You work for a perfume company that is looking to implement a consistent pricing strategy across all of its channels. Recent research conducted by the marketing department has revealed that consumers are not only likely to check prices online when purchasing in stores, but due to inconsistent pricing across different channels, consumers have been unable to determine the exact position of the product which has led to confusion. Based on this information the CMO has insisted on the company implementing an omnichannel pricing strategy that maintains a consistent pricing approach across all channels.

In this multibillion$-$dollar industry, there are several channels that drive the majority of the consumer spend. These are Department stores, Specialty stores, Discount stores, Drug stores, Supercenters and Online. The share of unit sales in each of these channels for the fragrance category is represented in the attached excel file. Each of these channels has a different type of price sensitivity which will result in different levels of distribution in each channel, and therefore different levels of sales resulting from this distribution.

Your fixed costs are fairly consistent as your company operates a large plant with a great amount of capacity. For the sake of this exercise no changes to fixed costs are possible in the near future so all decisions must be made with your fixed costs remaining as is$.$

Your variable costs are also fairly consistent for the category of your product. For purpose of this

exercise, all products will be discussed in equivalized volume of $100$ mL units. Each bottle of perfume, at this average size, has $$6\mathrm{.}25$ of variable cost to produce.

There are additional costs to factor in$.$ Each channel requires a specific margin off the selling price $($which is the factor that will allow us to control consistent pricing$)$ and due to the difference in volume purchasing along with value added. For example, department stores $(25\%)$ and specialty stores $(30\%)$ require relatively large margins compared with supercenters $(8\%)$ and discount stores $(10\%).$ This means that a product selling for $$10$ to the consumer would be purchased by a department store for $$7\mathrm{.}50$ giving them $$2\mathrm{.}50$ margin on each sale but a discount store would have to purchase that same product for $$9\mathrm{.}00$ giving them only a $$1\mathrm{.}00$ margin. You are aware that it is legal to offer different prices to different classes of retailers and your company seems to be aligned with driving more purchases through higher end retailers to maintain the image of the product. For simplicity sake, we will assume a consistent cost of $$2$ per unit for the intermediary$/$distributor used in each channel. This give us a total laid in cost of $$8\mathrm{.}25$ per unit. The difference between that and your price to retailer determines the margin in each channel.

Based on all this, you have created an excel file to help determine pricing $($to retailer$)$ and volume by channel working backwards from a consistent $$suggested price$$ to the consumer per your CMO$$s omnichannel pricing strategy. This file allows the entry of a $$new$$ price in cell M$4$ which will then calculate back the new price to each retail channel based on margin requirements $($cells L$18$ L$23).$ The new price will also drive the calculation of the new volume in each channel using the elasticity from each channel $($I$18$ I$23)$ to calculate $\%$ change in volume $($J$18$ J$23)$ to get the predicted volume by channel $($K$18$ K$23).$ All of this will drive your sales to retail and profit calcuations. Using the information provided in the excel file, determine three price points in this business. The most profitable price point, the price point that maximizes dollar sales to retail, and the price point that maximizes unit sales. You must include all $3$ price points $($maximized profit, maximized sales to retail, and maximizes unit sales$)$ in order to receive credit. For each of the price points you must also provide a brief description to your CMO$/$executive team that provides an overall assessment of what each of these prices will mean to the business. I would expect these assessments to provide detail of channel trends and image implications to the brand. There is also an expectation that you are making sound business recommendations. Stating that selling the product at $$1$ will maximize unit sales may be accurate but would also bankrupt the company.

With all three of your price recommendations make sure you are not just blindly looking at the numbers but thinking about it in the context of a real business.

You must also provide a recommendation on which price to implement going forward. Hint: stating that you would pick the most profitable price point because it is simply the most profitable is ignoring many other factors such as market share and sales growth and an answer like this will result in no points for this portion of the exercise.