Reference no: EM131245275

https://quizlet.com/17399415/marketing-final-ch-21-flash-cards/

https://www.marketingmo.com/strategic-planning/how-to-develop-a-pricing-strategy/

1. You are currently working for a company called Pierogi's and More. This company specializes in authentic ethnic European style foods. Product offering includes Blintzes, Golabki, Kaputsa, and Kielbasa, but the main item in the product line is the traditional Pierogi. A pierogi is best described as a piece of pastry or dough that is stuffed with various ingredients. Going back to the tradition of the product, the original pierogis were normally stuffed with mashed potatoes, spinach, sauerkraut and/or variety of cheeses. The pierogi was the ‘worker' or ‘laborers' meal, so consequently did not include meats as they were not affordable but when available, some meats would be an ingredient in the pierogi. These meat-based pierogis were considered a delicacy and used mainly for special occasions.

The pricing strategy has been quality/value-priced based. The company has been trying to develop a reputation and perspective of a high quality item. The standard price for one dozen pierogis has been $5.99 per dozen. This price is a little higher than the prices of the main competitors. Depending upon the ingredients, the competitors' prices range from $2.79 to $5.39 per dozen in most grocery stores. Based on the current production costs and overheads, there is some room to manipulate price, but there is a desire to make sure that the pricing strategy reflects the quality of the product. While the company has completed no in-depth research or analysis, management believes they offer the highest quality pierogi on the market and believes their price should reflect as much. A breakdown of the cost structure revealed total variable costs of $1.87/dozen and total fixed costs of $0.20/dozen.

Pierogi's and More is starting to enter a new phase of distribution. To this point, sales were through the current company store front or direct sales to a few local markets. The company is now branching into specialty or higher end grocery retail. This change will require the inclusion of a wholesaler into the marketing channel. Studies have shown that most grocery wholesalers maintain a 30 percent mark-up while the retailer maintains a 25 percent mark-up. Pierogi's and More desires to maintain their current price point at the retail level when they enter this new distribution channel. The company would also like to maintain a 45 percent mark-up.

Based upon the above information, please respond to the following:

a: Using the target price of $5.99, determine the price point the company should use for the wholesaler. Does this price point allow the company to maintain its desired 45 percent mark-up? If you know that the consumer price elasticity for this product group is 0.80, what would be your concerns when establishing the price?

The firm considers that the product passes three stages, from company, wholesaler and then to retailer.

Retailer mark up=25% and Target = $5.99

For the wholesaler the cost must have been

100/125*5.99= $4.79

$4.79 represents the 30% mark up for whole seller

Therefore, the price used by company for wholesalers

Will be given by 100/130*4.79= $3.68

This price allows the company to maintain its mark up, according to total cost given,

2.07*1.45= $3.00

Given the customers' price elasticity of 0.80, I will maintain price at my preferred point as changes in one unit of price is not enough to change one unit change in demand.

b: Do you believe the company should continue to use a value-based pricing mechanism? Why or why not? If you know the customer group has a high level of price sensitivity, what is your concern with this pricing scenario?

c: In addition to the pricing decisions, Pierogi's and More does not have a promotional campaign designed for this new marketing channel. Prepare an appropriate marketing campaign to enter the new market. Be specific in your response. Does brand play a role in this process?

d: Pierogi's and more has the opportunity to distribute the product through the specialty store in both a frozen offering and a fresh offering in the deli/meat counter. Should their pricing structure be the same or different for the two products? How would this impact other aspects of the promotional mix? Does brand play any roll in this process?

e: Create a slogan for the business, less than 20 words, which captures the essence of the brand. Explain your rationale for the slogan. Then show how it should be incorporated within the brand image and integrated marketing communication plan.