1. DCSN 250A- Pricing and Revenue Management
ACS - HISSAB
Dr. Victor Araman
October 14th
, 2013
Mohammad Kasab

2. Contents
Executive Summary.......................................................................................................................................3
Introducing only 1 version of Hissab.............................................................................................................4
If ACS introduce only the student version ................................................................................................4
If ACS introduce only the commercial version..........................................................................................4
If ACS introduce only the industrial version .............................................................................................5
Conclusion of Introducing 1 Version.............................................................................................................5
Introducing 2 versions of Hissab...................................................................................................................6
1. Introducing the Commercial version and the Industrial version: .........................................................6
2. Introducing the Student version and the Industrial version:................................................................8
3. Introducing all three versions: ................................................................................................................10
Conclusion...................................................................................................................................................12

3. Executive Summary
Fourteen years after introducing the original version of the program “Hissab” and 9 years after
signing a deal with U.S based AT&T, Arab Computing System (ACS) is considering introducing
multiple versions of their program “Hissab” that target different segments of the market.
Driven by profitability and the instinct of increasing the return on any investments we do, our
group analyzed the possibility of introducing multiple versions of “Hissab” and reached a
satisfactory result. Based on the net total contribution, it is obvious that introducing three
versions is the optimal solution for ACS when seeking the highest amount of profits possible.
$23,580,000 is the Net Total Contribution from introducing the three versions together, and each
targeting a different segment of the market. This Net Total Contribution yields a 60.66% increase
on Net Total Contribution from introducing one version (Industrial alone) and 14.57% increase
of Net Total Contribution from introducing two versions (student and industrial).
Based on the results we got we urge ACS to look carefully at our calculations in the following
sections which are based on calculating the Net Total Contribution and choosing the type that
yields the highest.

4. Introducing only 1 version of Hissab
In almost most cases, the goal of a seller is to maximize the total contribution margin, and
starting from here we as a team decided to calculate the Net Total Contribution Margin of each
version if introduced alone and choose the one that yields the highest.
Contribution= (Volume*price)-segment development cost
Unit contribution margin= per unit price-per unit variable cost
If ACS introduce only the student version
Our best option if we introduce the student version is to sell it at $50 since it yields the highest
contribution margin= $8,020,000 and it serves all segments of the market.
If ACS introduce only the commercial version
Our best option if we introduce the commercial version alone is to sell it at $225 since it yields
the highest contribution margin= $7,750,000 and it serves all segments of the market except the
student segment.
Segment WTP/Unit UnitContribution Size of segment SegmentDevCost Total Contribution
Consultantsandproffessional Co $200 $185 20000 $200,000 $3,500,000
Small Businesses,andConsultantsandproffessional Co $175 $160 35000 $400,000 $5,200,000
Large Multi Divisional Corp.andSmall Businesses,andConsultantsandproffessional Co $150 $135 40000 $550,000 $4,850,000
Corporate R&DandUniversitylabsandLarge Multi Divisional Corp.andSmall Businesses,andConsultantsandproffessional Co$100 $85 42000 $650,000 $2,920,000
StudentsandCorporate R&DandUniversitylabsandLarge Multi Divisional Corp.andSmall Businesses,andConsultantsandproffessional Co$50 $15 500000 $950,000 $8,020,000
$35 42000
Segment WTP/UnitUnitContribution Sizeofsegment SegmentDevCost TotalContribution
LargeMultiDivisionalCorp. $1,200 $1,175 5000 $150,000 $5,725,000
CorporateR&DandUniversitylabsandLargeMultiDivisionalCorp. $1,000 $975 7000 $250,000 $6,575,000
ConsultantsandproffessionalCo.andCorporateR&DandUniversitylabsandLargeMultiDivisionalCorp. $300 $275 27000 $450,000 $6,975,000
SmallBusinessesandConsultantsandproffessionalCo.andCorporateR&DandUniversitylabsandLargeMultiDivisionalCorp. $225 $200 42000 $650,000 $7,750,000
StudentsandSmallBusinessesandConsultantsandproffessionalCo.andCorporateR&DandUniversitylabsandLargeMultiDivisionalCorp. $60 $14 542000 $950,000 $6,638,000

5. If ACS introduce only the industrial version
Our best option if we introduce the industrial version alone is to sell it at $600 since it yields the
highest contribution margin= $14,805,000 yet it serves only the 3 following segments: Large
Multidivisional Corporations, Corporate R&D and University Labs and Consultants and
Professional Co.
Conclusion of Introducing 1 Version
The Product completion cost was irrelevant in our previous calculations because it was a sunk
cost that the company would have paid ever since it decided to produce the product, yet now the
product completion cost is not relevant when we want to calculate the NET TOTAL
CONTRIBUTION MARGIN.
Version Contribution Margin Product Completion Cost Net Total Contribution Margin
Student $8,020,000 $100,000 $7,920,000
Commercial $7,750,000 $200,000 $7,550,000
Industrial $14,805,000 $500,000 $14,305,000
Segment WTP/Unit UnitContribution Sizeofsegment SegmentDevCost TotalContribution
LargeMultiDivisionalCorp. $2,500 $2,465 5000 $150,000 $12,175,000
CorporateR&DandUniversitylabsandLargeMultiDivisionalCorp. $2,000 $1,965 7000 $250,000 $13,505,000
ConsultantsandproffessionalCo.andCorporateR&DandUniversitylabsandLargeMultiDivisionalCorp. $600 $565 27000 $450,000 $14,805,000
SmallBusinessesandConsultantsandproffessionalCo.andCorporateR&DandUniversitylabsandLargeMultiDivisionalCorp. $300 $265 42000 $650,000 $10,480,000
StudentsandSmallBusinessesandConsultantsandproffessionalCo.andCorporateR&DandUniversitylabsandLargeMultiDivisionalCorp. $100 $26 542000 $950,000 $13,142,000
$20,000,000

6. If ACS wanted to introduce one version of Hissab it would definitely introduce the Industrial
version and price it at $600 since it yields the highest net total contribution margin= $14,305,000
between all three versions if introduced alone.
Introducing 2 versions of Hissab
Given that the Industrial version is the version that would be chosen if only one version is to be
introduced; it will always be present even when introducing 2 versions.
1. Introducing the Commercial version and the Industrial version:
Given that the Commercial version price is $225 and the optimal price when introducing one
version only was $600, how would this optimal price change given the introduction of another
version having a lower price? To solve this question, we will calculate the consumer surplus at
the commercial version and at the industrial version. From the consumer surplus calculated we
will be able to know how much the consumer were virtually better off and thus calculate the
maximum price we can charge for the industrial version.
$0
$2,000,000
$4,000,000
$6,000,000
$8,000,000
$10,000,000
$12,000,000
$14,000,000
$16,000,000
$50 $225 $600
Net Total Contribution Margin

7. From the previous table we can understand that the first two segments will continue to buy the
industrial version because they get more surpluses from them, yet the consultants and
professional Co. will shift to buy the Commercial version because they get a higher surplus from
it. So the challenge now is calculating the maximum price we can charge for the industrial
version given this shift in preference.
Max Price of industrial version= WTP for industrial version–Surplus from commercial
version
Note: By subtracting the surplus from consumers we are making sure that customers don’t
feel that they are losing anything from purchasing the industrial version rather than the
commercial one.
The contribution margin for the industrial version given the new information is found in the
following table:
Large MultiDivisional Corp.
Corporate R&D and University Labs
Consultants and professional Co.
Consumer Surplus with “Industrial” version @ $600 and “Commercial” version @ $225
Commercial Industrial
1200-225=975
775
75
2500-600=1900
1400
0
Large MultiDivisional Corp.
Corporate R&D and University Labs
Consultants and professional Co.
Maximum Price for “industrial” version based on surplus from "Commercial" version
Surplus from commercial Maximum Price for Industrial
975
775
75
2500-975=1525
1225
525
Price Segment UnitContribution Size Seg.Dev.CostTotalContribution
$1,525 LargeMultiDivisionalCorp.andCorporateR&DandUniversityLabs $1,490 7000 $250,000 $10,180,000
$1,225 LargeMultiDivisionalCorp.andCorporateR&DandUniversityLabs $1,190 7000 $250,000 $8,080,000
$525 LargeMultiDivisionalCorp.andCorporateR&DandUniversityLabsandConsultantsandProfessionalCo. $490 27000 $450,000 $12,780,000

8. Given this table, the optimal price of the industrial version now is $525 where all three segments
will buy with a total contribution= 12,780,000- 500,000= $12,280,000
Now we should add the small businesses that would buy at $225.
Small Buss at $225 with Variable cost 25 = unit contribution of $200 with demand of 15000 =
total Contribution of 200*15000-200000=2,800,000-product completion cost of
200000=2,600,000 net contribution.
NET TOTAL CONTRIBUTION OF 2 VERSIONS= 2600000+12280000=$14,880,000
2. Introducing the Student version and the Industrial version:
Given that the Student version price is $50 and the optimal price when introducing the one
version was $600, the same old problem arises, how will the optimal price of the industrial
version change given the introduction of a cheaper version?
To solve this question, we will calculate the consumer surplus at the student version and at the
industrial version.
From the previous table we can understand that the first two segments will continue to buy the
industrial version because they get more surpluses from them, the consultants and professional
Co. will shift to buy the Commercial version because they get a higher surplus from it. So the
question now is the following: Given that the third segment will shift and given that to calculate
the first optimal price it was included, what is the optimal price of the industrial version?
Large MultiDivisional Corp.
Corporate R&D and University Labs
Consultants and professional Co. 150 0
Consumer Surplus with “Industrial” version at $600 and “Student” version at $50
Commercial Industrial
150-50=100 2500-600=1900
50 1400

9. Given this table, the optimal price of the industrial version now is $1950 where the first two
segments will buy with a total contribution= 13,155,000- 500,000= $12,655,000
The other 3 segments will buy the Student version in this case at $50.
Total Contribution from student version= (7,200,000+325,000+500,000)-100,000= $7,925,000
So by offering the Student version and the Industrial version together ACS can get a Net Total
Contribution= 12,655,000+7,925,000= $20,580,000
So if we decided to introduce 2 versions it will be the Industrial and Student versions which give
a NET TOTAL CONTRIBUTION= $20,580,000. A 38.3% increase of net contribution
compared to introducing the industrial and commercial versions and a 43.8% increase compared
to introducing the industrial version alone.
Large MultiDivisional Corp.
Corporate R&D and University Labs
Consultants and professional Co.
100
50
150
2500-100=2400
1950
450
Maximum Price for “industrial” version based on surplus from "Student" version
Surplus from commercial Maximum Price for Industrial
Price Segment UnitContribution Size Seg.Dev.Cost TotalContribution
$2,400 LargeMultiDivisionalCorp.andCorporateR&DandUniversityLabs $2,365 5000 $150,000 $11,675,000
$1,950 LargeMultiDivisionalCorp.andCorporateR&DandUniversityLabs $1,915 7000 $250,000 $13,155,000
$450 LargeMultiDivisionalCorp.andCorporateR&DandUniversityLabsandConsultantsandProfessionalCo. $415 27000 $450,000 $10,755,000
Segment Price UnitContribution Size of segment SegmentDevCost Total Contribution
ConsultantsandProffessional Co. $50 $35 20000 $200,000 $500,000
Small Businesses $50 $35 15000 $200,000 $325,000
Students $30 $15 500000 $300,000 $7,200,000

10. 3. Introducing all three versions:
In order to introduce the three versions we need to calculate the tradeoff between introducing the
Commercial and Student versions together, as we did in the 2 previous cases.
From the previous table we can understand that the first two segments will buy the commercial
version because they get more surpluses from them, the consultants and professional Co. and
small businesses will buy the Student version because they get a higher surplus from it.
From this table we understand that we sell the commercial at $950 to the first two segments only
because it yields the highest contribution margin.
Large MultiDivisional Corp.
Corporate R&D and University Labs
Consultants and professional Co.
Small Businesses
150 75
125 0
Consumer Surplus with “Commercial” version at $225 and “Student” version at $50
Student Commercial
150-50=100 975
50 775
Large MultiDivisional Corp.
Corporate R&D and University Labs
Consultants and professional Co.
Small Businesses 125 100
100 1100
50 950
150 150
Maximum Price for “industrial” version based on surplus from "Student" version
Surplus from student Maximum Price for Commercial
Price Segment UnitContribution Size Seg.Dev.Cost TotalContribution
$1,100 LargeMultiDivisionalCorp. $1,075 5000 $150,000 $5,225,000
$950 LargeMultiDivisionalCorp.andCorporateR&DandUniversityLabs $925 7000 $250,000 $6,225,000
$150 LargeMultiDivisionalCorp.andCorporateR&DandUniversityLabsandConsultantsandProfessionalCo.andsmallbusinesses $125 42000 $650,000 $4,600,000
$100 LargeMultiDivisionalCorp.andCorporateR&DandUniversityLabsandConsultantsandProfessionalCo.andsmallbusinesses 75$ 42000 $650,000 $2,500,000

11. The other three segments will buy the student version at $50.
The Net total contribution from introducing these two products= $13,950,000
Now we shift to integrating all models together in order to check if it yields a higher Net Total
Contribution.
From the previous calculations we understand that Large Multidivisional Corporations and
Corporate R&D and university labs will buy the Industrial version all the time and thus we can
charge $1950 for it.
Now we check at what price we sell the commercial version.
So we sell it at $150 to the consultants and small businesses.
So students buy it at the preset price of $15.
Net Total Contribution= (4,025,000-200000) + ((15*500000)-300000-100000) + (13,155,000-
500000) = $23,580,000
Price Segment UnitContribution Size Seg.Dev.Cost TotalContribution
50Consultants 35.00$ 20000 200,000.00$ 500,000.00$
50SmallBusinesses 35.00$ 15000 200,000.00$ 325,000.00$
50Students 15.00$ 500000 300,000.00$ 7,200,000.00$
Price Segment UnitContribution Size Dev.Cost TotalContribution
$150 ConsultantsandProfessionalCo.andsmallbusinesses $125 35000 $350,000 $4,025,000
$100 ConsultantsandProfessionalCo.andsmallbusinesses 75$ 35000 $350,000 $2,275,000

12. Conclusion
So all in all, ACS should introduce three version of Hissab because it yields a higher contribution
margin than any other case; A 60.66% increase from the single version case to the triple version
case and 14.57% increase from the dual version case to the triple version case.
$0
$5,000,000
$10,000,000
$15,000,000
$20,000,000
$25,000,000
One Version Two Versions Three
Versions
NET TOTAL CONTRIBUTION
NET TOTAL
CONTRIBUTION