Marilyn Lysohir, an internationally celebrated ceramic artist, started Cowgirl Chocolates to provide some funding support for a yearly published arts magazine, High Ground, that she and her husband, Ross Coates, started in 1995. Her love of chocolates and hot and spicy foods spurred the idea of making hot and spicy chocolates to be sold in creative, artistic tins and packaging, which she labeled Cowgirl Chocolates. Her small business, begun in 1997, had won a number of awards in fiery food competitions. While Cowgirl Chocolates had grown steadily over its four years in business, it still had only generated $30,000 in sales revenue in 2000, which was not enough to cover expenses. Marilyn had drained much of her personal savings to keep Cowgirl Chocolates in business. Her cash accounting methods and record keeping were not very sophisticated although she seemed to have a good sense of her costs in production and raw materials and the packaging. However, Marilyn had taken a shotgun approach to most of her marketing efforts and had tried a number of activities to increase product demand. She allowed herself to make one risky financial move each year in her pursuit of profitability and increased sales. She had just made her one risky move for year 2001: She had taken out a full-page ad in Chile Pepper magazine for $3,000.
1. The suggested retail price and wholesale prices of Cowgirl Chocolates products are displayed in Exhibit 2(Attached), along with the product and packaging costs. Based on this information, discuss the relative merits of using a cost-based, demand-based, and competition-based pricing method.
2. What are four (4) options that Cowgirl Chocolates may consider as far as pricing? What would you recommend?
The merit of using cost-based pricing would allow Marilyn Lysohir to determine if she can compete in the low price market or the premium price market. If her products can be placed in the premium price market, then Marilyn could go up in the price of her products to make more of a profit. Marilyn can also include the $3,000 advertisement cost to Chile Pepper Magazine to the cost of the products. The cost based pricing method takes all cost (fixed and variable) associated with the product and add a profit margin (usually up to 10%) to arrive at the selling price. Marilyn should go up on the profit margin of her products that sell the most to achieve more of a profit on her company. She should increase the profit margin on the Spicy Chocolate Truffle Bars since they sell the most and increase the profit margin of the other four products that ...
Pricing method marketing are examined.