Question 1:
Cost-based pricing is rather self-explanatory. It basically mirrors that costs that a company has faced while manufacturing a product in addition to the packaging, and might be a bit more, but never less than that. This method of pricing will beneficial to Cowgirl, for products such as Spicy Chocolate Truffle and even the Muslin bag because they form a majority of the revenues, 50% and 16% respectively. This entails that the demand for these products is relatively high and even if they’re highly priced based on their costs, customers will still purchase them. However, where competitive pricing lacks is that it doesn’t take into account forces of demand in supply that are crucial is establishing affordable and appropriate prices to stay in business. Cowgirl will obviously need to make a compromise on the cost-based pricing, for products whose retail revenues form a minute portion of total revenues, for example the Gift Bucket, Gift Basket and Gift Box, all contributing just 1%. To stay in business cost-based pricing might not be beneficial for these products, but highly beneficial for others. However, one aspect that Cowgirl will achieve is that the overhead costs will not be incurred and the company will not incur losses, and somehow not profits as well.
Demand-based pricing takes into account the forces of demand and supply heavily and sets prices according to what customers want. Ideally, this would instate that Cowgirl will first analyze different prices with respect to customer wants and then reach a conclusion regarding the most acceptable price. Usually this entails charging higher prices for items like Spicy Chocolate Truffle because they form a majority of the revenue. Demand-based pricing is most effective with regards to this business because their revenues aren’t increased and products don’t have a steady ground in the market. Doing so will ensure that there is less wastage of company resources and a maximum amount of products are sold at the most applicable prices. The suggested retail prices for the higher revenue contributing products are applicable; however, Cowgirl should aim to reduce the suggested retail prices for other products, using the wholesale price in the market instead to minimize losses.
Competitive pricing is efficient in terms of driving profit out the entire industry of chocolates for Cowgirl. With this regard, Cowgirl’s prices should be much cheaper that what other chocolate manufacturer’s offer, and company costs, or customer demand is not taken into account here. This essentially attracts customers, on the basis of cheap pricing, but the product offering of Cowgirl, is not typical chocolates. These chocolates only appeal to some taste buds; therefore, competitive pricing might not be effective. The suggested retail prices are high and can’t be used as competitive based prices. The price changes must be applied in the form of discounts, which means that other companies will be at a loss . Initially the discount factor will attract customers, but Cowgirl will face considerable losses. These discounts would mean that minimum profits are being made. However, it would be a good idea to use the wholesale costs, as shown in Exhibit 2 because they are extremely cheap and higher than the coasts the company incurs for manufacturing on e unit of product. This strategy is ideal for Cowgirl, because then it can lay its mark in the market, and most probably reduce the market share of other chocolate producing companies.
Question 2:
Cowgirl needs efficient pricing techniques to stand out in the market and increase its customer base. One pricing technique that can be employed is cost-plus pricing. Using this method it can effectively receive money for the costs put in and a small profit on top. In doing this Cowgirl will avoid setting unnecessarily high prices and decreasing customer base any further.
Another pricing method that must be considered is Price Skimming on Penetration Pricing. Cowgirl recently advertised its products in a magazine placing an ad for $3000, so it could re-launch all its products in the market, offering g cheap prices, which might not even cover the basic costs plus packaging. Initially, these prices would be ideal because they will attract a huge customer base, and when the customers are hooked onto the product the prices can be increased steadily for increased profits and to make up for previous losses.
Since, it has been established that not many customers in the market have a taste for the spicy chocolates that Cowgirl offers, this company could resort to Economy Pricing. This pricing strategy will just focus on a specific segment of the market i.e. those who have a taste for spicy chocolate . However, in this case it’s essential to keep prices low because the market is extremely sensitive to prices changes, since the customer base is low.
Psychological Pricing could be beneficial to some extent for Cowgirl. In this type of pricing strategy companies usually set prices as 99p instead of $1 to make a cheaper psychological impact on the buyer. This strategy has been extremely effective according to researchers and Cowgirl could employ this to increase its sales, but only by a small extent. For all major increases in revenue large price strategies need to be implemented.
Bibliography
Franklin, G. (2011). Marketing and Competitive Pricing. Retrieved from All Experts: http://en.allexperts.com/q/Marketing-1090/2011/3/disadvantages-competition-based-pricing.htm
Richards, L. (2012). Different Types of Price Strategy. Retrieved from Small Business: http://smallbusiness.chron.com/different-types-pricing-strategy-4688.html
