1. Which of the four primary pricing strategies does Carmex use for its products
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Question
1. Which of the four primary pricing strategies does Carmex use for its products? Should it use one pricing strategy exclusively? Why or Why not?
2. Why do many prices for Carmex products end in 9? a. What kind of pricing is this called? b. How should this strategy affect demand?
3. Should Carmex make cost a factor in its prices? What do you think a reasonable mark-up should be for Carmex and its retailers?
4. What is the difference between an EDLP retailer and a high-low retailer? Why does Carmex charge them different prices?
5. Search lip balm products online. Compare the prices for Carmex products with the prices for similar products from three competitors. How do you think the competition is setting its prices?
connect VIDEO CASE 11 Carmex (B): Setting the Price of the Number One Lip Balnm Carmex is dedicated to providing consumers with free. The samples would sell quickly and soon the phar- superior lip balm formulas-that hea, sooth and macies would place orders for more! As the company grew, Alfred's son, Don, joined the remain healthy and hydrated business and helped add new products to the company's exclaims Paul Woelbing, pres- offerings. For example, in the 1980s Carmex made its first significant packaging change by also offering the balm in squeezable tubes. In the 1990s Carmex became available in stick form, which had been used by two of Carma's major competitors-ChapStick and CARMEX Blistex. In the 2000s Carmex became available in mint, cherry, and strawberry flavors (see Chapter 8 for a description of the research techniques used to identify new flavors). The company also expanded into larger manufacturing facilities, added a new distribution center, and hired its first protect-while ensuring lips Video Case Laboratories, Inc. It's an ambitiousmission, but the ompany has been extraordinarily suc cessful with its 75-year-old product. Woelbing and his management team at Carma Laboratories can attribute their success to a strong brand, a loyal cus- tomer base, a growing product line, fi- nancial strength, and an exceptional talent for setting prices that achie ompany objectives andsl provide value to customers. Even during the re sion and periods of slow growth the company has been successful. "In a rough economy, shopping habits change," McGraw-Hill Education/ Editorial Image, LLC, Today, the company is led by Alfred's grandsons, Paul and Eric Woelbing, who continue to manage the company to new Woelbing says. "People buy smaller quantities more levels of success. They appeared on The Oprah Winfrey frequently, but they still need personal care products." Show to announce the sale of their billionth jar of Car mex. The governor of Wisconsin declared a Carmex commemoration day to celebrate its 75th anniversary. NBA all-star LeBron James became a promotional partner. In addi tion, Pharmacy Times magazine recently named Carmex the number one pharma cist-recommended brand of lip balm for THE COMPANY Carmex was created by Paul's grandfa- ther, Alfred Woelbing, in his kitchen in Wauwatosa, Wisconsin, in 1937. Alfred had an entrepreneurial spirit and experi mented with ingredients such as camphor,cGraw-Hl Education/Mark the 15th consecutive year. "We are hon menthol, phenol, lanolin, salicylic acid, Dierker, photographer and cocoa seed butter to make the new ored to receive this unprecedented a knowledgement," said Woelbing product. The name didn't have any meaning other than Industry observers estimate that Carma Labs holds proximately 10 percent of the lip balm market. The ular suffix for many brands at the time. He packaged the company distributes its products through major drug balm in small glass jars and sold the product for 25 cents food, and mass merchant retailers, convenience stores from the trunk of his car by making personal sales calls and online in more than 25 countries around the to pharmacies in Wisconsin, linois, and Indiana. From world. The company's most recent products-Carmex Alfred liked the sound of "Carma," and "ex" was a pop- ap the beginning, price and value were important to the Healing Cream and Carmex Hydrating Lotion product's success. If pharmacies weren't initially inter represent a significant step from lip care to skin care. lested in Carmex, Alfred would leave a dozen jars for The expanded product line, multichannel distribution,Explanation / Answer
1. Which of the four primary pricing strategies does Carmex use for its products? Should it use one pricing strategy exclusively? Why or Why not?
The four pricing strategies recommended for Carmex are:
Psychological pricing: Carmex prices its product at a customary price point that provides customers a value for money perception. It also varies its prices as per the types of retailers it sells to since the customer base is different and accordingly prices to match their viewpoint.
Cost-plus pricing: Various costs of producing the product, packaging and selling the product are factored into the price. It also adds the retailer margins for arriving at the right price point including the required markup.
Competitive pricing: Carmex conducts a competitive study to under the prevalent price ranges in the market so that its prices are not too high or low vis-à-vis the other market players.
Premium product pricing: Carmex has a premium variant of its standard offering which is priced higher due to the various benefits and additional features it offers compared to the basic product. The premium product is also packaged and marketed differently to convey the premium appeal to its clients.
Pricing Approach: It is advised that Carmex follows different pricing strategies. Multiple pricing strategies tap in market demand from various customer segments, thereby opening up more avenues of market sale. Purely following a cost-based pricing may not generate higher profit or more demand that a premium product pricing might offer. It also potentially can create a new customer segment for the company. Not being cognizant of competitor pricing might not keep Carmex agile in terms of containing its costs or following other industry best practices. Therefore, it is recommended that Carmex balances the different pricing approach to create a significant brand perception with a strong top line and bottom line growth.
2. Why do many prices for Carmex products end in 9? a. What kind of pricing is this called? b. How should this strategy affect demand?
Product prices ending in 9 often create an illusion on the customers as representing a better bargain or saving and thereby an enhanced value. For instance, a price label of $39.99 instead of $40 provides a different perception of the price range being in the 30s instead of 40s. This kind of pricing is often referred to as Psychological pricing as it encourages customers to respond on an emotional level. The general understanding of the impact of this strategy is to help improve sales by fostering higher demand.
3. Should Carmex make cost a factor in its prices? What do you think a reasonable markup should be for Carmex and its retailers?
Yes, Carmex should continue having cost as one of the factors in its prices. There are various kinds of costs that go into producing and selling a Carmex product. This includes the fixed and variable overheads of production, packaging and labeling expenses, selling and distribution costs, promotional costs, staffing, and other expenses. Since the objective of every product sold is to at the least break-even and generate profit, having cost as one of the factors in the price ensures that the pursuit makes economical sense.
The reasonable markup for Carmex and its retailers should be in line with company’s strategy, its target operating and net profit as well as market factors of demand, customer profile and competition. A definite figure of a reasonable markup should be arrived at by considering all these aspects. It should ensure that it does not keep the price points too much at variance from the competition. Too low a price drives the profit down since the current customer base is willing to spend the average based on the market players and too high a price does not attract good demand.
4. What is the difference between an EDLP retailer and a high-low retailer? Why does Carmex charge them different prices?
An EDLP retailer offers its customers consistently low priced products without various promotions, discounts or sales. The prices are typically between the non-sale prices and deep discount prices offered on certain sales. Examples of such retailers include Walmart and Target. On the other hand, a high-low retailer charges its customers relatively higher prices compared to an EDLP retailer. However, they provide seasonal discounts or promotional sales to provide offerings at lower prices in instances of stock clearance or when there are special vendor deals.
The customer base visiting the stores are looking for different value propositions and price is a major component of the perceived value. Therefore, the prices are aligned to the distribution channels and Carmex charges different prices for the same product sold at an EDLP retailer and a high-low retailer.
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