Research Paper on "Revenue Cost Concepts and Market Structure Proposal"

Quoted Instructions for "Revenue Cost Concepts and Market Structure Proposal" Assignment:

Write a business proposal in which you provide recommendations to the company for increasing revenue for the company, achieve ideal production levels, determine how fixed and variable costs should be adjusted to maximize profit, and identify methods to reduce costs.

*****¢ Describe your process to make recommendations.

*****¢ Include economic concepts to provide support for recommendations.

*****¢ Answer the question: What assumptions did you make about the organization and its values?

Will Bury*****s Price Elasticity Scenario

Will Bury, enterprising inventor, is convinced that soon everyone will be reading or listening to everything digitally, including all the great books that have been mostly available in hardcopy. He knows that there are books on CD, but these are relatively expensive and have been recorded using human readers. He also knows that there is technology that will transform the printed word into audio, but the sound is somewhat inhuman. Will plans on speeding up the transformation with a proprietary technology he has developed and patented. This technology takes the printed word for text materials and creates a file with the option of reading it digitally or listening to it with a realistic synthetic voice. Will knows that he has free access to books no longer under copyright protection, and he figures he can pay a royalty fee of $5 per title for copyrighted books that will greatly expand his catalog. So far, he has limited himself to English language books but is working on a language translation option as well.

To date, Will*****s technical skills outpace his business acumen. He is struggling with some basic decisions. He has been doing this as a garage operation for the last few years and has missed many of his daughter*****s soccer games while he held down his job at High Tech Digital Industries to keep his family comfortable on his $200,000 annual salary and benefits package. Will may eventually have to decide whether to devote most of his time to his invention. Moreover, he is not sure how to determine all the applications for his technology, who would want it, how it would be delivered to customers, how many books would be bought at what price, and so forth. Even after he has secured the rights to copyrighted material, he needs some help acquiring the books he wants to digitally transform and scanning them into his digitizer. It is not difficult to train others to do this, but it takes about an hour per 500 pages to complete the transformation into the digital files that enable them to be read. To make sure the process works well, Will has been doing this himself, but he realizes this is neither a good use of his time nor will it get many books digitized. Fortunately, the digitizer Will uses is inexpensive to reproduce for others to use, and Will is certain that the security he has encoded into it will prevent others from unauthorized replication of the device. Where are the people whom he can hire to do the work, and how much should he pay them? If it is easy to train workers in the United States to do this, could Will pay $10 an hour for someone with the skills of a high school graduate? If this is the skill level, could he pay a worker overseas $2 an hour for the same service?

To address some of these issues, Will has been doing some research. First, he checked online to discover that a 500-page book on CD costs about $20. This is a good substitute for his audio files of a book, and further research suggests that he could apply his digitizing process to more recent copyright-protected books for a royalty fee of $5 per book. He would still incur the labor charge of scanning the book. Will continues to wonder whether people want to read digitally or listen to the books they enjoy for pleasure, or whether they still prefer a physical book to read. Will found an article from a reputable source that suggests customers of digital and audio books are relatively affluent, their household incomes are above average, and acceptance of digital reading for pleasure is lagging behind acceptance of digital reading for business. The article found that digital listening is attracting the same audience who download music to digital devices.

Further research has suggested that price is an important feature driving the appeal of digital book files. Will is trying to apply some earlier experiences in movie distribution to his digital book project. When movies were first released for general consumer distribution as videotapes, they were expensive*****about $80 per title. When the price was lowered closer to $20 per title, evidence suggests that volume sales typically went up 600%. Of course, not everything stayed the same. In recent years, movie titles have been released more quickly following their showing in theaters, there have been more extra features on the DVDs because of greater storage capacity, and the format changed from videotape to disk. Some have hinted that although there are fewer blockbuster hits now, there are more titles appealing to a broader audience. Will is trying to find more evidence of the effect of price on volume demand, but this is all he has discovered so far.

Nevertheless, Will must determine a launch price for when he first introduces his digital titles to the market. He set up a Web site offering his small catalog of books and set the price at $10 for a title on which copyright has lapsed, and $15 for a title that includes a royalty fee. He is a little disappointed in his sales in the first 6 months of operation, selling only 1,000 of the older books with a lapsed copyright and 2,000 of the newer books. Moreover, he is confused as to why he sold twice as many of the more expensive books. He wonders whether he should lower or raise prices to increase his revenues. What might he expect to happen to his volume sales if he does change prices? If he decides to increase or decrease prices, is it better to make a small change and observe the effects on quantity, or will customers more likely react to a change in price of at least $1 per title? If he does change his prices, will this have any effect on the prices charged by big-volume sellers for conventional hardcopy books?

While Will is pondering his pricing strategy, he visits a friend, Elsa Budley, who has had experience selling online. Elsa started an online business selling her artwork. Although her initial sales were a bit disappointing, she offered some shocking advice. She discovered that she sold more artwork when she raised her prices at the same time that she expanded her online advertising budget. Elsa thinks Will*****s key to success is to raise prices and sell more books!

Will Bury senses that he is on the brink of great success and fortune with a proprietary technology that transforms how people access books and other materials currently offered only in print. He is also on the verge of making some fundamental business mistakes, however, that could rob him of his success. He may be more successful if he observes some basic concepts included in the early part of this course.