Your company is under extreme pressure from your biggest customer to reduce pric

Question

Your company is under extreme pressure from your biggest customer to reduce prices on a product with lower than desired profit margins. As the OPS Manager you have decided to reach out the Procurement Manager for some help in locating some lower cost sources for your raw stock of acrylic fabric. You have agreed to meet to discuss some important factors that need to be agreed upon prior to reviewing potential sources. In preparation for your meeting complete the following analysis to discuss with the Procurement Manager:

A. There are many factors in selecting an ideal supplier location. Identify the top three for your organization and explain their importance.

B. If your organization were to use the Factor Rating Model to help in the narrowing down potential countries to source from, given your three factors discussed in part a of this question, what weights would you give each factor and why?

C. Explain the concept of Total Cost of Ownership (TCO) and how it would be applied in this scenario.

D. List and provide and explanation for the key aspects of the supplier performance that would mean the most to you as an Operations Manager.

Explanation / Answer

There are three basic marketing research tool that are used to find the optimal value of the product.

So, here i am giving you the details about all the three tools , so that you can decide whichever you like

1. Conjoiint Analysis

Conjoint analysis is one of the main research techniques for determining price. When conducting price analysis with this process, researchers determine what customers give up by paying a certain price for a product and compare that against the features the customer is gaining by purchasing the product. By determining how customers make their purchasing decisions, the economic impact of price changes can be assessed.

Doing conjoint analysis provides price sensitivity and allows researchers to create a market model to determine what price changes will have an effect on or not change.

Gabor-Granger

Gabor-Granger is basically direct marketing. When using this method, customers are asked whether they would buy a product at a particular price. Then, the price is changed, and the customer is again asked if they would purchase the product. From these questions, an optimum price is determined. Then, demand can be determined once a price point is chosen.

The biggest issue with this strategy is that customers may understate or overstate the price they are willing to pay for a product. Also, determining what your customers will pay for a product, then setting that price may not keep up with the competition, particularly if the competition is offering the product for less.

Van Westendorp

The Van Westendorp strategy is also a direct pricing method. This strategy is the process of presenting respondents with different questions to determine whether a product is either too cheap, cheap, expensive, too expensive, or a bargain. Then, these prices are plotted, and the area between is used to determine the range of acceptable prices.

The Van Westendorp method removes a competitive element from determining prices, and it assumes that customers know what the market situation is. It is best to use this method either with Gabor-Granger, or with Conjoint.

So, The conjoint Analysis seems the best way as provides you with the techneque where you can actually see the price sensivity to demand as a very good approximation to price elasticity of demand and hence will help to derive the demand and can accordingly set the price to maximize the profits.

If you don't understand anything, then comment, I will revert back on the same.

And If you liked the answer then please do review the same. Thanks :)

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