Marketing Assignments

Cost Based Mark Up Pricing

Scenario:

· A manufacturer of a new shampoo is planning to use several different channels of distribution, as listed below.

· Each intermediary in each of the alternative channels uses a cost-plus approach to pricing. That is, each firm takes a markup on its selling price to cover operating expenses plus profit.

· The manufacturer sells the shampoo to the next member of each channel for $2.00 per 12-ounce plastic bottle.

Use the data on the table to answer the following questions.

Operating Expenses as a % of sales Profit Margin as a % of sales Mark Up %

Retail:

Small drugstores 36% 1% ?

Supermarkets 25% 2% ?

Mass-merchandisers 27% 2% ?

Wholesale:

Merchant wholesalers 10% 2% ?

1. What is the retail selling price if the manufacturer sells the shampoo directly to small drugstores?

A. $2.56

B. $3.17

C. $3.49

D. $2.98

E. $3.61

2. What is the retail selling price if the manufacturer sells the shampoo directly to mass-merchandisers?

A. $2.59

B. $3.65

C. $3.05

D. $2.99

E. $2.82

3. What is the merchant wholesalers’ price to the supermarkets?

A. $3.04

B. $3.51

C. $2.27

D. $2.56

E. $2.95

4. What is the supermarkets’ retail price?

A. $3.11

B. $2.54

C. $2.27

D. $3.36

E. $2.97