timer Asked: Apr 11th, 2020

Question Description

You are an up-and-coming blogger for a technology startup and wannabe entrepreneur. Given how successful your blog has been in the recent past, you want to be sure to extract the appropriate value from your reasonably unique content offering. For this, your priority is to get your pricing decision right. Schooled in the value of analytics and having taken the “Marketing Analytics and Pricing Strategy” course (among possible others) at GA Tech, you are now a firm believer in the value of data, and field experiments, as a way to enable key decisions.

Your blog was initially free to the public when it was launched five years ago, but you have since been successful in monetizing it (so readers currently pay a subscription fee to view your blogs). In addition, you have meticulously collected data on how the consumer audience responds to your blog (COLUMN B) at various price points (COLUMN C), as well as advertising, which has, to date, brought in a steady source of revenues (Advertising revenues in $ are in COLUMN F, and the corresponding Ad rates in $ are in Column G). You have figured out estimates of how much it costs you per month per reader (COLUMN E), from the blogging activity, and also the cost to serve each advertiser (COLUMN H).

Your boss, the founder of the technology startup and a shrewd ex-banker himself, has voiced the desire to shape his now 5-year old venture into the next Google, Instagram or Facebook – suggestive of his focus on the long haul. So his directive to you is to work on maximizing his profits, period! However, the recent past has witnessed an increased competition from outlets such as the WSJ, and Yahoo (mostly free for consumers) that have invested heavily in technology blogs themselves. This emphasizes the immediate need for your getting your pricing decision right. Your specific concern is that if you do not optimize prices quickly, the drop in your reader base (see Column B) is likely to accelerate (and with it, your end-of-year bonus, evaporate)!

As is common in such a situation, your boss has called a meeting. You’re heading to this meeting scheduled at 5 PM on Apr 20, 2020 where you want to “wow” your colleagues with your superior analytics abilities. You want to prepare a report that serves the following objectives:

  • Compute the optimal price that you’d like to charge readers of your blog going ahead (focus on the price for just the current i.e., latest month, while providing your recommendation). Describe your calculations, by clearly documenting the formula you adopted and the regressions you ran. What is the meaning of the optimal price you find? Does that number make sense? Relatedly, pending management approval, what price would you like to charge your reader to help maximize your profits?

…30 points

  • From your previous meetings and personal interactions, you recognize that Alex, the advertising campaign manager (and your co-worker) feels like he knows all there is to know about advertising. You are worried that Alex has thus far relied heavily on “gut feel” rather than hard data, while providing his recommendations. So you anticipate that Alex is likely to overstate the role of advertising in the reader price setting process. To proactively silence him, you’d like to present the optimal price readers would have faced, if advertising did not bring in any revenues for you at all. You’d like to use this number to make your point of arguing for the benefits for your recommended price in part 1).

… 15 points

  • Your angel investor, the legendary Mr. Vinod Khosla has steadily invested money in the startup (column D) and in your blog, since its inception. An accounting clerk from his office is likely to be present at the upcoming meeting. You know that he is likely to bring up the question of how the fixed investments that Khosla Ventures has made in your blog plays a role in the pricing process. You’d like the final section of your report to address this question. … 5 points

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