Pricing Calculations for Optimal Prices

CASE 4: Pricing Light Bulb Market

Case No. Chapters Case Title
4 8 Pricing: Acme Lamp Company

You are the marketing manager for Acme Lamp Company. Acme specializes in the manufacture of lamps (light bulbs) for industrial applications. You are in charge of launching Acme's new LED-12 light emitting diode (LED) lamp. The LED-12 uses an array of 12 high-intensity LEDs to replace a standard medium-base incandescent lamp. As part of the launch plan, you must select a price. You have the following data:

Attribute Data Description
Investment $20,000 Money invested to develop product
Fixed Cost $10,000 Overhead costs not changing with quantity produced
Variable Cost $10 Labor and material costs to produce each unit
Unit Sales 5,000/ year Quantity of units forecast to sell at $20 per unit
Unit Sales, Max 10,000/ year Constraint on production; Maximum production quantity
% Markup 20% Desired return on sales
Target ROI 20% Target return on investment for new projects
LED-12: Life 24 months Long life due to rugged LED design
Existing lamps: Price $1 Price of existing lamps: Incandescent and CFL
Existing lamps: Life 3 months Shortened life due to severe conditions in industrial plant
Existing lamps: Labor $20/ lamp to replace Labor cost to replace existing lamp
Price elasticity 1 % change in demand given a % change in price

1. Calculate the target price using Markup/ Cost-Plus pricing.

Pricing Calculations Results
Unit Cost

Markup Price

2. Calculate the target price using Target Return pricing.

Pricing Calculations Results
Unit Cost

Target-Return Price

3. Calculate the target price using Value-In-Use pricing. Assume industrial plant uses 100 lamps.

Pricing Calculations Results
Current cost

Value In Use Price

4. Calculate the target price using the Optimal Price Analysis:

Pricing Calculations Results
Optimal Price

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