Marketing Question

Overview

Homework Questions

1. Concept application: Explain the difference between direct and indirect price discrimination.

Classify MetroFlex’s proposed tiered menu and justify your answer. Give one realistic way

MetroFlex might use direct price discrimination and identify one drawback of that approach.

2. Profit analysis: Calculate monthly revenue, total variable cost, contribution margin, and

operating profit for each proposed tier and for the combined three-tier strategy. Then calculate

operating profit under the current single-price plan. Show all formulas and calculations.

3. Economic interpretation: Compare the profit results. Explain why the tiered menu may earn

more or less than uniform pricing. Address differences in willingness to pay, self-selection,

consumer surplus, and the relationship between price and incremental cost.

4. Incentive compatibility and cannibalization: Identify at least two reasons a high-value customer

might choose a lower-priced tier. Recommend two changes to features, restrictions, or prices

that would reduce cannibalization without eliminating meaningful customer choice.

5. Managerial recommendation: Recommend whether MetroFlex should keep the uniform price,

adopt the proposed menu, or revise the menu before launch. Support your decision with the

calculations and at least one sensitivity check, such as a 10% change in customer volume or

variable cost.

6. Ethics and implementation: Discuss one ethical, reputational, or operational concern related to

the proposed pricing strategy. Explain how MetroFlex can communicate and administer the

policy transparently and consistently.

Required Calculations

Revenue = Price × Expected number of customers

Total variable cost = Variable cost per customer × Expected number of customers

Contribution margin = Revenue − Total variable cost

Operating profit = Total contribution margin − Fixed operating cost

Business Case: MetroFlex CoworkingMetroFlex operates a downtown coworking location. Management currently charges every customer$240 per month for the same membership. Customer interviews suggest that users differ in willingnessto pay and in the value they place on booking priority, meeting-room access, and contract flexibility.MetroFlex is considering a three-tier menu so customers reveal their preferences through the optionthey select.Plan Monthly price ExpectedcustomersVariable cost percustomer Key featuresEssential $165 140 $45 Shared workspace; 5 meeting-room hours;12-month commitmentProfessional $275 80 $70 Dedicated desk; 15 meeting-room hours; 6-month commitmentExecutive $430 35 $115 Private office; priority booking; 30 meeting-room hours; month-to-month

Additional assumptions: Monthly fixed operating cost is $36,000. Under the current single-price plan,MetroFlex expects 185 customers at $240 each, with an average variable cost of $62 per customer.Treat the expected customer counts above as mutually exclusive selections and ignore taxes.