Question

Consider the following couponing strategy for Kellogg’s Oat Bunches cereal. Suppose there are two types of consumers – busy professionals (B) and the stay-at-home parents (S). There are 10 consumers of each type. B-type consumers are willing to pay $6 for a box of Kellogg’s cereals while the S-type consumers are willing to pay $2.50 for a box of cereals. But B-type consumers face a time/inconvenience cost of $2.50 of redeeming coupons while the S-type consumers face redeeming costs of $0.50. What should be Kellogg’s regular price and the value of the coupons for Oat Bunches? Compare Kellogg’s revenue from this couponing strategy to its revenue if it were to charge a single price for the cereal

Answer 1