Question

Pricing Analysis

Acme’s Marketing team has established a MSRP (manufacturer’s suggested retail price) for each gadget based on the feedback of consumers and tech journalists that were selected to review the prototype gadgets. The MSRP has been set as $449, $499, and $425 for Gadgets A, B and C respectively. Acme’s sales team wishes to establish a net price (to retailers) that will allow retailers a series of markdowns for the gadget, first by 15% during regular sale periods (to occur up to 3 times a year), with room for a second discount of 10% during special sale periods (Black Friday and Boxing Day), while still allowing the retailer a mark-up of at least 20% over the net price. Find the maximum net price for each gadget.

Professor comments: "Here’s how you want to approach the question: First determine, ask (and answer) what is the sale price under regular sale periods? Next, ask (and answer) what is the sale price under special sale periods? Finally, use the relevant information (it might not all be needed) to determine what the net price should be to allow the retailer a markup of 20%."

Any help is much appreciated!

Answer 1

Calculation of Maximum Net Price for each Gadget:

1. Sale Price under regular sale period:

Particulars	A ($)	B ($)	C ($)
MSRP	449	499	425
Less: Regular Sale Discount @15% on MSRP	67.35	74.85	63.75
Sale Price under regular sale period	381.65	424.15	361.25

2. Sale Price under Special Sale Periods:

Particulars	A ($)	B ($)	C ($)
Sale Price under regular sale period	381.65	424.15	361.25
Less: Second Discount @10% on Sale Price	38.165	42.415	36.125
Sale Price under Special Sale Period	343.485	381.735	325.125

3. Net Price to allow a retailer a Markup of 20%:

= Net Price + (Net Price * 20%) = Sale Price under Special Sale Period

= 120% of Net Price = Sale Price under Special Sale Period

= Net Price = Sale Price under Special Sale Period / 120%

(or) Net Price = Sale Price under Special Sale Period / 1.20

Particulars	A ($)	B ($)	C ($)
Sale Price under Special Sale Period	343.485	381.735	325.125
Net Price Calculation	343.485/1.2	381.735/1.2	325.125/1.2
Maximum Net Price	286.24	318.11	270.94