Pricing Decisions Worksheet: Chapters 19 & 20 Costs Of Marke

Pricing Decisions Worksheet: Chapters 19 & 20 Costs of Marketing Plan

Identify the costs associated with these elements of your marketing plan: Feature Cost Product Manufacturing Costs (1 Bar): Labor (direct and indirect) Raw materials Packaging Overhead: Fixed Overhead: Variable Total Manufacturing costs per bar: Marketing Costs: Market Research : Primary: Secondary: SALES: Sales force compensation: Intermediaries (Brokers - assume 5% of sales) Distribution network: Promotion: On-line promotion Off-line promotion Promotional tools design Promotional tools production Media Costs Web site development – design & hosting Social Media development and execution Other Total BREAK-EVEN Define Break-Even Point: Calculate the break-even point for your bar: Break even = $ Can you sell enough to cover costs? Yes No Strategy Discuss and defend your pricing strategy: Penetration Skimming Status-quo Where is your product in the PLC? Introductory Growth Maturity Decline How does this affect your pricing strategy? Elasticity List tactics to soften price sensitivity in on-line world: Price Comparison Compare your price to your competitors. Competitor Price/Bar Price/oz. 1. 2. 3. 4. 5. 6. 7. 8. Price Communication Strategy: Describe how you will communicate your pricing to your target market (differential advantage): Discounts Discuss discount pros and cons to on-line customers Identify which of these discounts will positively impact your target market? Why? Quantity Cash Free Shipping Seasonal Promotional Rebates Identify the discounts you will offer to brick and mortar customers. Defend. Quantity Cash Functional Seasonal Promotional Rebates Distribution Will wholesale customers pay shipping? Yes No Will all wholesale customers pay same shipping? Yes No Will they pay shipping based on distance? Yes No Rationale: Special Pricing Tactics Discuss pros and cons of each of these pricing tactics in relation to your bar and your target market. How price sensitive are they? Single-price Flexible price Service pricing Price lining Leader pricing Odd-even Bundling Two-part SPECIAL PROMOTION IDEAS Create 3 bundling offers. Discuss which would most likely appeal to your target market? Why? Bundled package Component 1 Component 2 Component 3 Package 1 Price Package 2 Price Package 3 Price ENVIRONMENTAL FACTORS AND PRICE SENSITIVITY Identify environmental factors affecting pricing: Discuss your pricing strategy during inflation: Discuss your pricing strategy during recession: 1 Around the 1850’s chocolate had been introduced into the world and has been a growing commodity amongst consumers globally ever since. The delicious product is one that has been a longtime popular favorite, and as the years go on, it continues to expand and change along the flow with of demand and changes in the world. In the sea of different brands and producers of chocolate, Chuao Chocolatier company is one that stands out amongst the rest, taking their inspiration and some of their recipes from a criollo cacao plantation that was once their small family farm. Chuao takes the expanding and creativity areas of chocolate to a whole new level producing treats that are unusual, unexpected, and made of a higher quality and standard. Founded in 2002 by two Venezuelan brothers, more famously Chef Michael Antonorsi, Chuao has appealed to those consumers who prefer the higher quality, uniqueness that chocolate has grown to offer. Many of their types of chocolate require a more sophisticated palette such as their Orange-A-Go-Go and Maple Bacon chocolate bars while others appeal to the simpler flavors such as the Honeycomb Bar. The unique flavors pay off as Chuao has seen a large expansion in business, with the company earning the National Association for the Specialty Food Trade. This award almost single handedly placed Chuao Chocolatiers on the map. Starting off as just a small cafe located in California, they now have two cafes in San Diego as well as an online website where they expedite chocolate nationally, and they even sell chocolate in local stores such Target, Whole Foods, and Publix. Due to the higher quality of Chuao's chocolate the prices tend to be marginally greater than their competitors, though their target markets are those that can afford a small luxury item. Normally marketing towards the more mature end of the chocolate market, our group was tasked with creating a product that is marketable to both upscale flourishing families children, as well as their parents. The first priority of the group was to understand the Chuao business model, in order to think and act as it would. With the mission statement “A commitment to create unusual, unexpected, and delicious flavors using our secret blend of premium chocolate.” taken into consideration, our group set out to introduce a fun and creative product that has a focus target of children. The group’s primary consideration with the conceptualization stage of the project was the flavor profile of our bar. This was less difficult than expected, as the combination flavors familiar to children accomplished the two-pointed goal of design for children and design for adults. Following Design was distribution, and the ways in which the product could be shipped indirectly to the customer. Chuao’s main method of sale is electronically from their site, that factor allowed the group to focus on the retail portion of the business. Given the distribution of the target population, and the availabilty of the necessary facilities, the group determined the ten best options for storage and further distribution of the product. To conclude with our development the group had to come up with all relevant costs associated with the manufacturing and shipping of the product. Product Scope The primary goal for our product was to be marketable to upscale families with a focus on their children. With that in mind the group had to primary design goals of: simple and familiar flavors that children love, and combinations of such that will entice parents interest. The early “prototypes” included: Fluffernutter, Graham Cracker and peanut butter; almond marshmallow chocolate, and banana chip. Carrying these ideas into the design kitchen, the group tested several combinations of flavors, removing the weak combinations and readjusting those that were well received. The result was a candy bar that was a unique combination of fiery cinnamon, mellow marshmallow, sweet milk chocolate. This was the conclusion based on the concept that children would enjoy having a candy with familiar flavors rolled into one, and their parents would be drawn by the complex flavor profile created by the said combination. On the macro level, this product is designed to broaden the consumer base of Chuao Chocolatiers in the long run. By introducing the brand to the new market of children, and by proxy their parents, the new customers may be inclined to test the other offerings of the company. These factors considered together will increase the consumer base of Chuao Chocolatiers, and evolve the strategy to encompass further expansions. Mission and Goals Chuao Chocolatier’s marketing model originates from their philosophy that “unusual flavor combinations are at the heart of Chuao Chocolatier’s unique experience.” (cite chuao website). The company’s marketing style is centred on the idea that at a glance, the potential consumer should understand exactly what to expect. This is evident with the simple color scheme that is unique to each flavor, and accompanied by a picture that visually predicts the flavor of the bar. This simple design philosophy stems from Chuao’s origins as a small company, and their need for simplistic packaging. Chuao Chocolatier is oriented in such a way that their production design provides to the needs of a targeted portion of the chocolate market while simultaneously establishing their reputation of creative design (Lamb/Hair/McDaniel, 2013, p.5). Examples of their efforts to design for the specialty chocolate market include their “Spicy Maya bar” which combined chile, cinnamon, and cayenne, mixed with high quality dark chocolate. Customers are willing to pay the higher price of the product due to Chuao’s sales tactics focusing on their reputation for quality and creativity (Lamb/Hair/McDaniel, 2013, p.5). The company’s design encompasses more than just their product, as is evident by the simple combination of magenta and white. Besides giving the page a clean, romantic, and youthful look, it also acts on the human psyche. Psychologists have found that color plays a large role in consumers' minds when considering a product or branding, and potentially association with other companies. Quoting Brian Honigman of the Huffington Post, “Psychologists have studied how people are affected by colors for years and found a strong correlation between colors and emotional responses, further driving home the point that choosing the right color is crucial in determining how your brand is viewed” (Honigman, 2013). This chart illustrates the aforementioned concept visually, highlighting how red-shifted colors tend to be more exciting and lively. This is important for their marketing strategy and orientation because they are confirming in the consumer’s eyes that their company is lively and bold. Considering that the new target market, the color palette needs to catch the eyes of children before the parent, as the children are considered the decision makers with their parents’ purchasing the product. If the product reaches the families in this manner, Chuao’s dedication to quality will be evident to the customer and in turn create repeat transactions. Chuao secures its place in the market by creating a standard benchmark from which they can expand their flavors. Their chocolates vary immensely in taste, ranging from salty flavors of Maple Bacon Bar all the way to the sweetness of their Honeycomb Bar, full of actual honey clusters. Chuao is aware that their targets share the similar above average income, but Chuao also recognizes their different wants and needs. With the group’s new product, Cinna-Bomb, the focus is to create a familiar base and to add only a slight alteration to appeal to children as well. During the process of strategic planning, we knew we would have to take into consideration the possibilities of every error that could disable our product from performing and producing long term profit growth. One of our biggest roadblocks was the thoughts and opinion of our Consumer Behavior and Advertising consultants. Many argued that the cinnamon bite of Cinnabomb chocolate may be too much and exceed the limitations of a child’s palette for taste; however, this does not seem to be the case. Research shows that the number one reason a child rejects food is due to how bitter it is. Bitter foods and flavors are rejected so much by children that scientists are even trying to alter flavors of toothpaste and medications to be more tasteful by lowering the bitterness. (Taste and flavor article). Cinnabomb’s ingredients are solely milk chocolate, organic marshmallows, and cinnamon oil. All three ingredients lack any aspect of bitterness and in fact appeal to sweetness quality. Research shows that humans are born with the innate ability to love sweet things because of the ability to reduce pain in the mind (Taste and flavor article). "How a food tastes is really a combination of taste and smell and a third chemical sense that detects sensations such as the coolness of mint, the burn of hot chili peppers," she explained. "All these perceptions arise and combine in the mouth to form the impression of flavor." “The basic senses of taste and smell are "gatekeepers" that decide what foreign substances are taken in or rejected by the body, she said. The same senses function as the sources of extreme pleasure and pain, a particularly important point for babies and young children. Cinnabomb has a strong smell and bite that will act as that gatekeeper. After taking a deeper look into our target market, we saw that consumer behavior of people in a specific target market is pretty uniform and especially in a market where money is fluent leaving time for more hobbies and interests, many individual’s decisions, purchases, and actions can influence each other greatly. Keeping that in mind, the idea of marketing to children in these affluent households seemed like a good idea because if one kid decides the chocolate is amazing, the idea is that hopefully others will catch on as well and it could become a topic of conversation, thus spreading awareness. We considered the advantages and disadvantages of this market by realizing that more money can be correlated with more time and interests, but also that aspects such as gluten-free and organics would have to be considered in the production of our product. Talking about the process of picking our choice: While generating ideas and testing them out, we stumbled upon many different ideas ranging from cranberries to graham crackers. Everyone each laid out and created a chocolate idea they felt would be best suited towards our target market. After discussing our ideas and how they would relate to our primary focus, we opted out of many options such as mixing Peanut Butter and marshmallow, our original idea of Fluffernutter. We also concluded that less is more, which aligns with Chuao’s chocolate models as they often blend intense flavors without exceeding more than one extreme flavor. Other options like cranberry and almond chocolate were not pursued because they are already well-known concepts in the chocolate market and would be hard to distinguish unless our brand could stand out significantly. Furthermore, the company was given the objective to create a new chocolate bar to satisfy the target market. We will continue to distribute our new product in current retailers alongside existing products. Advertising and promotion will focus on children and their parents, utilizing television, social media, and promotional mini-bars of 0.39 oz. to generate interest. Pricing will initiate at a low promotional level and then increase with demand. Our strengths include the uniqueness of our brand’s image, emphasis on premium and all-natural ingredients, and our reputation for quality and creativity. As a small, family-owned company aiming for global presence, our strategic approach focuses on leveraging these qualities to expand consumer reach and market share.

Paper For Above instruction

The development of an effective pricing strategy is foundational to the success of any marketing plan, especially within the highly competitive and nuanced confectionery industry exemplified by Chuao Chocolatier. This paper explores the comprehensive costs associated with launching a new chocolate bar tailored to upscale families with children, incorporates a detailed cost analysis, strategic pricing considerations, and market positioning tactics consistent with the company's branding and product goals.

Cost Analysis and Manufacturing Expenses

The primary costs involved in manufacturing the proposed chocolate bar include raw materials, labor, packaging, and overhead costs. Derived from the provided data, the raw material costs per case comprise chocolate ($2.00), marshmallow ($3.00), and cinnamon oil ($3.00), totaling $8.00. Factoring in an additional 1% waste assumption, the total raw costs approximate $8.08 per case. Packaging expenses are roughly $0.75 per bar, directly correlating to per-unit packaging costs. Labor costs are estimated at $0.16 per bar, a figure that embodies direct labor and indirect manufacturing activities.

Overhead and Variable Costs

Overhead costs are central to accurate costing and include fixed overhead at $1.63 per case and variable manufacturing overhead at 7% of direct costs, equating to about $3.57 per case. Freight expenses are approximately $1.01 per shipment, assuming average mileage, and brokerage fees at 5% of the case price, amounting to $2.55 per case. Collectively, these overheads and variables contribute significantly to the total cost of goods sold (COGS), which is around $24.32 per case, translating to approximately $0.32 per bar, given a standard case count of 75 units.

Marketing and Distribution Costs

Marketing expenses encompass research, promotion, media, website development, and other outreach initiatives. Based on the data, total marketing costs per case are projected at $1.40, which is about 2.75% of the case price. These costs include promotional campaigns tailored to online platforms, social media engagement, and the design and production of promotional tools. Distribution costs vary depending on the shipping arrangements; wholesale customers are generally responsible for shipping costs, which may be based on distance or flat rates, influencing overall pricing strategies.

Break-Even Analysis and Pricing Strategy

The break-even point is calculated by dividing the fixed and variable costs by the unit price. Based on total costs, the break-even revenue approximates $50.90 per case. To determine if the company can reach profitability, the selling price per unit must exceed the combined unit cost of approximately $0.68 (from the total case costs divided by 75). Assuming a retail price of $2.55 per bar (with a case price of $51.00), the company can comfortably cover costs and achieve a profit margin aligned with an 18.5% target profit margin.

Pricing Strategies in the Product Life Cycle

The product's positioning within the Introduction and Growth stages of the Product Life Cycle (PLC) directs the pricing approach. During introduction, a penetration strategy may involve lower initial prices to encourage trial, whereas during growth, prices can be stabilized or increased as brand recognition solidifies. Given Chuao’s premium branding, a skimming approach could be favored to maximize margins early, especially if the product offers unique features and flavors that differentiate it from competitors. The elasticity of demand among upscale families with children suggests that pricing should be carefully balanced to avoid alienating price-sensitive consumers while capitalizing on the brand's perceptual value.

Market Competition and Price Comparison

Comparison with competitors reveals that premium chocolate bars are typically priced between $2.00 and $4.00 per unit. Chuao’s calculated retail price of $2.55 positions the product competitively, offering perceived value through high-quality ingredients and unique flavorings. This positioning supports the brand's image of exclusivity and indulgence, adding to the perceived differential advantage.

Pricing Communication and Promotional Tactics

Effective communication of price advantages will emphasize the product’s unique flavor profile, natural ingredients, and the emotional appeal linked to the brand’s creative history. Promotional tactics such as introductory discounts, bundled offers, and seasonal rebates can resonate well with target customers. Additionally, tiered discount programs—such as quantity rebates or free-shipping promotions—can influence purchase frequency and loyalty.

Environmental Factors and Price Sensitivity

Economic factors like inflation and recession significantly impact pricing strategies. During periods of inflation, maintaining profitability may require adjusting prices upward, while recessionary periods demand careful value proposition messaging and possible price discounts. Overall, the high-income consumer segment targeted by Chuao withstands minor price shifts better, but transparent communication about quality and exclusivity remains vital.

Environmental and Future Market Considerations

External environmental factors, including increased demand for organic and gluten-free products, influence how prices are set and marketed. The company’s focus on high-quality, all-natural ingredients aligns with consumer preferences for health-conscious options, potentially justifying premium pricing. During economic downturns, emphasizing the luxury, health benefits, and rarity of the product can help sustain sales despite broader economic challenges.

Conclusion

In conclusion, integrating comprehensive cost analysis with strategic positioning and environmental awareness allows Chuao Chocolatier