Price Determination - Pyramid Solution - Research Paper Example

Price determination Retail pricing Considering this: shampoo 200ml $ 0.70 lotion & soap $0.70 expanses $0.40 Total merchandise cost = 0.70 + 0.70 + 0.40 = 1.80 Markup = 40% retail price = Cost/(1 – Initial markup %) = 1.80/(1 – 0.40) = $3.00 per bundle Factors considered: Variable expenses These refer to the expenses that Pyramid Solution can modify, through changing the production rate. The variable expenses for the training include wage to the participants, replacement of staff cost, and the administrative costs. For instance, reducing the wage to the participants can help in reducing the cost of production. Variable expenses Cost ($) Wage to the participants 400 Replacement of staff cost 300 Administrative cost 100 Controllable expenses These refer to the expenses that the organization has the ability to change in the course of the production process. Some of the controllable expenses regarding the operation of the business include transportation cost, utility cost and labor cost. Controllable expense cost Transportation cost 200 Utility cost 300 Labor cost 400 Unrecoverable expenses These refer to the expenses that the organization cannot reverse once incurred. The unrecoverable expenses for nurse training include labor cost, rents, transportation cost. Unrecoverable expense cost Labor cost 400 Rent 200 Transportation cost 200 Cost benefit analysis costs cost discount factor present value of costs pv cost benefits discount present value costs pv cost PV Benefits + costs fixed expenses                   Labor fee 300 0.25 75 375 320 0.25 80 400 25 travel and accomodation 200 0.25 50 250 100 0.25 25 125 -125 training material cost 400 0.25 100 500 300 0.25 75 375 -125 Variable expenses                 0 Wages to the participants 400 0.25 100 500 600 0.25 150 750 250 Replacement of staff costs 300 0.25 75 375 400 0.25 100 500 125 Administrative costs 100 0.25 25 125 300 0.25 75 375 250 Controllable expense                 0 Transportation cost 200 0.25 50 250 250 0.25 62.5 312.5 62.5 Utility costs 300 0.25 75 375 300 0.25 75 375 0 Labor costs 400 0.25 100 500 450 0.25 112.5 562.5 62.5 Total 3250 525 Discussion Internal rate of return = Cumulative PV Benefits + Costs / Cumulative PV Costs = 525/3250 0.1615 16.15% The Internal Rate of return is way more than 1% meaning that the process is worth for the organization. Psychological pricing This pricing strategy allows the business to attract customers through using persuading the customers emotionally in terms of the pricing messages (Schlag & Schade, 2003). The business set the prices of their offerings at prices points that seem unusual which makes the customers feel that the prices offered are los. For instance, more consumers will go for the products with prices set at $29.99 rather than $30. This pricing strategy will attract the customers who usually look for value of the product. The preference of this method is due to the chance that if gives to the business allowing it to attract more customers without changing the content of the product. Differential pricing This pricing strategy allows the business to adjust pricing in favor of the customers with reference to variety of circumstances. The differential pricing may come in form of discounts coupons or rebates. The discounts will increase the number of customer since it attracts those who might not be able to afford the original price. The differential pricing serves as a form of incentive to the customer since it relieves them of the supposed high prices. Product line pricing This is a pricing strategy used by firms, which would like to sell different products in the same product range and at different prices points based on the features and benefits (Smith, 2012). It is suitable for the business since it would like to offer mobile grooming services that always come with multiple products. Mobile grooming is the primary while other product arises from this such as maintaining friendly environment for the pets. Promotional pricing This strategy is suitable for Pyramid Solution business since it involves the firm being flexible in their prices (Smith, 2012). This pricing strategy allows the business to reduce the price of offering in the quest of attracting customers. It applies to almost all existing industries hence it will be suitable for the business. Transportation cost Road transport Road transport involves the use of the motorway network to transport goods to the destination country. This form of transport is always the most flexible option especially in areas where there are good infrastructures, for instance in European Union. The benefits include relatively low transport costs as compared to other methods like air transport. Road transport also assures of security and privacy of the consignments thereby avoiding unnecessary losses due to thefts. The existing broad network of roads also makes this method a viable option. Further, road transport also allows for easy tracking of the location of goods on transit (Schlag & Schade, 2003). Shipping This involves transporting goods on transit through the seaway. This method is suitable for international trade, which involves ferrying of large quantities of goods from the origin country to the destination country. The method allows a trader to transport large quantities of commodities at low costs than any other means of transport. The trader can cut down on the costs through consolidating the consignments. The method also proves beneficial due to its flexibility. A trader can easily change the means of transport to using others like rail and road. Sea transport also proves useful in situations involving the transport of fragile goods that need care during the transit. It proves as a best alternative for the use of air, which always ends up breaking the fragile goods. However, this method may prove slower in cases of where there are perishable goods on transit. Gross margin High margin is an indication that the organization has the opportunity to increase its volume of operation hence beneficial strategy. This strategy is vital and applicable in a segmented market. The organization can apply the strategy in the formulation of different stores to facilitate the operations of the organization. Despite the fact that reduction in the costs has minimal importance in relation to the benefits of the firm, the organization has never applied it as a strategy towards achieving competitive advantage. The unit administrator has the duty to execute this responsibility. This official has the role of doubling as the facilitator of the maintenance of the association and reputation. These reflect on the elementary sectors that the organization needs to focus on in order to improve the market performance. Import taxes and value- added tax The business is experiencing political pressure especially those increasing the import duty. This leads to the change in the cultural values of the company since it would have to rearrange some of its process in order to adapt to the increase in the import duties. The increase in the import duties will automatically lead to the acquisition of profit by the company since they would have to pay more tax in relation to the import duties. One of the solution to this challenges is the company should consider increasing the prices of their products in order to cover the overhead costs arising from the increase in the import duties. The import duties normally increases the production cost of the company consequently the offset this through transferring some of the cost to consumers. Absence of this, will always affect the culture of the company since it would lead the company suffering losses; thereby not being able to manage their operations. The company can then announce to the consumer any change in the prices of their products in the company of a concrete reason that will convince the potential consumers. This will ensure that the company does not lose its customers, who usually form a crucial part of business cultural values. Technical The company is also facing the challenge of increasing the substituted product for their major competitor. This will affect the acquisition of its cultural values because of the expected favor that consumers will have on its competitors. The company would have to learn the methods of production put forward by its competitors to ensure that they can produce a substituting product. Consequently, the company should always be aware of the internal operation of their competitors in the event of establishing a more counteracting innovation exhibited by the latter (Haber, 2000). The company can also make use of prices as the equipment used for substituting the product of the consumers. It can lower the prices of its product to ensure that it has gained the favor of many consumers thereby drifting the potential customer towards their products. References Haber, F. (2000). Price determination in theory and reality: Lessons for liberalization and globalization policy. New Delhi: Atlantic Publ. and Distributors. Smith, T. J. (2012). Pricing strategy: Setting price levels, managing price discounts, & establishing price structures. Mason, Oh: South-Western Cengage Learning. Schlag, B., & Schade, J. (2003). Acceptability of transport pricing strategies. Amsterdam: Elsevier. Read More