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Hypothetical Case: Pricing and Promotional Strategies for WebKidCare

WebKidCare is purchasing branded products and unbranded products that its buyers feel are of high enough quality for their customers. WebKidCare is also planning to develop and brand its own products to sell next to the other established brands.

Cost of Goods

The price from its vendors includes customs and duties charges. On its own line of products, however, which it will manufacture in the Far East and Eastern Europe, it will be responsible for the customs and duties charges, as well as the freight.

Due to the size and weight of the products, freight will be calculated separately for each delivery. No supplier includes this cost in its prices. Research indicates that, on average, freight charges will equal 5 percent of retail sales price.

Initial Mark-Up

Mark-ups in this industry tend to range from 50 percent to 80 percent. Products that require some form of professional installation are usually marked up more with an offer of "free installation" from the retailer.

WebKidCare, however, decides to separate this installation cost and bill it separately to the purchaser. Therefore, the buyer aims for an IMU of 60 percent across the board on all items. On products requiring installation, WebKidCare will arrange with a local subcontractor to perform the work and invoice the customer directly. Customers will also have the option of arranging installation on their own if they prefer.

Promotional Strategy

WebKidCare management does not carry fashion products, and its sales are not driven by impulse buying. Therefore, promotional sales activity is neither required nor desired. Instead, WebKidCare management will set a price on its product offerings and stick to it.

If a particular item is leaving the assortment, WebKidCare's preference will be to liquidate stock via returns to vendor or reselling to other outlets. As a last resource, leftover stock will be donated to non-profit facilities that cater to low-income families.

Competitor Prices

WebKidCare management keeps tabs on the offerings from its competitors, requesting price lists and catalogs from them as necessary. Its goal is to offer the best price in the market, so if a competitor publishes a lower price on an identical (or similar) item, it will change its price to beat the competitor's price. This applies only to everyday competitor prices and does not apply if the competitor is lowering its price for a short-term sale period.

Retail Strategy

The key points of the retail strategy that relate the pricing and promotional strategy are as follows:

  • Emphasis on best price available on a quality product.

  • No promotional activity reinforces the fact that the original retail price is already the "best deal available."

  • Donation of "leftover stock" to needy organizations (as opposed to clearance sales) reinforces commitment to community and its integrity.

Pricing and Promotional Checklist

  • Evaluate all elements of price: COGs, IMU, promotional strategy, competitor prices, and retail strategy.

  • Consider all contributors to COGs, including purchase price, country of origin, and freight.

  • Research IMU for your industry and/or products.

  • Shop competition to gain an overview understanding of where your prices are in the marketplace.

  • Review your retail strategy to be sure that your prices are communicating a message that is aligned with your strategy.

  • Select a promotional strategy that is in tune with your retail strategy and your product line.

  • Are you an "Everyday Low Price" operation?

  • Do you plan to "Hi-Low" your assortment?

  • Will items be put on "Clearance"?

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Last Update: November 17, 2020