Application Exercise

Pricing is one of the most difficult marketing-mix decisions. In this case, the decision is complicated because TBSL wants to increase distribution. Similarly to most startups, TBSL has discovered that it can be very difficult to refuse a customer, especially a potentially large customer, even when it puts pressure on profits and could have repercussions for the brand in the long run. So, given their difficulty, we will enlist your help. Your task is to make a pricing decision based on some additional data.

1.Assume Target sells a box of four TBSL bars for $4.99 and has a 20% margin (meaning they keep 20% of the $4.99 per box). a.What is the price Target pays for each box to TBSL? b.How much does Target make for each box sold (this is the unit contribution for Target)?

2.What is the markup for Target for each bar box? For each bar?

3.If it costs TBSL $.55 for each bar in variable costs (all variable costs included), how much does TBSL make per bar in unit contribution (remember, Unit Contribution = Price-Variable Cost/Unit).

4.What is TBSL's contribution margin? What is TBSL's markup? 5.If TBSL has $25,000 in fixed costs, how many boxes through Target do they need to sell to break even? (See formula in chapter material.)