CASE 1
A company in 2002 is looking to start the satellite radio business, what are some of the risks that they should be aware of ?
1.
Costs(Fixed & variable) & Revenues are given (ex - 1.7 billion royalty to content producers, subscription fee per month.Also as a promotional offer, for the first 2 years- the consumer is given 2 months free services per year)
What is the profit per customer per year? It ends up in losses
2.
They have 3 strategies
- do nothing
- reduce the royalty to 700 mill
- instead of 2 free months per year , give 3 per year for the first 2 years
What is the profit per customer per year?
3. To find a relationship function between profit and the number of customers in each of the 3
strategies ?
Assume profit - Y and number of customers - X
Profit = Revenue - Cost , get revenue and cost in terms of X and the given numbers for each of the 3 strategies.
CASE 2 :
Cap 1 is thinking of a partnership with a retailer on a card offering, the card can be used at other retail stores as well. Capital one currently sends direct mail to market their products. In this case, the executive at the point of sales, would talk to their customer about this card.
1. In such an agreement, what is in it for capital one ?
2. Given costs and revenue , calculate annual profit per customer ? Turns out to be a loss (some of the numbers are given on a monthly basis , whereas some are annual. So you need to make sure to convert to annual, if the interviewer asks for an annual profit)One of the costs was a 180$ payment to the retailer for every card sold.
3. Of all the given costs, what can be reduced ? The 180$ payment was the only option that could be reduced as the others were APR, interchange fee etc. Calculating the break even?