Brand Retail Price COMPETITIVE MARKET DATA Variety Consumer Distribution of Packages Perception & availability Manufacturer Market Share ($/wash) and sizes Cascade $0.24 Many Excellent Every store P&G 20.1% Finish $0.22 Many Excellent Every Store Reckitt 29.9% Palmolive $0.21 Selective Very Good Most Store Colgate 20.2% Sunlight $0.20 Selective Good Limited Henkel 8.0% Dawn $0.19 Selective Very Good Limited P&G 7.8% Others $0.17 Selective Good Limited Several 8.4% Pvt label $0.15 Limited Works Store Specific Several 5.6% Share Weighted Average Retail Price is $0.21 per wash. It is estimated that Cana- dians use dishwasher 1,860 millions times in a year. Because of the "convenience" of this product, consumers are relatively price insen- sitive. Each $0.01 increase in the average price decreases total annual Canadian demand by only 50 million uses. Although there are no doubts in minds of consumers that GADD prod- ucts are exceptional, shareholders of company are looking "higher dividends" Pricing Decision With Competition 2 or better pay-offs for their investments. Recently hired manager for Cascade along with his team is asked to provide better returns by raising or lower- ing prices. Previous manager noted that consumer price elasticity among competing brands was generally low and estimated to be about -1.5. This elasticity is a measure of % change in brand share, when there is 1% change in brand price. Market data have been collected (see the table "Competitive Market Data"). The product, advertising, and distribution component of the mar- keting plan have been tentatively set and are shown in the table "Product Data". Price and temporary price promotions are only remaining considera- tion. Product Data: GADD Dish Detergent Retail Margin 20% Wholesale Margin 10% GADD Costs -Raw Materials per pack $0.054 - Packaging per pack $0.048 - Direct Labour per pack $0.026 - Production O/H (yr) $400,000 - Administrative Expenses. $440,000 - Advertising and Social Media $1,200,000 - Coupon and Promotion $1,200,000 Brand Share wash Cascade 0.201 24.0 Finish 0.299 22.0 Price (cents price of 40 per wash) Manufacturer 9.60 Procter & Gamble 8.80 Reckitt Palmolive 0.202 21.0 8.40 Colgate Palmolive Sunlight Dawn Others Pvt Label 0.080 20.0 8.00 Henkel 0.078 19.0 7.60 Procter & Gamble 0.084 17.0 6.80 Several 0.056 15.0 6.00 Several 1.000 21.0 8.4 Use $ amt Total Market (in million washes) 1860.0 390.4884 1860000000 Category Elasticity Brand Elasticity Price Parameter -0.564 0.000 Retail Margin 0.20 Wholesale Margin 0.10 Raw materials/wash 0.054 2.16 Packaging / Wash 0.048 1.92 Direct labour / wash 0.026 1.04 Variable cost 0.128 5.12 Fixed costs Overhead $400,000 Admin $440,000 Advertising $1,200,000 Couponing and Promotion $1,200,000 Total Fixed cost $3,240,000 Brand Cascade Finish Palmolive Sunlight Dawn Others Pvt Label Current Industry volume % change in price % change in volume Current situation Price 10% Price Increase 0.201 24 24 0.17085 26.4 0.299 22 0.309 22 0.202 21 0.212 21 0.08 20 0.09 20 0.078 19 0.078 19 0.084 17 0.084 17 0.056 15 0.056 15 1 21.0 0.99985 21.3 1860000000 Retail Price 9.60 10.56 Retail Margin 1.92 2.11 Wholesale price 7.68 8.45 Wholesale Margin 0.77 0.84 Manufacturer's selling price 6.91 7.60 Units Sold (Quantity sold) 373.86 315.118 Revenue (in millions) $64.60 $59.90 Costs of Goods sold $47.85 $40.34 Gross profit Fixed costs Operating profit $16.75 $19.56 $3.24 $3.24 $13.51 $16.32 1844412941.8257 0.0148490598974 -0.0083801388034 $1 Coupon $1 Coupon No Promotion Promotion Promotion $1 Promotion 2 $2 Promotion 2 Weeks Weeks Retail Price 9.60 9.60 9.60 9.60 9.60 Retail Margin 1.92 1.92 1.92 1.92 1.92 Wholesale price 7.68 7.68 7.68 7.68 7.68 Wholesale Margin 0.768 0.768 0.768 0.768 0.768 Manufacturer selling price 6.91 6.91 6.91 6.91 6.91 Net manuf Price 5.91 4.91 5.91 4.91 Resulting annual price 6.812 6.612 6.87738461538 6.84276923077 Price change -0.10 -0.30 -0.03 -0.07 % change in Quantity 5.91% 20.11% 1.97% 4.02% Unit cost 5.12 Question 1 (2 points) It is explained that each $0.01 increase in the average price decreases total annual Canadian demand by only 50 million uses. Calculate consumer price elasticity [Consumer price elasticity is percent change in sales as result of 1% increase in price.] Is this number positive, zero or negative? Case also provides price elasticity of -1.5 for competing brands. Explain this elasticity compared to one that you calculated. Question 2 (4 points) GADD is considering to raising or lowering price by 10% for its new and improved product. Based on your analysis, would you recommend that GADD keep price same, raise by 10% or lower by 10%? What market share and profitability do you estimate for the new product at different prices? Justify your choice by explaining your assumptions. Question 3 (4 points) GADD is interested in evaluating several consumer promotions. Analyst has suggested temporary price reduction where by 90% stores would reduce retail price by $1 or $2 for package containing 40 tabs. Price reduction would last for two weeks only. Another option is to offer coupons for same package to consumers of value of $1 or $2. All these promotions are paid by manufacturer (GADD). What sales volume does it need to maintain to keep profitability at same level, compare to offering no coupon? (Hint: Typical coupon redemption rate is 10% for $1 coupons or 15% for $2 coupons.)