This week’s case study will review the Pricing Strategy concepts you learned and practiced last week. Begin by reading the Business Case Scenario.
Business Case Scenario
Samantha works in a kitchen supply store that sells kitchen fixtures, products, and accessories. She helps the store’s owner buy new products and prices the merchandise for sale. During their spring buying trip to Chicago, the store’s owner purchased some new stainless-steel pots for the summer season at a cost of $32.00 per pot. When they returned from the buying trip, Samantha was asked to calculate some numbers for the owner. Samantha’s calculations showed that over the last quarter:
Expenses averaged 35%
Markdowns averaged 12%
Profit averaged 4.5%
The store’s planned net sales for the year are $325,000.
During an earlier buying trip, the store’s owner got great pricing on some pot-hanging racks and wooden ladles that can be grouped together with the new stainless-steel pots in the store. Samantha already priced the racks and ladles, as follows:
1 dozen hanging racks were purchased at $20 each. They will have a retail price of $42 each.
18 wooden ladles were purchased at $18 each. They will have a retail price of $38 each.
The store’s owner directed Samantha to determine the overall margin % of this group of products to make sure that the targeted profit for the store will be met.
Research the influence of various pricing strategies on product sell-thru and review the content presented in this week’s readings, and videos. Then, use that information along with the Business Case Scenario to answer the following:
a. Based on Samantha’s calculations of the numbers from last quarter, calculate the Initial Markup % (IMU%) needed for the new stainless-steel pots. Then, use the cost complement method to determine the minimum initial retail price for the new pots. Include the calculations used to determine your answer.
b. Based on the calculations used to determine the minimum retail price in the previous question, what actual retail price would you recommend that Samantha suggest for the new stainless-steel pots? Justify your recommendation.
c. If the store’s owner bought 2 dozen stainless steel pots, what would be the average margin percentage for the grouping of pots, hanging racks, and wooden ladles?
d. The store owner tells Samantha that he wants to achieve a 51.6% margin for the store. Considering the owner’s targeted margin percentage, how does the overall margin for the group of products in the previous question compare with this target? What should Samantha suggest to bring the margin % for the group of products closer to the owner’s targeted percentage?
e. Explain the benefits of using margin calculations to assess category performance when compared to store plans and goals. Use examples to support your explanation.