Pricing is yet another strategic decision since it must cover all costs. It must cover all costs such as product modification costs, salaries (sales force and otherwise), marketing expense and advertsising expense. Pricing needs strategic planning to ensure long term profits.
According to research the price of wordprocessing softwares depends on the features it provides, the channel it is being distributed through and the goodwill of the manufacturer. Research shows that the price varies from $ 150 – $ 400. Research also proves that the pricing strategy in theindustry is based on Mark up. The custom mark up percentages are 50% for channel 1 and 35% for channel 2. The mark up charged is different for both channels. The formula for this pricing strategy is as follows:
Dealer markup percent = (Retail selling price – Whole Price) / Retail selling price.
Therefore, this will be our strategy as according to theindustry norms. The retail price we offer for channel 1 is $ 200 and for channel 2 it is $ 150. The customers often attach the quality to the price and believe that the higher the price the better the quality. The formula for the retail price is as follows:
Likely retail price = wholesale price x 100
(100-Mark up percent)
The wholesale price went up for both channels in years 2, 3, 4 and in the 5th year it came down since costs were low and less costs had to be passed to the dealer. Also that the dealers had to be attracted to purchase the products in order to sell more. The gross margin/unit in each channel was going up in the years 2 and 3 but they slightly came down in year 4 showing the strategy had not worked up to the mark and the 5th year showed a down turn in the gross margin/unit.
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