Jessica Alba, a famous actress, starts the baby and family products business, Th
ID: 2425763 • Letter: J
Question
Jessica Alba, a famous actress, starts the baby and family products business, The Honest Company, with Christopher Gavigan. Alba and Gavigan set up their site so families can choose what kinds of non-toxic, all-natural products they'd like to use and get them in a bundle. Families can choose all kinds of products from food to hygiene necessities and cleaning supplies. Suppose they are thinking of expanding their business into five domestic markets: Phoenix, Dallas, Chicago, New York, and Atlanta. Assume their primary goal of business is to maximize economic profits, although they want to do business honestly.
Show all your calculations and process. Describe your answer for each question in three- to five-complete sentences.
A-You are a business adviser for Alba and Gavigan. Describe a skimming price and a penetration price, and advise them whether they should charge a skimming price or a penetration price, with supportive reasoning for and against each pricing alternative.
B- Are they likely to make economic profits initially? Can they continue to make economic profits in the long term? Why or why not? Discuss.
C- What advice would you give to Alba and Gavigan to help them make more profit in the long term?
Explanation / Answer
Answer:
A. Skimming Price and Penetration Price are the pricing techniques used by marketers to enter new markets or while launching of new product lines.
Skimming price is a pricing technique where the marketer prefer to charge high prices at the initial stage of the launch or entry in the market and with span of time and based on the market sentiments gradually decreases their prices. This strategy helps the organisation to earn maximum profit at the initial stages of launch when the product is new and may not have competitive products. When the market develops and other firms enter the market they the marketer reduces his prices to make the market unfavorable for the new entrants.
Penetration Price is a price technique where the marketer launches the new product or enters a new market by keeping his prices very low to achive high sale quantities and attract the customers and later on when a place in market is achieved then the prices are increased gradually over time.
In the given case where the prime objective of the Firm is to maximize economic profit with business honesty then it is advisable that if there are no competitive products in the market then go for Skimming Price Technique and if there are already competitive products available in the market then go with Penetration Price Technique.
B. If Skimming Price is a favorable strategy then the Firm will earn high profits at the initial stage and over time the profitability will reduce.
If Penetration Price is a favorable strategy then the Firm may not even earn economic profits at the initial stages but will be able to earn good profits over time.
C. To make profits in the long term the best policy could be to have following business practices;
1. Always maintain the quality of product and services
2. Always keep oneself updated with the market scenarios and latest trends.
3. Never compromise with the quality or product and services.
4. Have flexible pricing depending upon the market condition and the customer expectations.
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.