By pricing and marketing Cowgirl Chocolates as a high-end premium product, Marilyn would have the flexibility of charging more thus enhancing her profit margin. There would also be the margin of cost that would allow her to absorb the overhead cost of marketing in Chile Magazine towards the price of the high-end product. Using the cost based pricing method would allow Marilyn a higher profit margin on her top selling high-end products. “Cost-based pricing uses manufacturing or production costs as its basis for pricing.
The cost-based pricing company uses its costs to find a price floor and a price ceiling. The floor and the ceiling are the minimum and maximum prices for a specific product or service; they serve as a price range. If the market conditions are such that the going competitive price is under the price floor, the company may price at the floor or attempt to lower its costs to lower the floor. But ideally, the company should price somewhere in between the floor and the ceiling, according to the McDonough School of Business.
Many companies that produce in masses use this pricing strategy, such as companies that produce textiles, food products and building materials” (Rawes, 2014). An alternative method would be that of demand based pricing method. This tactic of pricing would allow Marilyn to product analysis of what she sells the most and thus produce more of the product in higher demand. This is in contrast to the cost demand method. “Demand-based
pricing, also known as customer-based pricing, is any pricing method that uses consumer demand – based on perceived value – as the central element. These include: price skimming, price discrimination, psychological pricing, bundle pricing, penetration pricing, and value-based pricing” (Boundless, 2014). Based on the demand-based pricing strategy, Marilyn should streamline her product line and reduce products that are under performers and adjust the pricing of those that are selling t higher demand.
Competition-based pricing would have Marilyn determine prices by what others who sell similar products charge for the products. “Competition-based pricing is the second-most-popular price-setting approach. Managers sometimes refer to this approach as strategic pricing, although it is not particularly strategic. When taking this approach, a firm simply checks out its competition’s price and then sets the price of its own product at about the same level, plus or minus a few percent” ( Raju & Zhang, 2010).
Cowgirl Chocolates should be priced at an equivalent value to competitors in efforts to determine the products that trigger better sales and slowly increase the price in order to reach optimal profitability. Marilyn can consider four options when determining the pricing of her products. One would be the cost-based pricing method. Another option is demand-based pricing that entails Marilyn eliminating under sellers and producing those products that have a higher demand. Alternatively, by pricing products equal with her competitors in efforts to optimize product movement and still have customer loyalty.
Marilyn could also strategize her product marketability by deeming her product as high-end in efforts to sell the Cowgirl Chocolates at a higher price to make a profit. Based on the marketing options presented and list of products offered, it is recommended that Marilyn increase her profit margin on her products by following the demand-based pricing method and eliminate those products that are not moving (not as profitable) and concentrate on those products that will enhance profitability.