Lipman Bottle Company

Case 17.2 Lipman Bottle Company

Abstract

Lipman Bottle Company began as a bottle distributor in 1909. Robert Lipman, vice president of Lipman Bottle Company, is looking into pricing strategies to grow his business in Albany and New York. The growing use of plastic bottle distribution has increased drastically in the last 20 years. This is contributed to the choices in bottles and options, and options in label printing directly onto the bottle.

17.2 Lipman Bottle Company

Introduction

Lipman Bottle Company began as a bottle distributor in 1909. Robert Lipman, vice president of Lipman Bottle Company, is looking into pricing strategies to grow his business in Albany and New York. The growing use of plastic bottle distribution has increased drastically in the last 20 years. This is contributed to the choices in bottles and options, and options in label printing directly onto the bottle. Printing logos on the bottles along with creating different bottle design options has made Lipman a leader in the dual service distribution. They are hoping to take this success and apply it to Albany and New York where they can solicit to the cosmetics and pharmaceutical manufacturers located there. Taking on a few companies there would allow them to really grow. The company has far more printing capacity than needed. They offer options in bottle sizes, quantity, and separations. “By strategically implementing a channel integration policy and by setting up the optimal pricing strategy, the whole company can maximize its profit in a competitive market” (Yan, 2008).
Objectives

Robert Lipman has asked for some outside consultation, from Mr. Shull, to review the firm’s pricing policy. Mr. Lipman is looking for the price list revised to show their costs without varying greatly from the major manufactures. The variable cost list would also allow him to bid on custom decorating. Also taking into account transportation to New York-New Jersey he wants to use that list to achieve his goal of earning pretax 30% on sales when operating at capacity.  

Case Contents

Lipman, Shull, and the operations manager of agreed on the cost of shipping, scrap, and operating information. Since all the business from New York and New Jersey would be for custom decorating, there would be no commission on bottles and would have to pay freight, the profits would be solely from printing. The calculations of variable costs per thousand demonstrate three separate principles. The first as the size of the bottle increases so does the cost of the bottle. As we look at the price of 0-1 oz. in comparison to the 17-32 oz. size the price increase on average by two to three dollars. The second principle demonstrated by the calculations would be as quantity increases the cost decreases significantly. This is more apparent in the two separation both round and oval because of the larger discount in price. The last principle that is demonstrated by the calculations of variable of cost is as the separations increase the cost increases. Separations are seen as the number of times the bottle is passed through the machine for printing. Bottles that are printed on two sides are passed through the machine twice or have two separations. These costs are greater because of the additional time it takes to run through the machine. Further calculations of the break-even cost reveal that 2 rounds separations is almost twice the price as one separation. As the bottle requires more separations the price increases due to the additional labor charges.

In order to be successful it is important to determine the industry leaders pricing. Spann, Fischer, and Tellis, (2015) discuss pricing entering a new market. Markets are comprised by multiple brands, products, price points, and attributes, which makes pricing very important. They found that price skimming yielded 16% above market price for new products when price skimming is used as a pricing strategy. Price skimming is the initialed heightened cost in which it is later reduced. Full cost information will be important by industry leader to help set and implement the strategy pricing. Mr. Lipman wants to obtain a 30% margin which will need to be taken into comparison with price recommendation.