is one of the most complex decisions in marketing because it requires balancing multiple objectives, including cost/margin, positioning in the mind of the consumer, impact on channel/distribution partners, and competition. This assignment is designed to illustrate the effects of the pricing decision in these different contexts.

1. What is the role of MSRP in your pricing decision?

MSRP is the most important pricing decision. MSRP is the Manufacturers Suggested Retail Price. The MSRP is used by the manufacturer and channel to set expectations in the consumers mind. This is the price that the manufacturer believes is the value of the product. MSRP is also important because all of the discounts in PharmaSim are based on the MSRP. It is also useful to determine your competitors MSRP when setting your own.

2. For each brand in the following table, calculate the manufacturers selling price (MSP), the per unit margin, and the gross margin as a percentage of MSP.

MSRP Volume Discount Promotion Allowance Unit Cost MSP Per Unit Margin Gross Margin %

Brand X $5.29 30% 15% $1.18 $3.70 $1.97 53%

Brand Y $4.99 35% 12% $0.74 $3.24 $2.11 65%

MSP = MSRP x (1 - Volume Discount)

$5.29*(1-.30)=MSP= $3.70

$4.99*(1-.35)=MSP= $3.24

Per Unit Margin = MSP x (1 - Promotion Allowance) - Unit Cost

$3.70*(1-.15)-$1.18=Per Unit Margin=$1.965 $3.24*(1-.12)-$0.74=Per Unit Margin=$2.11

Gross Margin (%) = Per Unit Margin / MSP

$1.97/$3.70= Gross Margin = 53%

$2.11/$3.24= Gross Margin = 65%

3. For large retailers, the MSP represents their product cost, which they will mark up to set the retail price. If the retailer has a target margin of 25%, what would the retail prices be for the brands in question 2?

Retail Price Brand X Brand Y?

Retail price with Mark-up= MSP/(1 - Mark-up)

Brand X:

= $3.70/(1- .25)

= $3.70/.75

= $4.94

Brand Y:

= $3.24/(1- .25)

= $3.24/.75

= $4.32

4. Many small retailers will buy through a wholesaler instead of buying direct from the manufacturer. Given the pricing policy for Brand X in question 2, what would be the wholesalers selling price (WSP) if the wholesaler has a desired margin of 15%? If the retailer has a desired margin of 30%, what would the retail price be? What volume discount would the manufacturer have to offer for the retailer to price at MSRP?

5. Retailers may use some of the promotion allowance to offer special price promotions. If the retailer uses one-third of the allowance for price promotions, what would the average retail price be for Brand X in question 3?