Price Insentivity

Consumer Behavior: Price Insensitivity

 

MSRP    Unit Vol.     MKT.     Change in  Change in       Calculated        Calculated Change in MKT

                                  Contrib.     Price%     Quantity         Price                 Contribution Response %

                                                                                           Elasticity   


$5.90      42.1            $84.90       10.9%        -23.5             -2.15                   -18%
$5.70      41.7            $76.60        7.5%         -24.4             -3.27                   -26%
$5.60      51.7            $100.1        5.7            -3.0               -0.54                   -3%

With price insensitivity and profit maximization in mind, I decided to experiment with prices between the ranges 0 to 10%. The above spreadsheet reflects data when MSRP was elevated higher than 5.29. As we can see, when the price is $5.60 volume sales was 51.7m with a marketing contribution of 100.1m; a slight decrease of 1.6m in volume and 3.3m in marketing contribution as compared to the initial price of $5.29. When price was augmented to $5.60, unit volume further decreased to 41.7m and marketing contribution to $76.60m. However, as the price further increased to $5.90, unit volume was 42.1; 0.4m more than when the price as set at $5.70, and marketing contribution.

On the other hand, bargain prices increased unit volume but marketing contribution was at an all time low. For example, a MSRP of $4.99 yield unit volume/sales of 63.6m, but marketing contribution was only $92.50m. A MSRP of $4.49 increased unit volume/ sales of 65.1, but a market contribution of $88.60, and finally a MSRP of $4.23 yield the most sales of 65.8m, and a marketing contribution of $85m.

Taking everything into account one can assume that consumers are price insensitive when the suggested price is $5.29, since it yield the most profit. 

"Price Elasticity"

Price Elasticity

Δ in Quantity demanded

  Δ in Price

Price Elasticity relates to consumers responsiveness of demand to modifications in price for a certain products; on the other hand price inelasticity is where the demand for a product does not increase or decrease congruently with a fall or rise in its price. After experimenting with various prices in the simulation and inputting those information on the spread sheet, it is apparent that when the price increase of $0.21 to and $0.53, will result in price elasticity as they are greater that 1%. For example, a price of $6.35 yields an elasticity of -4.06, a price of $6.08 yields an elasticity of -3.65 and a price of $5.82 yields an elasticity of -2.62.

In comparison, when the price of Allround’s product was reduced, to t$5.29, $4.76, $4.50 and $4.23, the company experienced inelasticity, of -0.79, -0.75 and -0.70. This is pretty interesting to me as I was under the assumption that if the prices of some products were lower, making them more affordable to consumers, then it would, not only increase sales, but would also increase revenue. In this exercise I see that that is not true, for example when the price of the MSRP for the product was $4.23, the only factor that increased was

Allround Brands



This week we were instructed to blog about the Market Share Simulation and were asked a few specific questions pertaining to our findings.  I chose to answer the questions: What price for Allround gives you the most profit? and  What price for Allround will maximize sales revenue?

 

After going through the simulation a few times, changing only prices, I have noticed when the price was below $5.49, the company's saw a decrease in revenue, Gross Margin, and Net Income.  For instance when I lowered the price from $5.49 to $5.43,  Allround saw a decrease in Revenue by 2.3%, Gross Margin by 2.9% and Net Income by 9.6.   However, when I included changes in Sales Force decisions, and Advertising Decisions; allocating a higher percentage for product reminder, while changing the price to $5.40, there was a 1.0% growth in Revenue, Gross Margin growth of 1.3 % and a 3.3% growth in Net Income; but this still did not maximize sales revenue and units sold.  At that point I decided to leave the changes made to Sales Force decisions, and Advertising Decisions and just change the prices. The results are determined as follows:

$4.98 Net Income of  $42.3m or 20.0%

$5.43 Net Income of  $38.3m or 18.5%

$5.38 Net Income of  $34.6m or 17.9%

$5.28 Net Income of  $30.7m or 16.4%

$5.20 Net Income of  $23.6m or 13.3%

$5.40 Net Income of  $24.4m or 13.6%

 

Per the Simulation, when MSRP is set at $4.98, Allround yield the most profit, with a Net Income of  $42.3m or 20.0%, a Gross Margin of $124.5m or 8.9% and Unit Sales of $60.6m.  It is very clear from the data provided that when the price of the product is $4.98 the company will yield a high percentage in sales revenue. 

 

 

 

 

 

 

 

 

 

 

Mother-Daughter Duo"

The U.S. Girl Scouts cookie company is a seven hundred million empire, selling an average of  200 million boxes a year, per company literature.  it is through this program that girls learn how to set specific goals, learn how to make business decision, money management, optimize people skills, and experience business ethics.  Per the article, Danielle Lei and her mother definitely applied those concepts mentioned in the previous sentence, through market segmentation.

"Market segmentation is the science of dividing an overall market into key customer subsets, or segments, whose members share similar characteristics and needs."  So when Danielle Lei and her mother decided to  set up shop in front of the medical marijuana dispensary, they were targeting the people who utilized its services.  knowing all too well that after consumption of the product,  it tends to make them "hollow" and it is right at that time they would most likely purchase her cookies.  This process worked, as we know the outcome of her sales, i.e. 117 boxes every 2 hours.   Every one is familiar with girl scout cookies (brand image) and tend to have a particular preference in the type of cookie they like.  I know for me it is the samosas and I usually purchase them every year (brand equity).