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- QUESTION
Dayton Software Inc. was started in 2010 by college friends Peyton Miller and Becky McPherson. Peyton was an undergraduate business major, while Becky studied computer science. They first discussed the idea of starting a company when they ran into each other at the University of Dayton’s reunion weekend in 2008. Peyton was working for a small business that was having a difficult time navigating the transition to the digital economy. She kept pushing her boss to purchase new software to help automate some processes the company used. However, her boss was resistant to change and worried that automated processes would be less reliable. Meanwhile, Becky worked for a university laboratory that utilized multiple software packages that automated almost all of their processes. Becky’s issue was that the lab kept adopting new software every couple of years and the staff had to figure out how to make the different software packages speak to each other. Becky and Peyton dreamt of creating an integrated software solution for all of a company’s different processes (think employee records, payroll, etc.). In January of 2010 Peyton was sick and tired of pushing her boss to automate. Exasperated, she called Becky. Peyton said, “Becky, I can’t do this any more. I have to quit my job and I’m not sure what I want to do next. Do you remember that integrated software solution we talked about a few years ago?” As fate would have it, Becky was entering her last week of maternity leave, after giving birth to her first child, Ryker. Becky loved caring for her new son, but she didn’t want to be a stay-at-home mom. However, she also wanted a job with more flexibility than her current role at the lab. “Peyton, I would love to start a company with you,” Becky said. “But do you think we can be profitable?” The two friends spent the next two hours discussing the commercial uses for their potential software package. The call ended with a tentative agreement to start a new company. Five months later Dayton Software Inc. was born, and development began on Integrated, their allencompassing, integrated software solution for businesses. Today they serve four main consumers: large corporations, university laboratories, consultants, and small businesses. Integrated has been a huge commercial success. But with success comes imitators. New software packages with similar features have been eating away at their market share. Becky and Peyton are now considering developing two different versions of Integrated, one version would allow complex interactions between numerous automated processes and another version would only allow minimal interactions between a few processes. To help them decide whether or not to undertake this new strategy, they hired K2 Research Solutions to do a market research study. K 2 met with developers and sales managers at Dayton Software Inc., then lead focus group sessions with current Integrated users and finally conducted a conjoint analysis with potential users of the two new software packages, tentatively being called “Integrated – Standard Edition” and “Integrated – Enterprise Edition.” The different segments were determined by the number of features and processes that need integration. Generally speaking, large corporations have complex needs and automate virtually all of their internal processes, whereas small business only need integration of a very small number of automated processes. The worksheet title “Table 1” in the Excel file “Dayton Software Inc Table 1” provides an overview of the market research data K2 generated. The table shows the four market segments, the anticipated size of each segment, and each segment’s willingness to pay for the two different versions of Integrated. It also includes projected costs of production and marketing. You can see the estimated production completion cost for each version, the variable cost per unit sold for each version and the segment development costs for each market segment. After looking at Table 1, Peyton and Becky realized they had multiple, dynamic questions to answer. Should Dayton Software Inc. keep only one version of integrated? If so, which one? How should they price the products if they offer multiple versions? Assignment: Answers to questions 1 and 2 (below) should be typed into a Word document. The tables for question 3 are in the Excel file in the worksheet titled “Q3.” Both files should be uploaded to Isidore before the due date. 1. Does the data in Table #1 simplify reality? In what ways? How might that make the firm’s decision difficult? 2. Articulate (in jargon-free English) what are the factors affecting the pricing decision for Integrated – Standard Edition. How do these factors affect the pricing decision (don’t use numbers)? 3. Calculate the profit Dayton Software Inc. will realize from each “Willingness-to-pay” (price) listed in Table 1, for each version of Integrated, assuming only that version is offered. Please place these calculations into the tables included in the worksheet titled “Q3” within the Excel file “Dayton Software Inc Table 1.” Hints: (i) the prices will be different for the Standard and Enterprise versions of Modeler; (ii) assume the firm is unable to price discriminate within a given version of the software.
| Subject | Business | Pages | 4 | Style | APA |
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Answer
Responses
Questions 1
Does the data in Table 1 simplify reality? In what ways? How might that make the firm’s decision difficult?
The data which is presented in table 1 to an extent present the reality in the market. In terms of cost for instance, the buyers or the customers tend to have a lower price than the enterprise version. This is due to the fact that, there are so many substitutes for software and technology based product. In essence, the demand is less than supply, hence the demand tends to pull the supply curve towards its side. In making their decision about the market price, the company, or the firm will have to take into consideration the market price as well as the price charged by the competitors. This will have a bigger influence on the profitability levels. Besides, the firm will have to put into consideration that equilibrium quantities, or else the number of suppliers. This will help in ensuring that it does not over produce, which in turn may lead to losses. These will bring to an extent some difficulties in decision making.
Question 2
Articulate (in jargon-free English) what are the factors affecting the pricing decision for Integrated—Standard Edition. How do these factors affect the pricing decision (don’t use numbers)?
The following are some to be considered when making pricing decisions for Integrated Standard Edition:
Objective of the Firm
This will be a major consideration. Prices will have to be set, based on the goals set by the directors. If for instance if the company decides to produce quality products, the prices will have to be set according to the quality. If the intention is to penetrate into the market, then a penetrative price will have to be set.
The Cost
Cost in this case entails the expenditures incurred in reading the products for market, and availing the goods to the target market. In order to make profit, it is prudent that the company sells at a higher price that production cost. However, it may decide to sell at a lower price than the market rate, in order to boost sales volume, even if the price would be lower than the costs incurred.
Legal and Regulatory Issues
These will dictate the price that the company will charge. In the event the market has set a minimum or maximum price, then the company will be forced to adhere to this. These among others are some considerations for pricing.
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