Advantage of Using cost-based pricing method on Marilyn Lyohir
The advantage of using a pricing method that is cost based would allow Marilyn Lyohir in determining whether she can compete in the market that is low priced or the market price that is premium. If the products of Marilyn Lyohir can be placed in the market price that is premium, then she could raise the prices of her products to make more profits. Moreover, Marilyn Lyohir can also include advertisement cost of $3000 to the Chile Pepper Magazine to the product costs. The cost-based pricing method takes all costs, which are the variable and fixed costs, associated with the product on sale, and add a profit margin. The profit margin is usually up to 10% to reach the selling price (Chau, 2005).on the products that sell most, Marilyn Lyohir should go up on her product’s profit margin, to realize more profits for her company. Marilyn should raise the spicy Truffle Bars profit margin since they sell most, and also increase the other four products profit margin that is making profits.
The merit of a pricing method that is demand-based would allow her to look at her products that are sold most, and produce those products more instead of focusing on the product costs (Garleanu et al, 2005). Marilyn Lyohir’s demand-based pricing method would have to examine the demand schedules and decide the sales and production levels that are profitable. Additionally, Marilyn Lyohir would also establish the prices of her products by looking at the marketable and the production costs estimates at different periods of sales, and the expected sales volume sales in relationship with the prices projected. Therefore, she would have to ensure that the demand estimates were correct for her to make a selection of the goods that are in demand. Moreover, Marilyn Lyohir should get rid of the five unprofitable products, and set prices a bit higher on the goods that are making profits (Garleanu et al, 2005).
The advantage of the competition based pricing method would allow Marilyn Lyohir to choose her prices based on what her competitors in the industry price their products. She would have to assess her services and products, establish her current competitors, then decide on the prices either higher, lower or equal to the prices of the competitors based on her products advantages and disadvantages, and also how her competitors in the industry respond to her set price. This type of pricing is fast and is decided upon by the competitor’s response if the prices need to be adjusted. Moreover, Daly (2002) indicated that Marilyn Lyohir can also apply many different kinds of strategies for pricing to realize her profit goals. She should price her products according to the value of her competitors to establish the products that sells best when priced in accordance with her competitors. She could also slowly increase the price until she makes the profits desired.
(2) There are four different options that the Cowgirl Chocolates may give some considerations by pricing. The first would be to increase the profit margin involved in cost-based pricing. The second is to eliminate the products that are not demanded and increase the demanded product production. The third is to price her items equal to her competitors for her to achieve maximally and still have loyal customers. Fourth she could establish her items as premium products and then sell at a higher price to realize profits (Daly, 2002).
The recommendation that I will recommend is that Cowgirl Chocolates increase the profit margin of her products and get rid of the products that are not making any profits or are not in demand. This will ensure that the revenue can be invested in products that make profits to the proprietor, or the production cost.
Peter, J. P., & Donnelly, J. H. (2013). Marketing management: Knowledge and skills. New York: McGraw-Hill Higher Education.
Garland, N., Pedersen, L. H., Poteshman, A. M., & National Bureau of Economic Research. (2005). Demand-based option pricing. Cambridge, Mass: National Bureau of Economic Research.
Chau, R. C. (2005). The construction of a cost-based pricing model. Berkeley: University of California.