Carmex 2 Case Study Ch.15

1. Price Settings (A)Which of the four approaches to setting a price does Carmex use for its products? (B) Should one approach be used exclusively? (A&B) Price Setting Efficacy Carmex effectively utilizes all four approaches to setting product prices. The products supplied by Carmex are highly elastic in demand. The elasticity of demand is derived from a plurality of metrics such as costs, quality, and substitute products. However, due to this elastic demand of Carmex products, Carmex’s must primarily allocate their resources towards a demand-oriented approach. On the contrary, Carmex’s success is predicated upon the effective utilization of all four of these approaches rather than a singular approach.

2. The Odd-Even Paradox (a)Why do many Carmex product prices end in 9? What type of pricing is this called? What should happen to demand when this approach is utilized? a. Carmex utilizes an odd-even pricing approach. This methodological approach is predicated upon manipulating the perceived price psychology of the consumer by lowering the leading number. The odd-even pricing paradox causes consumers to passively and subconsciously to view the product at a lower price and in turn increase relative product demand.

3. Profit Margins and Markups (a) Should cost be a factor in Carmex’s prices? What do you think is a reasonable markup for Carmex and for its retailers? The cost associated in producing Carmex products is extremely vital to effectively operate and expand their organization. The primary objective for an for profit organization is to maximize profits while accounting for relative cost’s such as production, operations, logistics. All of these metrics are juxtaposed directly with Carmex’s capacity to effectively utilize working capital and capital budgeting. Overall, higher profit margins will allow Carmex to manage everyday expense along with increasing their overall capital budgeting methodologies, which may lead to potential corporate expansion.

4 EDLP Retailer’s vs. High-Low Retailers (a) What is the difference between an EDLP retailer and a high-low retailer? Why does Carmex charge them different prices? a. The primary benefit associated with this simplistic model is the higher rate of adoption and consumer feedback. This will provide higher volumes of quantitative data due to the simplicity of an one click user interface. In addition the poll with be proprietary to the public in regards to the identity of the participants. ii. Open-Ended Questions

a. This methodology yields a higher pay-off for the marketing team if the data and metrics were to be dependent on qualitative data. Theoretically this approach would be represented by brand loyal consumers that will have a higher influence on the overall demand for the products. This allows for a greater access to prudential rationales based upon their target selections. In addition the ability to track the demographic and actually engage with the individuals personally is extremely valuable. This extends the capacity to track metrics and trends amongst the individuals whom engaged with the activity.

5 Financial and Temporal Metrics If you had a limited budget and two weeks to decide which two flavors to implement into quantitative testing would you select "Poll Only" or a "Contest Only" tactic? Why? The limitations provided by the financial capacity and temporal periods to obtain this data would predicate the utilization of a poll only. The utilization financial assets towards a poll only approach would lower the overall financial budgeting requirements in regards to a contest only approach. In addition the law of big numbers supplements the higher volume of quantitative data which is more accurate than a contest approach. This is due to the lower variances in probability theory received from higher volumes of data. In addition the average result received from financing higher poll awareness would provide better metrics than a smaller sample size whose primary payoff would be determined by a low cost contest prize. If you had a sizeable budget and two months to make the same decision which tactic would you utilize? The increase in the financial and temporal capacity would highly predicate the utilization of a contest approach. The higher the quality of the payoff from the contest, the higher the consumer's marginal engagement with the survey. These metrics will provide more qualitative data which is more relevant to the overall contextual objective of the survey.