The memo introduces changes made in Epix movie channels and the tier programs projected to increase sales. The memo explains how an addon package to market these new features can be incorporated into the existing plans. However, the changes affect overall subscription and licensing fees. The regional vice president acknowledges that the firm’s marketing department has generated sales data that can be used to estimate the contribution margins of the subscriber base in his region (Baye & Prince, 2022). He claims that the team has comprehensive data covering the licensing fees and regional expenses to run the added channels and tier programs. Regarding the potential contribution margin of this region, the vice president requests recommendations on the profit-maximization price they can set and a drafted note on how it affects regional revenue.
The Company’s Profits with the New Services
The introduction of new services and programs has a very high potential of increasing profits provided it is well planned. Indeed, the addition can be beneficial when segmentation is done to ensure the pricing meets the sensitivity of the target audience. The new services can be easily segmented to fit unique customers’ requirements (Chaudhry et al., 2019). Moreover, the new service will likely increase the watch time the current subscribers use, making it easy for them to pay extra fees for more entertainment. For instance, charging $6.50 attracts 22657 subscribers, higher than the previous package showing the potential of existing customers noticing the value of new services.
On the other hand, the new service would potentially increase the license fees and regional expenses. These changes mean the company has to sell the subscription packages at a higher price. Currently, the subscribers in the movie channels are price sensitive and less likely to see the value of the new program tiers or media channels (Chaudhry et al., 2019). Therefore, there are chances that some customers would migrate to the competitor cable firms with lower packages. The data indicate that increasing prices reduces the subscriber base and the profits.
Conclusion and Recommendations
The firm should base its pricing on data to maximize profits and enjoy flawless operation. The firm’s marketing department needs to study and understand what subscribers’ value most in their current plans and use it as leverage. After considering the most valuable channels or video program tier, the firm will attach changes and newly introduced services to it along with the charges (Chen et al., 2018). The firm should also set pricing points to grade these new services and compensate for the recent developments with time. Afterward, the firm should set a target and use the pricing points to update their prices periodically, say in 3 months, so that subscribers would adjust gradually.
In conclusion, Epix should not overlook the core revenue driver or spend countless hours improving its tier programs. The firm relies on subscribers to generate revenue, meaning losing some of them could be a significant blow. Therefore, the marketing department should analyze the pricing and other essential levers for revenue growth (Kweon & Kweon, 2021). If the firm considers all factors and determines the distinctive features between them and other cable companies, it can develop a competitive pricing model. Tiered pricing would be the best approach to ensure no subscribers are lost and create a transition between older services to newer ones.
References
Baye, M. R., Prince, J., & Squalli, J. (2022). Managerial economics and business strategy (10th ed). New York: McGraw-Hill.
Chaudhry, P. E., Cesareo, L., & Pastore, A. (2019). Resolving the jeopardies of consumer demand: Revisiting demarketing concepts. Business Horizons, 62(5), 663-677.
Chen, T., Fenyo, K., Yang, S., & Zhang, J. (2018). Thinking inside the subscription box: New research on e-commerce consumers. McKinsey & Company, 1-9.
Kweon, H. J., & Kweon, S. H. (2021). Pricing strategy within the US streaming services market: A focus on Netflix’s price plans. International Journal of Contents, 17(2), 1-8.