Pricing Strategy

Anonymous
timer Asked: Dec 14th, 2018
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Question description

I did the Pricing Strategy for our project and the professor gave me feedback, so i need to fix it based on his feedback.

I will upload my work doc and a pdf of his feedback!

Thank you.

Pricing Strategy. Our goal is to sell around 20,000 units within the first two years in order to begin making a profit. The FoldFriend’s fixed monthly costs are laid out as R&D ($1667), Factory rent ($1000), and advertising ($500). We have an initial startup cost of 8 million with the labor costing $15 per machine and the cost of materials for each FoldFriend to be $275. We plan to start making a profit within the first two years of production by selling 20,000 units, so by the UVC being $290, we have determined that our variable costs will equate out to $5,800,000 and our annual fixed costs to be $76008 (for two years of production). From determining our costs over a two year span, our total cost will be $5,876,008 with the break-even price of $297. Given that our target demographic, upper middle-class America, is about 29.5% of the country. Based on the most recent population estimates, we conclude that there is a market potential of around 97,350,000 people. This is the total available market (TAM), and thus an overestimate. Not everyone in the total available market will want to purchase the FoldFriend. We expect the served available market (SAM) to be approximately 40,000,000 people. But unfortunately, we expect demand to be low as we roll out the FoldFriend, only to increase as the trend catches on and more people discover our product. Since our served available market caps out at 40,000,000, we expect our inaugural year to penetrate about 1% of that market, around 40,000 people. With less than a quarter of that purchasing their own unit, ~9,000 units. In our second year we expect to have a marginal increase in demand due to marketing, word of mouth, and time on market. We’re supposing that in year 2, 11,000 units will be sold. The final price for FoldFriend will be marked as $699. This price was selected on the basis that it will let the company to start making a profit within two years; we are targeting the upper middle class, so we wanted to choose a price which ended in a 99 so it would not come off as a luxury product. Likewise, our close competitor price of $980 (FoldiMate) so this gives our company an advantage to maximize our market share during the start of operation.

Tutor Answer

cherylking
School: Rice University

there really wasn't much to add. i couldn't alter the text ".......UVC being $290, we have determined that our variable costs will equate out to $5,800,000 and our annual fixed costs to be $76008 (for two years of production). From determining our costs over a two year span, our total cost will be $5,876,008 with the break-even price of $297." after changing the figure of the number of sales required. i presume these figures may need to change as well

Pricing Strategy.
Our goal is ascertain that we are able to sell around 2,000 units within the first two years in order to begin
making a profit. The reason this is the case is because the target market is the affluent and the upper class
in which case the numbers of sales made per annum cann...

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Review

Anonymous
Goes above and beyond expectations !

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