Pricing is one of the key areas in marketing included in the 4 ‘p’s market acronym. In deciding on the best price to settle down, managers must weigh options and make a decision geared towards results and not circumstances (Thomas et al, 2011). Beauregard was dealing with a customer base well aware of pricing information and clearly perceived their effects, which ultimately affected company`s profits. The company should consider the management of price changes to be a key issue, as opposed to pure reactionary approach based on market changes such as costs and internal pursuits.
Beauregard sales managers and controllers chose to look at the best price from a market point of view, and from this perspective, the best price should be the one that lies closest to the amount that consumers are willing to pay at maximum. Economically, this is a well balanced price that transfers to the producer the biggest share of consumer surplus. However, in the case of Triaxx-30 the amount consumers are willing to pay of $3 transfers no surplus at all to the company while $4 seems to transfer an insufficient amount. Consumers view the price to be slightly above the maximum level that they are willing to pay.
In deciding on the best price, Beauregard will have to focus not only past the short-range effects of the raised price, but also the long term. Considerations should not be restricted to Triaxx-30 fabric alone, but also whether it has effect on other products. Computations indicate that at the new price of $4 revenue stands at $300000 given an average actual sale volume of 75000 yards. At the same volume, the estimated total cost of 75000 yards amounts to $29,700, revenue therefore is barely $300 on average the profit per yard is, therefore, $0.04. On the other hand, before the increase the average actual sales were at 125,976 yards yielding sales of $377,928. At that sales volume the total cost was $413,750, and it is clear that the product Traxx-30 was making a loss per yard of approximately $1.09. The important consideration in this case is whether lowering the price of Triaxx-30 back to the initial $3 price has any tangible benefits in terms of results.
Beauregard dropped in sales from a 125, 976 units to 75,700, representing a market share loss of above 30%. The decision here should be based on whether it is necessary to regain this lost share. Its necessity would only be appropriate if it has led to a tangible loss in revenue; clearly this is not the case.
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In conclusion, it has been noted that a good price should satisfy three needs for a company. First, it should advance the targets of a company in a financial sense. On this basis, the price of $4 is better suited to drive the achievement of this purpose, because at $3 the company had no contribution per unit, which as a result dragged down the overall profit. Secondly, the price should be sensitive to the market situation by assessing the customer’s willingness to purchase at the new price. On average, the new price of $4 dollars did not lead to so big loss of market share also the retainer of the share had no consequence to the profits of the company in any positive way. Lastly, a good price also should cement the position of a product in the market and assure its survival. On this basis the new price threatened the positioning through loss of a market share, however, the management of Beauregard can live with such a situation, if this does not threaten the position of other products.
Additionally, Calloway and Beat have alternatives that can be put in place to counter any further loss of market share without compromising overall company profits. This would entail a better understanding of consumer psychology, since their consumers have only one alternative to turn to, they will have to package their product as being of better quality than the competitors’, this will reduce the price sensitivity effect. They also have to work on the reputation of Triaxx-30 and improve its standing against the competitors’.
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