50 and $100 for the product respectively. So the number of units sold will be (15000+5000+20000) i.e. 40000. The revenue earned by the company will...
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