Question

You just recently joined American Express in their credit card business. More specifically you have assumed the responsibility for the Spanish market. One of the responsibilities is to decide how many versions of a credit card to offer and at what price. Everything is on hold until you decide what to do.

To help you with your decision, you obtained estimates of the market potential for the different versions under consideration and the respective cost of launching the product in the market and deliver the necessary service.

Find below the corresponding segments and their willingness to pay for each of the versions of the credit cards

Segment	Segment size	Standard	Gold
Individuals	200,000	€20	€40
Corporate	100,000	€30	€70

Assume further that the Standard American Express has a marketing expense of €50,000 and a variable cost of €5, and that the Gold American Express has a marketing expense of €150,000 and a variable cost of €15.

What would be the optimal price for each version?

1 point

Standard: €30

Gold: €70

Standard: €30

Gold: €40

Standard: €20

Gold: €40

Standard: €20

Gold: €70

Answer 1

Table

Segment	size	standard	gold
Individual	200,000	20	40
Corporate	100,000	30	70

For Standard ,

If P = 20, both type buy, total buyers = 300,000

π= (20-5)*300,000 - 50,000

= 4500,000-50,000

= 4450,000

If P = 30, only 100,000 corporate people buy

π= (30-5)*100,000- 50,000

= 2500,000-50,000

= 2450,000

So higher profit, when P = 20,

options 2 & 1 are false

.

If for gold

if P = 40, both type buy

π= (40-15)*300,000-150,000

= 7500,000-150,000

= 7350,000

If P = 70,

π= (70-15)*100,000 -150,000

= 5500,000-150,000

= 5350,000

So higher profit, with P = 70

Option 4)