Requires Full 3- To 5-Sentence Answers With All Calculations

Requires Full 3 5 Sentence Answers With All Calculations And In APA Fo

Requires full 3-5 sentence answers with all calculations and in APA format with 1 in-text citation with reference.

Paper For Above instruction

In advising Jessica Alba and Christopher Gavigan on their pricing strategy for The Honest Company’s expansion into five domestic markets, understanding the concepts of skimming and penetration pricing is essential. A skimming price involves setting a high initial price to maximize short-term profits from early adopters willing to pay a premium, gradually lowering the price to attract more price-sensitive customers; this approach can generate higher initial profits but may limit market share early on. Conversely, penetration pricing involves setting a low initial price to quickly attract a broad customer base and gain significant market share, often sacrificing short-term profit margins for long-term growth (Kotler & Keller, 2016). Given the health-conscious and honest branding of The Honest Company, a penetration pricing strategy might be advisable initially, to build brand loyalty and secure substantial market penetration quickly, especially in competitive markets like New York and Chicago. However, if their product quality allows, a skimming approach could work to recoup development costs faster and position their products as premium, targeting affluent customers willing to pay more.

Initially, Alba and Gavigan are likely to make economic profits if their pricing strategy covers their variable costs and contributes to fixed costs, especially in the early stages. Over the long term, maintaining economic profits depends on their ability to sustain a competitive advantage, manage costs efficiently, and adapt to market dynamics, including potential competitors and price wars (Marshall, 2019). If they choose penetration pricing, their profits may erode as prices are maintained at low levels unless revenues increase proportionately. Conversely, a skimming approach, if successful, can generate high margins early, but they must innovate continuously and protect their brand reputation. To maximize long-term profitability, I recommend a dual approach: initially adopt penetration pricing to establish a loyal customer base, then gradually shift to premium pricing once brand recognition is solidified, while controlling costs and investing in brand differentiation.

In the case of the construction bid for a pedestrian walkway, the price bid to ensure winning the project should be based on covering the variable costs and adding a competitive margin considering competitor bids. Since the incremental costs are $268,000, and fully allocated costs are $440,000, aim for a bid slightly above the incremental costs, around $280,000, to ensure coverage and competitiveness. To maximize the expected contribution, the bid should balance the likelihood of winning against profitability; assuming the probability of winning with a bid of $280,000 is 70%, the expected value (EV) calculation is EV = 0.7 (Bid - Incremental Costs) + 0.3 0, which maximizes profitability while remaining competitive (Brealey et al., 2019). Therefore, bidding approximately $280,000 would be a strategic choice, providing a high chance to win while maintaining acceptable profit margins.

References

• Brealey, R. A., Myers, S. C., & Allen, F. (2019). Principles of Corporate Finance (12th ed.). McGraw-Hill Education.
• Kotler, P., & Keller, K. L. (2016). Marketing Management (15th ed.). Pearson.
• Marshall, B. (2019). Competitive Strategy and Market Dynamics. Harvard Business Review, 97(2), 112-119.