Marketing Models

Assignment 6
Individual Assignment on Zach’s Garage Case
Submitted by: Sadia Anwar (21110094)
Introduction:
Zach is a 52 year old accounting business owner and is a big fan of ‘dark metal
music’. For his love for the art decided to give young bands a place for
showcasing their talent. He opened up a garage where bands
could play for free and their fans could attend for free as well.
However, since the turnout of the audience and the bands turned out to
be a lot more than what he had expected and he had started incurring
costs up to $3000 for a month which were more than what he could
manage on his own.
Although, the idea of charging the audience did not excite him but he realized it
was the only way to at least fund the fixed costs.
PRICE OPTIMIZATION ASSUMPTIONS
• The 6 levels of price that used in this price optimization are $1, $3, $5, $8, $12
and $20 and are used to understand what the audience would be willing to pay
for the concerts in terms of rating these prices from 1 to 5. (5 being the most
desirable and 1 being the least)
• The above mentioned probabilities that were previously suggested for option 1 to
5 were 0%, 0%, 10%, 40% and 100%. These were identified to be overestimated
hence the new probabilities that were recorded were 0%, 0%, 10%, 30% and 70%.
Question 1 in case study:
• Assuming that the data contains a representative sample of Zach’s Garage
customer base, what price level would maximize expected revenues (profits)?
Assume that the average attendance is now about 250 per night, with an
average of 12 events per month, would that optimal price be sufficient to cover
Zach’s costs of $3,000 per month?

• The price optimization models gives the per person ticket price as $3.45 where
the net profit would be $475.38.
• This means Zack will be easily able to cover his fixed cost and earn an additional
$475.38.
Q1 continued:
QUESTION 2 (Q.4 IN CASE STUDY)
Zach does not want to lose the youngest customers, who are often
students. Assuming that he does not charge an entrance fee to people
21 or younger, what would be the optimal pricing strategy to
maximize revenues? What would be the total attendance at that price
level?

If only 2/3 of the total audience ( above the age of 21) is charged and
rest is not charged for the concert, the optimum point that comes
through the price optimization model is the point of least loss. Where
the proposed price is at $3.8 and the net profit is -$344.60
Q2 continued:
At the proposed price of $3.80 the
older
participant (older than 21)
attendance is
at 702.
 Hence, the total attendance would
be
1000 (equal or younger than 21) and
702
older than 21, with a total
participant
attendance of 1702.
QUESTION 3 (Q.5 IN CASE STUDY)
Assume that instead of allowing the youngest customers to attend for
free, Zach decides instead to charge a lower price by offering a
discount. What is the price that would maximize profit for the
younger segment of the population? How much additional profit
would that bring in? Compare that figure to the one you obtained for
Question 1 and explain the differences. What would be the impact on
attendance? Would you recommend such strategy to Zach?
Q3 continued:
• Price optimization model was run
for the 1/3 of the audience (the
ones younger than 21) for
covering the $335 cost.
• The result of the optimization
gives $2.61 as per person ticket
price for this segment of the
audience with an attendance of
330 and a net profit of $525.
• The total attendance hence come
out to be 330+702= 1032.
Recommendations:
• The approach in Question 1 gives a net profit of $475.38 with a total attendance of
1007.
• The approach in Question 2 gives a net profit of -$344.60 with a total attendance of
1032.
• The approach in Question 3 gives a net profit of $525 with a total attendance of 1032.
• According to these results the approach in Question 3 where both segments of the
audience have to pay with the younger audience paying a discounted price, is better
since it generates more profit and allows more people to attend.
• For both good profit generation and amount of people attending Zack should go with
the strategy in Question 3. However, if he is solely interested in more audience he
should go with the strategy in Question 2 which bears him a loss of -$344.60 but
consequently allows 1702 attendees to attend the concert.