1. Determine a price strategy indicating assumptions and reasoning.
2.State all factors that are considered or addressed in your pricing strategy.
3. Is it a good business decision to invest your money in the nose ring business? Why?
4.Calculate the break-even point (show calculations).
5.Calculate the expected profit (show calculations)
Grandma recently gave you $1000 for successfully passing your marketing course in school. With this money, you decided to get into your lifelong ambition to set up your own nose piercing business. You ordered from “UP YOUR NOSE ACME” Inc. a shipment of 10K gold diamond stud nose rings. The shipment cost you $1000 including taxes and contains 100 rings. You got this great price on the rings since you bought them on a “final sale - no refund” agreement with ACME.
You want to sell as many rings as possible since the best you can do with unsold rings is to sell them as fish fly hooks for a $1 a piece. Your dad is angry with you since he said you could have invested the $1000 in his business. He would have guaranteed you a safe 20% return after one year. His tattoo business is really taking off.
Currently there are 2 other persons, in the neighborhood, selling nose rings. One sells only rings, at $29.95 each. The other person sells a combined ring and nose piercing service for $49.99. Both nose rings are very similar to the diamond studs that you received from ACME.
Mom provides her walk-in service for $25 per nose piercing job. This is the going rate in the trade. She, however, is willing to charge you only $10 per piercing if you sell the ring combined with (her) piercing service.
You have done some very hasty market research and come up some interesting conclusions regarding potential customer sales data. You expect that the demand for the nose rings is 75, 50, 25, and 5 if the prices are $25, $50, $75, and $100, respectively. You have also discovered that most potential customers recall the terrible incident that happened last year. A fly by night nose ring sales person sold some inexpensive rings in town. The rings, although they looked like gold, where made out of recycle copper. As soon as someone came down with a cold and runny nose, the rings quickly turned green. In one unfortunate case the nose ring wearer developed a bad reaction to the ring. The nose became so badly infected and gangrenous that the doctors had to cut if off from the person’s face.
Answers
Answer:
efinition: Price is the value that is put to a product or service and is the result of a complex set of calculations, research and understanding and risk taking ability. A pricing strategy takes into account segments, ability to pay, market conditions, competitor actions, trade margins and input costs, amongst others. It is targeted at the defined customers and against competitors.
Description: There are several pricing strategies:
Premium pricing: high price is used as a defining criterion. Such pricing strategies work in segments and industries where a strong competitive advantage exists for the company. Example: Porche in cars and Gillette in blades.
Penetration pricing: price is set artificially low to gain market share quickly. This is done when a new product is being launched. It is understood that prices will be raised once the promotion period is over and market share objectives are achieved. Example: Mobile phone rates in India; housing loans etc.
Economy pricing: no-frills price. Margins are wafer thin; overheads like marketing and advertising costs are very low. Targets the mass market and high market share. Example: Friendly wash detergents; Nirma; local tea producers.
Skimming strategy: high price is charged for a product till such time as competitors allow after which prices can be dropped. The idea is to recover maximum money before the product or segment attracts more competitors who will lower profits for all concerned. Example: the earliest prices for mobile phones, VCRs and other electronic items where a few players ruled attracted lower cost Asian players.
These are the four basic strategies, variations of which are used in the industry.