Question:

AeroScuba Inc. specializes in flippers worn on the feet by scuba divers while swimming under water. Serious divers are willing to pay more for AeroScuba products, which are well known for very high quality, safety, and performance. The companys top-shelf flippers cost $35 a pair to manufacture, and are sold direct to divers at $70 per pair. Other scuba equipment companies sell flippers in a range between $10 to $40 per pair. Each company carries 2 or 3 flipper models, usually in tiered pricing arrangements at $10 price increments.

This summer AeroScuba plans to introduce a new type of flipper. The new product resembles a traditional webbed-style flipper in design, but its construction material is revolutionary. It is made using nano-particles which attach to the oxygen in water molecules. This enables the flippers to deliver superior performance. In tests, divers using nano-flippers could swim 19% faster than with traditional flippers. Because swimming takes less effort using the new flippers, divers could stay underwater longer: one-fifth more time using the same tank of oxygen. The new material is also more flexible and fits the foot better, which minimizes blisters and sores.

The typical divers cost of buying all the equipment needed to dive is close to $2000. This includes flippers, diving mask, wet suit, oxygen tanks, and oxygen regulator. A pair of flippers usually last one year. On average, serious divers dive at least 20 times per year, and the average diving time is one and one-half hours. A standard tank of oxygen costs $45 and lasts approximately 90 minutes using traditional flippers.

The president of AeroScuba has hired you, a marketing consultant, to help set the price for a pair of the new nano-particle flippers. She mentioned that because AeroScuba was able to negotiate lower nano-particle raw material costs, the new flippers will cost $25 a pair to manufacture.

In class we talked about three primary approaches that might be used in setting the price for a new product like this. Your task is to:

(A) Identify the three major pricing approaches we discussed in class, and clearly explain how each approach leads to a different possible price for one pair of the new flippers. (You should calculate three possible actual dollar prices, one for each of the three methods.) (9 points)

(B) Briefly but clearly describe the pros and cons of each approach included in part A. (6 points)

(C) As a consultant, recommend the one specific price AeroScuba should charge for one pair of nano-particle flippers, and explain why your recommended approach is superior to the other approaches. (5 points)