1. The hardest decision in any business venture is the pricing decision. Pricing products is tricky, it depends on various factors, and it should ideally lead to profits. In order to set the correct price, various pricing strategies should be analyzed, and product elasticity should be calculated. You will help the company Compare and contrast various pricing strategies and their effects on sales and profits.

Smart Food Company is well-established retailer in the grocery industry. The company specializes in distributing nuts, and dried fruits. Recently the company incorporated advanced technologies in its supply chain. So instead of offering normal delivery the company now offers, digitally tracked delivery, with accuracy up to 10 meters. The company also, provides vital information about its products. For example, if you order Walnuts from the company, you get an individual code, which shows the Walnuts origin and the amount of nutrients in each batch. The code also enables you to see the specific farm from which the Walnuts originate. These features are not available at competing companies.

You are working as a marketing manager with “Smart Food Company”, and you are assigned the task of finding the most appropriate pricing strategy, to maximize profits.

 The current market price for “Smart Food Company” 1 lb. pack of nuts is $10

Direct costs: $5.5 per 1 lb. pack.

Overhead and indirect costs: $ 15,000,000.

The company expects to sell an average of 60,000 lbs. on daily basis.

This is a normal good.

A change of 20% in price will increase/decrease revenues by 5%.

Competitors on average charge $8.5 for a similar product.

The company’s product is a new development, which is considered a premium product.

You are thinking about the following pricing strategies:

Price Skimming

Psychological pricing

(example $9.9 instead of $10.0)

Bundle pricing

A pricing strategy of your choice

You are required to analyze the situation and compare and contrast the above-mentioned pricing strategies. Also, analyze each strategy’s effect on sales and profits. Finally, you have to select the most appropriate pricing strategy.

(Note: you have to make assumptions in order to calculate the revenues and profits under each strategy. Do not forget to state your assumptions clearly)

Correct calculation of expected revenues and profits under each situation