Cambridge Software Corp. (CSC) is looking into offering several versions of its new software product. The three different versions of the product are high end "industrial," a mid-range "commercial," and a low-end "student" version. The company came up with five target market segments. But it is still in a dilemma which of its three versions to offer. Students are given the opportunity to take into consideration the market segments' sizes, customers' interests, and the costs involved.
Harvard Business Review (191072-PDF-ENG)
October 09, 1990
Case questions answered:
- If Cambridge Software Corp. (CSC) were to offer only one version of Modeler, which version should it offer and at what price?
- How many different versions of the Modeler should CSC offer? At what price? Show your workings.
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Case answers for Cambridge Software Corp.
This case solution includes an Excel file with calculations.
1. If Cambridge Software Corp. (CSC) were to offer only one version of Modeler, which version should it offer and at what price?
If Cambridge Software Corp. (CSC) were to offer only one version of Modeler, it should offer the “Industrial” version of the product and price it at $600. This will make the product viable to the top three segments, namely, Large and multidivisional corporations, Corporate R&D and university laboratories, and Consultants and professional companies.
This is based on the calculations of the total contribution of each version (See Exhibit 1).
The Industrial version at a price point of $600 yields the maximum contribution of $14.3 MM.
Unit Contribution = Willingness to pay(Price) – Unit Variable Cost
Total Profit (Contribution) = (Unit Contribution x Size) – Segment Dev. Cost – Production Completion Cost
2. How many different versions of the Modeler should CSC offer? At what price?
CSC can offer different combinations of versions of Modeler.
By offering the Industrial version alone, CSC cannot…