Narnia
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Attached is the case, please help with the question.
1. (Do not do any computations) Comment on Narnia's pricing strategy
2. Assume competitors' prices prevail in the market. What should Narnia'a strategy be?
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Solution Summary
The solution has the Narnia case relating to its pricing strategy.
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1. The pricing strategy followed by Narnia was not correct. Any pricing strategy should maximize profits and build up market share. In this case, the problem is with the allocation of $100 mn of other costs. As we can see the other costs are a very high proportion of the total cost of a product. A better method would have been to break down the other costs into its components and then transfer them to the product cost using bases which were more appropriate. The pricing strategy followed by Narnia would not have led to any loss while it was the sole supplier, since it has fixed the profit margin at 10%. Even if the other costs ...
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