MG 454 Marketing Management

Pricing Assignment

Dr. Drea

Your company manufactures numerous non-paper office supplies, including ink pens for sale to major retailers. You are currently selling 1,000 cases a month, at an average price of $32/case. Your variable costs per case are $14.00, and your fixed costs are $180,000 per year. (I.e., you are making $3/case in profit on current orders). As a sales representative, you are paid on a commission of $0.50 per case of pens (this is included in the variable cost of $14/case.)

You have six new large customers (Customers A-F) who are interested in purchasing pens from you. Each customer is looking for a single supplier for pens, and you expect there will be bids from Papermate, Bic and several smaller companies like yours (these are the other student groups.) Papermate and Bic are expected to submit bids at around $30/case, though that could vary depending on how badly they want the business. Your product is an unknown brand name (as are your small competitors), though Bic and Papermate are household names and may be more attractive if prices are equal. The quality of your pens and your competitors are the same everyone uses basically the same processes for manufacturing. (In other words, you cant justify charging a higher price because your pens are better they arent.)

If you secure new customers, your company will have to add additional employees (a second shift) but not additional equipment. Your fixed costs for adding a second shift are $60,000 per year. Your maximum capacity for this level of fixed cost is 1,000 additional cases per month beyond what you are already producing. If you sell more than an extra 1,000 cases per month, you will need to hire a third shift of workers and add $75,000 of additional fixed costs. (Your capacity does not allow you to sell more than 1,900 cases beyond the 1,000 you are already selling, regardless of fixed costs.)

• Customer A needs 500 cases per month.
• Customer B needs 750 cases per month.
• Customer C needs 1000 cases per month
• Customer D needs 500 cases per month
• Customer E needs 800 cases per month
• Customer F needs 600 cases per month

Your task is to determine a price for the pens. Your company would like the business and you would like the commission, but your company wants the business only if it makes financial sense to add this. In addition, you dont want to add a shift of individuals only to lay them off in a year (and the unemployment compensation issues) if you are unable to retain the business. You will submit your bid in writing. You can pursue more than one customer simultaneously; however, you cant take on more than 1,900 cases. Dont bid on three customers if you do and you get all three, you cant reject one accepted bid without ruining your companys name (and you will be fired).

Your supervisor would like to get the additional business, but it has to make financial sense. Were currently making $36,000/year based on $384,000 annual sales from our pens a return of around 9.4%. I dont mind going below that in order to generate more total dollars of profits, but Id like to see at least a return of 5% on the additional pens sold, said the supervisor. Thinking about it a little more, the supervisor added Bottom line - get us some more pen business the most important thing is our total dollars of profit.

Submit a bid(s) in writing that indicates the following:

PRICE/QUANTITY BID

Sales Representative Name (your name): Bobby Carr

Date Bid Was Submitted: 4/14/2020

Bid Submitted to Which Customer[1] (A, B, etc.): ________________________________________________

If Bidding on Other Customers, Please List[2]: ________________________________________________

Your Bid Price per Case: ________________________________________________

Monthly Quantity to be Delivered at This Price: _________________________________________________

If the Bid Is Accepted, How Much Annual Profit Will Your Company Make at this Price? ______________________

If the Bid Is Accepted, What Will Your Annual Commission Be? __________________________________________

How did you determine your bid price? (show work or attach calculations)

[1] If you are bidding for the business of more than one customer, submit one form for each customer.

[2] If submitting more than one bid, staple your bids together.