CNC is a regional cable provider that offers two types of annual contracts:

- Basic Contract: Over 150 digital channels for $50 per month.

- Premium Contract: Over 300 digital channels plus exclusive sports and movie channels for $120 per month.

This year CNC has 4,000 Basic and 2,000 Premium active contracts. It also estimates that there are 10,000 potential customers who selected not to subscribe to CNC but opted to getting their cable services from other providers.

In answering the following questions, assume that customers are homogeneous in their preferences and choose their cable provider and subscription according to a Multinomial Choice Model (MNL). Assume also that the utility the customer gets from competition is standardized to one.

Question No.1: What are CNC current annual revenues?

Question No. 2: For next year, CNC is evaluating the possibility of offering only the Premium service in the market. How many contracts the company should expect to sign in this case? Would you support this strategy?CNC has commissioned a marketing study to determine how to attract some of those that selected to subscribe to any of its services. The study concluded that CNC should keep offering both the Basic and Premium contracts and add a third option: Preferred Contract: Over 210 digital channels plus a small selection of exclusive sports and movie channels for $80 per month The marketing study reached this conclusion after surveying 600 customers who have an active contract with one of CNC's competitors. When asked to compare their current service and the Preferred contract, 400 out of the 600 customers surveyed said that they would choose the Preferred contract over their current service.

Question No. 3: If CNC decides to go ahead with this recommendation and offer all three options, how many customers the company should expect to get on each of the three contracts? What would be CNC annual revenues under this proposed plan?

Question No. 4: Suppose that the variance of the WTP of customers in this market is equal to 36.

Compute the average willingness to pay for all three products (Basic, Premium and preferred contracts). 

Answer rating: 100% (QA)

Lets proceed with the calculations Question No1 What are CNCs current annual revenues To calculate the current annual revenues we need to consider the number of contracts and the prices for each type ... View the full answer