Best Buy considers Play Station company one of its most important suppliers of gaming hardware. With Play Station's high brand equity, Best Buy has to make sure that they are available in its stores in order to satisfy its customers. In fact, Best Buy knows from its previous research that Play Station can also help keep current customers loyal to its stores because they buy lots of high-margin games.

Given its high brand equity, Play Station company thinks that it can marginally increase the price for its Play Station without losing market share, selling 200,000 units. To produce and market those 200,000 Play Stations, Play Station company expects to incur $20,000 in advertising and sales promotion expenses and $50,000 in compensation for a sales representative to build relationships with electronics stores. To manufacture each Play Station, it costs the Play Station company $75 for material and $15 for packaging. Play Station company currently sells Play Station to Best Buy at $180 each.      

 

Show step-by-step solutions! NO EXCEL or TABLE Solutions!

 

A. What price should the Play Station company charge Best Buy if Play Station company's new target profit margin is 75%?

B. Play Station's current retail price at Best Buy is $360. Given the price change you just calculated for the Play Station company, Best Buy's manager considers changing the retail price for Play Station. One way to do it is to apply the same percentage retail margin that they employed before the new price from Play Station company. With this pricing strategy, what will be the new retail price for Play Station?