Bus 640 - Price Quotes and Pricing Decisions Applied Problems

Price Quotes and Pricing Decisions Applied Problems

Kecia Neely

BUS/640

August 13, 2017

Zhimin Huang Ph. D

Price Quotes and Pricing Decisions Applied Problems

Jessica Alba, a famous actress, starts the baby and family products business, The Honest Company, with Christopher Gavigan. Alba and Gavigan set up their site so families can choose what kinds of non-toxic, all-natural products they'd like to use and get them in a bundle. Families can choose all kinds of products from food to hygiene necessities and cleaning supplies. Suppose they are thinking of expanding their business into five domestic markets: Phoenix, Dallas, Chicago, New York, and Atlanta. Assume their primary goal of business is to maximize economic profits, although they want to do business honestly.

Problem No: 01

1. Price Skimming and Price Penetration are two opposite pricing strategies. Price skimming is a pricing strategy of charging high prices for highly differentiated goods, and new high end goods (Accounting Tools, 2014). Price Penetration is a pricing strategy of charging lower prices initially to reach and capture the market, and then raising prices when market demand is established (Business Dictionary, 2016). Honest Company will expand its business in five other domestic markets. Thus, the company should follow Price Penetration strategy for current market. Following of Price Penetration strategy will help the company to get acceptance to the customers and create the demand in the market first. Quick establishment of high acceptance & demand and brand image in the current market will help to expand in other markets easily.

1. Following of ‘Price Penetration’ strategy will not result in making of economic profit initially. But as the price will be increased later with the increased market share (establishment of enough market demand), there will be scope for making economic profit. Thus, for the business there is scope of making economic profit in the long run.

1. For making profit in the long term, Alba and Gavigan should concentrate to ensure high product quality, and charge fair price. Also, concentration should be made on running the business on ethical and environmentally sustainable way. Honest Company deals with hygiene necessities and cleaning supplies. Thus, quality will be the main factor in the long-term success of the business. Fair pricing will create a positive impression on the long-term success of the company. Operating business honestly and environmentally sustainable will help to run the business in smooth way. High quality, fair pricing, and honestly & environmentally sustainable business running will help the business to make more sales. More sales will help to recover variable cost and make profit in long run.  

You operate your own small building company and have decided to bid on a government contract to build a pedestrian walkway in a national park during the coming winter. The walkway is to be of standard government design and should involve no unexpected costs. Your present capacity utilization rate is moderate and allows sufficient scope to understand this contract, if you win it. You calculate your incremental costs to be $268,000 and your fully allocated costs to be $440,000. Your usual practice is to add between 60% and 80% to your incremental costs, depending on capacity utilization rate and other factors. You expect three other firms to also bid on this contract, and you have assembled the following competitor intelligence about those companies.

Problem No: 02

1. For winning the project, bid will be required to make at the lowest price in the market.

The analysis of tentative cost structure and bid prices of the existing market players based on the previous patter is as follows.