Assignment task:
The purpose of this part of the assignment is to practice applying the concept of margin to decision making. This is also an opportunity to practice creating an excel spreadsheet for your analysis. Scenario: You are the product manager for a new home gym product. Your product suite includes (1) the equipment and (2) an online service for personalized workouts and virtual coaching. You must set a price for each product. You are considering a low-high strategy (as is used for products such as razors and printers), selling the equipment at a low price ($350 wholesale) and selling the monthly service for a premium ($19.99/month direct to consumer). The alternative is the opposite, with a high price for this high-quality equipment ($600 wholesale) and a lower price service to encourage trial ($9.99/month direct to consumer). Either way, your costs stay the same: Equipment costs per unit: $250 in direct costs, $80 allocated indirect costs Service costs per month: $2 in direct costs, $7 allocated indirect costs Volume assumptions are also important: You believe that you can sell (a) 20,000 units in a year at the lower equipment price or (b) 4,000 units in a year at the higher equipment price. You also predict that you will have a 60% adoption rate of the monthly service with the low/high strategy, and an 80% adoption rate of the monthly service with the high/low strategy. Either way, you have industry data (specific to subscription services) that shows that the average customer lifespan (how long a customer stays with a company) is 12 months.
What is the net margin for one year for each of these strategies? (low/high and high/low) Please attach your work as an excel spreadsheet. There are points here for making a good effort! Don't stress about perfection - just give it your best shot