1) What factors influence the pricing decisions for a product such as

Glitzz? Analyze these factors and comment on the range of prices

that can be set for Glittz.
One factor that will influence the pricing decision for Glitzz would be their
profits. Glitzz has to rely on distribution channels such as costume jewelry
retailers, departmental stores and promotion booths to retail the product.
These channels require distribution margins of approximately 30 to 50
percent. Without these channels of distributions, Glitzz will be cut off from
their customers unless they decide to open their own chain of retail outlets,
which is unadvisable for a new company due to the increase in fixed costs.
Hence Glitzz will have to ensure that their distributors are satisfied and
willing to retail their products. Glitzz will hence have to increase the price
of their goods to account for the costs of engaging distribution channels to
market her product.
Also, the Glitzzs selling price will also be constrained by the type of
competitive market in which it competes. In this case, Glitzz is considered
to be competing in a monopolistic competition, where there are many
sellers who engage in both price and non-price competition. In the case of
Glitzz, there are direct substitutes offering the same jewelry cleaning
products in bottles that come with a spray such as Brilliant Restorer. Other
competitors are Connoisseurs, whose products come with a deep tray and
brush for application and Powervescent who provides the same cleaning
reagent in a powdered form. Other non-direct substitutes include jewelry
cleaning machines, which are priced at a higher range. In a monopolistic
competition, Glitzz is unable to set prices for their products at a high range
due to the availability of close substitutes. Hence, their prices are limited to
a lower range, as compared to oligopoly firms who tend to follow the price
of a price leader, or a pure monopolistic firm who is free to set at any price
due to a lack of direct substitutes.
Lastly, knowing what specific prices Glitzzs present and potential
competitors are charging now as well as in the near future will be
important in influencing her pricing decisions. The price ranges of existing
competitors are mostly above $10 per unit. Glitz may choose to lower their
prices so as to lure customers from existing firms into changing brands. As
Glitzz is a new brand in the market, customers may be willing to give the
brand a try due to its lower price. Therefore, customers who previously
purchased from the other companies may choose to purchase Glitzzs
cleaning reagent instead. This allows them to immediately gain a larger
portion of the total market share.

2) What price would you recommend for Glitzz?

To recommend a price for Glitzz, target profit pricing will be used.
Unit variable cost is a constant of $5 per bottle.
Fixed cost is a constant at $5000 for consultant fees.
Consumers are unwilling to pay at a price above $20 per unit.
A target profit of $10000 is sought at an annual volume of 20000 units.
The price will be calculated as follows:
Profit = Total Revenue Total Cost
Profit = (P X Q) [FC + (UVC X Q)
$10,000 = (20,000P) [$5,000 + ($5 X 20,000)]
$10,000 = 20,000P ($5,000 + $100,000)
20,000P = $115,000
P = $5.75
Special adjustments need to be made to this calculated price, as part of
the profits will be distributed to their retailers. For costume jewelry
retailers, department stores, online retailers and promotion booths, the
range of distribution margin is approximately 30 to 50 percent;
therefore we will estimate the percentage of distribution margin to be at
an average of 40 percent.
P = $5.75 x (100/60)
P = $9.58 (2 dec. place)
Therefore, the recommended price of each bottle of Glitzz would be
$9.90. Odd-even pricing is recommended so that consumers will
perceive the price to be below $10 instead of at $10.

3) What strategy would you propose for Glitzz? What costs and
expenses would be involved? Given your recommended price in
question 2, what would be the break-even point?
There are two different types of strategies that can be adopted by Glitzz, price
strategies and non-price strategies. For price strategies, Glitzz can adopt
penetration pricing and discounts. As for non-price strategies, Glitzz can tie up
with distribution retailers, online retailers, hire promoters to demonstrate the
effectiveness of the product, and use promotion booths to market its product.
Penetration pricing is the setting of a low initial price on a new product so to
appeal immediately to the mass market. As a new brand entering a market
where close substitutes already exist, prices set by Glitzz has to be lower so
as to attract the attention of the consumers away from existing competitors.
The cost of penetration is that Glitzz may not be able to maximize its profits in
the short term, and that it establishes long-term price expectations for the
product. Such expectations and preconceptions for the brand and the
company will make it hard for Glitzz to increase prices in the future. Glitzz will
then have to engage in research and development in the long run to improve
their technology so as to lower cost of production. The lower cost of
production can then be translated into more competitive prices in the future.
Discounts are reductions from the list price that a seller gives a buyer. Glitzz
can give initial discount coupons such that customers who make a purchase
within the first 3 months will be able to purchase it at a lower price. This
encourages buyers to purchase during the critical initial stages of the product
launch. This strategy however, further reduces the profit levels of the
company and may even incur losses if the quantity sold is insufficient to cover
the cost of production. However, if Glitzz is willing to give up her short-run
profits, this strategy may benefit her in the long run once her brand name is
more established and known among the consumers.
Glitzz can tie up with distribution retailers such as watch retail shops,
departmental stores and jewelry stores, and also online retailers to market her
product. These stores will already have a certain volume of consumer traffic
and hence brand awareness can be built faster. Online retailers such as
www.jewelryfactor.com sell jewelry and watches and provide advertisements
for related products. These online websites allow consumers to purchase
directly from them. The products will then be delivered to the customers
homes, making it convenient and hence creating added incentives for
consumers to purchase. Glitzz can also provide free samples for retailers to
give out with every purchase of a watch or jewelry. When consumers try out
the product and are satisfied with it, they will be more willing to purchase from
Glitzz in the future. However, a percentage (of up to 50%) of the profits will be
given to these distributors as incentive to market the product for Glitzz. These
additional costs will force Glitzz to mark up the selling price so as to account
for the loss of profits.

Demonstrating the effectiveness of the product by promoters will be useful in

gaining the trust of new customers. As Glitzz is a new brand, customers who
have never tried it before may be skeptical towards its effectiveness. By
allowing customers to personally witness the effectiveness of the product, it
adds credibility and removes pre-existing doubts they may have had towards
the brand. In order to convince customers to buy the product, these promoters
have to be properly trained. Hence, the costs required from this strategy
would include wages of the promoters, and investment cost for the training of
these promoters.
Lastly, Glitzz can use promotion booths to market its product. Due to the
availability of close substitutes such as Brilliant Restorer and Connoisseurs,
Glitzz has to come up with a unique selling point and create awareness about
it so as to attract consumers to purchase Glitzz over its competitors products.
Glitzz unique selling point is that it is made of the finest natural ingredients,
such that the product is gentle on the skin, non-corrosive and non-abrasive.
Hence even if the product is not washed off completely from the watches or
jewelry, it will not damage consumers skin when worn. This unique selling
point can attract customers, but it must first be made known to the public and
campaigning through promotion booths can help create consumer awareness.
Similarly, the costs involved will include variable costs such as wages for
promoters, investment cost for the training of the promoters and a fixed cost
for the rental fees of the promotion booth.
Calculating break-even point:
To calculate the break-even point, we shall assume that Glitzz decides to
market her product through distributors such as departmental stores and
jewelry retailers, and that the distribution margin for these retailers are at an
average of 40%.
Fixed cost is constant at $5000 for consultant fees.
Unit variable costs consist of $5/unit for producing and packaging and
$3.96/unit to be given to the channels of distribution.
Unit price is constant at $9.90/unit
Break-Even Point = Fixed Cost / (Unit Price Unit Variable Cost)
= $5000 / [$9.90 ($5 + $3.96)]
= $5000 / $0.94
= 5319.148936
Therefore, the break-even point would be 5320 bottles.