The Institute of Solution Developers (ISD) offers three basic certificates in Information Technology; Software Engineering; and Solutions Architecture. ATL is one of many training companies certified by the ISD to offer training courses to prepare candidates for these three certificates. ATL has, traditionally, taught these courses over five days culminating in a multiple choice examination. It has differentiated itself in the marketplace by offering high quality training in well-equipped training centres. Its prices are slightly higher than its competitors, but it is well regarded by both candidates and employers. ATL also provides training courses through sales intermediaries known as training brokers. These brokers negotiate a reduced fee with ATL and then add a profit margin to determine the price that they charge the end customer. All ATL courses are run in Eothen, an established industrial nation with a high standard of living.
In the last six months, ATL has developed an e-learning course for the certificate in Information Technology. There are three main reasons for this development. The first reason is to allow candidates to prepare for the examination in a flexible way, studying ‘at their own pace in their own place’. Currently, courses are only run in Eothen and each certified course takes five days. In contrast the e-learning product will be delivered over the Internet. The second reason is to provide a cheaper route to the qualification. Course places currently cost $950 per person. Finally, ATL wishes to exploit a global market. It believes that there is a ‘very large market’ for e-learning for this qualification, particularly in countries where disposable income is less than in Eothen. It feels that overseas customers will be sensitive to price, but they have no estimate of this sensitivity.
Eothen, itself, is in a period of economic decline and the top 500 companies, which are specifically targeted by ATL, are reducing their training budgets. Figure 1 shows the results of research from MidShire University into the relationship between average training spend per employee and companies’ gross profit. Data given below is from 10 of the top 500 companies targeted by ATL. Statistics produced by the Eothen government suggest that the average gross profit of the top 500 companies in Eothen will fall to $50m next year. In this analysis, the independent variable (gross profit) is x, which is being used to estimate a dependent variable y (average annual training spend per employee).
Figure 1: Training spend analysed against gross profit
The e-learning product has been specified by an experienced lecturer and developed by a business analyst. The latter will also be responsible for supporting students once the product has been released. ATL is the first company to produce an e-learning product for the ISD market. It wishes to quickly build on its success and to offer e-learning for the other two certificates – Software Engineering and Solutions Architecture.
Each certificate examination costs $125 and is available on demand in test centres all over the world. This makes it very accessible to the countries that ATL are targeting. The managing director of ATL has also discovered the following analysis of nationwide e-learning sales published by Training Trends, a respected Eothen-based publication. Here the independent variable is time (x) and e-learning sales is the dependent variable (y).
Figure 2: E-learning sales in Eothen analysed by quarter (source: Training Trends).
The period column has been inserted to facilitate the regression analysis.
Required:
ATL needs to determine the price (or prices) of its e-learning product:
(a) Identify and discuss the factors that need to be taken into consideration when pricing the e-learning product. (15 marks)
(b) Figures 1 and 2 provide important, independent, statistical data:
Evaluate the potential of each set of statistical data for use in the pricing decision for the e-learning product, particularly highlighting any limitations in using such data. (10 marks)