### Discuss the pricing strategy for a new product

Assignment Help Strategic Management
##### Reference no: EM1329558

A meeting of senior managers at the Pringly Division has been called to discuss the pricing strategy for a new product. Part of the discussion will focus on estimating sales for the new product. Over the past years, a number of new products have failed to meet their sales targets. It appears that the company's profit for the year will be lower than budget and the main reason for this is the disappointing sales of new products.

This time a range of possible sales targets, rather than only one goal will be established and evaluated.

The first strategy is to set a selling price of \$170 with annual fixed costs at \$20,000,000. A number of managers are in favor of this strategy, as they believe it is important to reduce costs.

The second strategy is to increase spending on advertising and promotions and set a selling price of \$200. With the higher selling price the annual fixed costs would increase to \$25,000,000. The marketing department are adamant that increased emphasis on advertising and promotions is essential.

The table below shows three probable levels of customer demands. The likelihood of reaching a certain level is indicated by the estimated probability. Note that it is not necessary to create a complex model based on probabilities. However, the probability distribution provides some guidance for the mangers. Don't forget that the company has certain minimum expectations of a new product.

Estimated demand (units)

Estimated probability (units)

150,000

0.25

180,000

0.5

200,000

0.25

The estimate of variable cost per unit is \$30.

The probability of the new product achieving break-even is very important. A profit greater than \$4,000,000 is expected.

Required:

Compute break-even at each level.

Is the company likely to achieve its desired target profit of \$4,000,000 or more? Support your discussion with financial analysis.

Compute the margin of safety and explain the meaning of the number derived.

Should the company go ahead with the new product?

Would this type of analysis be useful to a large company with a wide range of products?

ROI (return on investment) and residual income are two other methods that can helpful for this type of decisions. Could they be applied in this situation? Support your answer with financial analysis.

HINT: Don't forget to use the variable costing approach for your analysis.

#### What are the implications of the trend for us medicine

Why do you feel that so many Americans are now traveling outside of the U. S. for elective medical procedures? What are the implications of this trend for U. S. medicine and

#### Make product for retailmenot for example get some women ring

Make products for Retailmenot" for example get some women/men ring, pin, notebook, calendar, electronics accessories, etc.from Alibaba.com" to sale in their website for memb

#### What strategy conclusions can you draw

Take the value added and other data for Glaxo Smith Kline and outline the value chain for the company. Develop the value system within which the company operates. What strat

#### The capital budgeting methods

What capital budgeting methods do you use (eg payback period, IRR, NPV)? Do you think these are appropriate methods for your company?

#### What type of analysis are you performing and why

When reviewing these incident summaries, what type of analysis are you performing, tactical, strategic, or administrative, and why? Were there any clues that may help establi

#### Implementation of information system project

Implementation of information system (IS) projects is central to most organisations' ongoing performance. Significant cost and schedule overruns in IS projects not only pose

#### What generic strategy does kraft foods appear

Capstone (Strategic Management - BUS 4172). What generic strategy does Kraft Foods appear to be following? How can organization that is "stuck in the middle" achieve a sustain

#### Goals and strategies at the beginning of the simulation

Outline goals and strategies at the beginning of the simulation. Discuss and reflect on the extent to which these were achieved (or changed) in the course of the simulation an