Case D-14: Glitzz: Devising a Pricing Strategy BACKGROUND Mr. Lee worked for a European company specializing in cleaning chemicals in Singapore in the 1960s. When the company folded in Singapore, its senior technicians transferred the secret formulas of the cleaning chemicals to Mr. Lee. Mr. Lee then started a trading company, Lee Fong Trading and Services, to manufacture and market cleaning chemicals for restaurants and households. The company also developed a cleaning agent for jewelry and sold this product by renting promotion booths in two large department stores in Singapore -Robinsons and C. K. Tang. The product was priced at Singapore (S) $20 and the primary promotion method was through demonstration of the effectiveness of the product by promoters. On certain occasions, the price of the product was discounted to as low as S$12. Although the department stores took a large cut of over 50 percent, sales of the product still proved to be profitable. An attempt to create brand pull by investing $1 million in media advertising and distributing the product on the shelves of other department stores and supermarkets proved ineffective. The company took part in a consumer exhibition in Hong Kong and the product proved to be successful in that exhibition, resulting in immediate sales and some trade inquiries. This resulted in sales of several batches of the product to distributors in Hong Kong, but over time, the orders stopped coming in. Good sales, however, continued to take place through the promotion booths in Robinsons and C. K. Tang. When Mr. Lee retired, he gave away the restaurant part of the business to a relative and the jewelry cleaning part of the business became defunct. His son, Lee Jr., stumbled upon a bottle of the old jewelry cleaner and decided to revive the business. GLITZZ Lee Jr. found a friend, Albert, who was interested in the business and the two men decided to put some of their savings into the new venture. First, they hired a consultant to redesign the product packaging and come up with a brand identity and concept. This resulted in the brand name "Glitzz" and a 30-ml bottle with a pump to dispense the product. The bottle had a solid black background with the word "Glitzz" in striking yellow and the words "jewelry cleaner" in smaller print in white. The packaging explains that Glitzz is specially formulated for cleaning precious stones, jewelry, and watches. Blended with the finest natural ingredients, Glitzz is gentle on the skin, noncorrosive, and nonabrasive. The consultant was paid S$5,000. A batch of the chemical was manufactured and stored in drums in a warehouse while a batch of 20,000 plastic containers with the brand identity were made to be sold. Albert estimated the cost of the content and packaging to be around $5.00 per unit. A student team from National University of Singapore Business School was engaged to carry out market and consumer research to examine the business opportunity and to assess consumer responses. SUBSTITUTE PRODUCTS AND THE COMPETITION Brilliant Restorer is a product from the United States. The manufacturer packages its product in 57-ml, gold-labeled, transparent bottles that come with a spray. The product can be used on gold, silver, and most gemstones. The product is distributed in Singapore through Gordon Max, which sells mainly diamond jewelry in boutiques and at counters in large departmental chains such as Tangs. Another product is Connoisseurs, which has three different versions of jewelry cleaners: silver jewelry cleaner, delicate jewelry cleaners (for costume jewelry and semiprecious stones like opals and pearls), and new revitalizing jewelry cleaner (for gold and platinum). They are packaged in three different colors: silver, deep red, and salmon. The products come with a deep tray and brush for application. The products are priced between S$14.00 and S$16.90 at retailers such as Asia Point Solutions. Besides household consumers, the company also sells to business customers such as shops selling luxury watches and jewelry. The company advertises in local newspapers such as The Straits Times and in online classified websites. The third competitive product, Powervescent, is sold in tablet form priced at S$6.97 for six tablets packaged in a small black toiletry kit with gold text. Each tablet can make up to 8 ounces or 227ml of liquid cleaner. The liquid solution can be used for all kinds of items including pearls. The U.S. company that makes Powervescent, Lockhart Company, is in the early stage of operation and its e-shop has not been set up. It is actively looking for distributors in India, Sri Lanka, Australia, New Zealand, and Southeast Asia. Jewelry cleaning machines are sold in the market as well. One is Connoisseur Jewelry Bath (priced at $49 ), which uses sonic waves and vibrations in water to clean jewelry items. It can be used on all stones. Another is Savco Jewelry Cleaner (S\$95), which uses high-velocity wavelengths in water to create vibrations to remove dust and dirt. The third is OSIM uSonic (\$\$108), which uses ultrasonic sound waves and water to remove dirt. Some consumers use dishwashing liquid or toothpaste to clean their jewelry. In Singapore, jewelry retailers like Goldheart and Lee Hwa also provide free jewelry cleaning services for their customers. These retailers often use special cleaning machines together with some cleaning solutions. They often offer these services for diamond rings. PRICING AND OTHER DECISIONS Lee Jr. and Albert have to decide how to price their Glitzz jewelry cleaner. From the results of a survey carried out by NUS students, it appears that very few consumers were willing to pay more than $20 for Glitzz. They also have to decide how to market the product. They could retail the product through higher-end jewelry retailers such as Lee Hwa, through costume jewelry retailers, or through department stores such as Robinsons and C. K. Tang. The distribution margin for these retailers could be negotiated and might range from 30 percent (for costume jewelry retailers) to 50 percent (department stores). They could market the product through promotion booths with payment of lump sum rental or percentage margin of sales. They have to decide whether to carry out marketing activities as well. Such activities, however, may require a budget of $12 million to produce advertising messages and to pay for media fees. Questions 1. What factors influence the pricing decisions for a product such as Glitzz? Analyze these factors and comment on the range of prices that can be set for Glitzz. 2. What price would you recommend for Glitzz? Why? 3. What pricing strategy would you propose for Glitzz? What costs and expenses would be involved? Given your recommended price (in question 2), what would be the break-even point