Question

Pricing and Margin Pricing is one of the most complex decisions in marketing because it requires balancing multina objectives, including cost/margin, positioning in the mind of the consumer, impact on channel/distribution partners, and competition. This assignment is designed to illustrate the effects of the pricing decision in these different contexts. What is the role of MSRP in your pricing decision? For each brand in the following table, calculate the manufacturer's selling price (MSP), the per unit margin, and the gross margin as a percentage of MSP. Volume Promotion Unit Per Unit Gross Margin MSRP Discount Allowance Cost MSP Margin Brand X $5.29 30% 15% $1.18 Brand Y $4.99 35% 12% $0.74 For large retailers, the MSP represents their product cost, which they will mark up to set the retail price. If the retailer has a target margin of 25%, what would the retail prices be for the brands in question 2? Retail Price Brand X Brand Y

Answer 1

Answer (1):

Role of MSRP in your pricing decision:

MSRP is manufacturer's suggested retail price. It is the recommended sales price for retailers/dealers. Manufacturer's set their price (MSP) after making necessary adjustment to MSRP for margins/discounts agreed with retailers/dealers. For example in automobiles:

If say MSRP of a vehicle is $6000 and discount/margin agreed for dealers is say 10%, then MSP is (6000 - 6000 * 10% =) $5,400.

Answer 2:

MSRP MSP Per unit Margin Gross Margin % Volume Discount 30% 35% Promotion Allowance 15% 12% Units cost $1.18 $0.74 Brand X Brand Y $5.29 $4.99 $3.70 $3.24 $2.52 $2.50 68.13% 77.19%

The above excel with 'show formula' is as below:

D E MSRP Units cost MSP Per unit Margin Gross Margin % 1 2 Brand X 5.29 3 Brand Y 4.99 4 Volume | Discount 0.3 0.35 Promotion Allowance 0.15 0.12 1.18 0.74 =B2-B2*C2 =B3-B3*C3 =F2-E2 =F3-E3 =G2/F2 =G3/F3

Answer (3):

Given:

Target margin of retailer = 25%

Retail price will be = MSP / (1 - 25%)

The same is calculated and given below:

Brand X Brand Y Brand Retail Price $4.94 $4.32 $4.99