John Wenman, merchandising manager at the Goodmark's stationary store, is setting price for Craft fountain pens. The pen cost him $5 each . the store usual markup is 50 percent over cost, which suggest that John should set the price at $7.50. However, to make this price seem like an unusually good bargain, John begins by offering the pen at $10. he realizes that he wont sell many pens at this inflated price, but he doesn't care. John holds the price at $10 for only few days, and then cuts it to the usual level $7.50 and advertises: "Terrific bargain on craft pens. Were $10, Now only $7.50"
01. If consumers perceive Craft pens to be a good value at $10, is it fair for Goodmark's to sell the pen at that price?
02. Is John's price setting approach ethical ? Is it legal? Explain.
03. How would you have set and advertise the Crafts pen's price? Would you have used a cost plus approach or some other method? Explain.
01.If consumers perceive Craft pens to be a good value at $10, is it fair for Goodmark's to sell the pen at that price?
Yes, it is fair for the consumer, but it creates a loss for John. Let me explain. A consumer has a price point in their head for how much they ware willing to pay for a product. This is their opinion, and their sentiment. If they are willing to pay 10$, then they are willing to pay 10$, even if it is only worth 7.50$ The fairness should not even be a question here, since all consumer will have a different opinion on what is fair. Some consumers will think the price of the pen will only be fair at 5$ - the manufacturing cost. They just won't be interested in this product. Others will find value in the craftsmanship and quality of the pen, and will see value at 10$. Some might even see buy the product for 12$.
02.Is John's price setting approach ethical ? Is it legal? Explain.
This is a tricky question. It in theory is illegal, because the ...
A discussion on the ethics to John's price setting approach for Goodmark's.