Problem 13.41 (Fixing retail prices for a new product.) AB Ltd. is a well-established company producing high quality technically advanced electronic equipment. In an endeavour to diversify, it has identified opportunities in the hi-fi industry. After some preliminary market research it has decided to market a new product that incorporates some of the most advanced Techniques available together with a very distinctive design. AB Ltd.'s special skill is that it can apply these techniques economically to medium-sized quantities and offer a product of excellent design with an advanced degree of technology. Category Technology Design Quantities Number Retail selling sold per annum of models price range (Rs.) 1 Good Standard 22,000 4 600 - 1,050 2 Good Good 6,000 5 1,450 - 1,900 3 Advanced Good 750 2 2,500 - 3,000 The product will be distributed through a range of specialist retailers who have undertaken not to discount prices. Their commission will be 25% on retail selling price. AB Ltd has also acquired the rights to sell the product under the name of a prestigious hi-fi manufacturer who does not offer this type of product. For this it will pay a royalty of 5% of the retail selling price. AB Ltd. assesses that its direct cost per product will be Rs. 670 (excluding the royalty and the retailers commission) and the annual fixed costs relevant to project are budgeted at: Production Rs. 2,50,000 Research and development 50,000 Marketing 2,00,000 Finance and administration 50,000 You are required, from the data provided and making such assumptions as you consider reasonable , (a) to suggest a range of retail prices (i.e. to the consumer) from which AB Ltd. should choose the eventual price for its product. Explain briefly why you have suggested that range of prices; (b) to select one particular price from the range in (a) above that you would recommend AB Ltd. to choose. Explain, with any relevant calculations, why you have recommended that price. Mention any assumptions that you have made. Note: The prices suggested should be rounded to the nearest Rs. 100. Ignore tax (or sales taxes) and inflation. Problem 13.41 (Fixing retail prices for a new product.) AB Ltd. is a well-established company producing high quality technically advanced electronic equipment. In an endeavour to diversify, it has identified opportunities in the hi-fi industry. After some preliminary market research it has decided to market a new product that incorporates some of the most advanced Techniques available together with a very distinctive design. AB Ltd.'s special skill is that it can apply these techniques economically to medium-sized quantities and offer a product of excellent design with an advanced degree of technology. Category Technology Design Quantities Number Retail selling sold per annum of models price range (Rs.) 1 Good Standard 22,000 4 600 - 1,050 2 Good Good 6,000 5 1,450 - 1,900 3 Advanced Good 750 2 2,500 - 3,000 The product will be distributed through a range of specialist retailers who have undertaken not to discount prices. Their commission will be 25% on retail selling price. AB Ltd has also acquired the rights to sell the product under the name of a prestigious hi-fi manufacturer who does not offer this type of product. For this it will pay a royalty of 5% of the retail selling price. AB Ltd. assesses that its direct cost per product will be Rs. 670 (excluding the royalty and the retailers commission) and the annual fixed costs relevant to project are budgeted at: Production Rs. 2,50,000 Research and development 50,000 Marketing 2,00,000 Finance and administration 50,000 You are required, from the data provided and making such assumptions as you consider reasonable , (a) to suggest a range of retail prices (i.e. to the consumer) from which AB Ltd. should choose the eventual price for its product. Explain briefly why you have suggested that range of prices; (b) to select one particular price from the range in (a) above that you would recommend AB Ltd. to choose. Explain, with any relevant calculations, why you have recommended that price. Mention any assumptions that you have made. Note: The prices suggested should be rounded to the nearest Rs. 100. Ignore tax (or sales taxes) and inflation
