Assignment:
Discussion 1
Good Will in Price Bidding
Sometimes, a bidder on a work contract may bid lower than what would maximize his/her profit from the contract and the reason for that is to create goodwill (to increase expected future business from the buyer). How would you value the goodwill that is obtained in this way?
Guided Response: Think about an example that pertains to you. If there is expected goodwill would you be prepared to bid lower to get a contract? Explain your reasons. In 300 words or more, please, provide your response to the above discussion question. Respond substantively to at least two of your classmates' postings. Substantive responses use theory, research, and experience or examples to support ideas and further the class knowledge on the discussion topic.
Discussion 2
New Production Introduction
Bayer Schering Pharma AG, Germany owns Alka-Seltzer, which was launched in 1931 and was meant for relief of minor aches, pains, inflammation, fever, headache, heartburn, sour stomach, indigestion, and hangovers. Alka-Seltzer Plus was a spin-off of the original medicine, meant to relieve colds and flu.
The company has recently introduced a new and improved Alka-Seltzer Plus, as described in this TV ad
The ad shows that Alka-Seltzer Plus can fight congestion, unlike NyQuil.
Explain how Alka-Seltzer Plus has been quality and price-positioned in an existing market. In your opinion, has Bayer positioned their product appropriately in the market for cold and flu symptoms relief products? Would you advise Bayer to use a skimming or a penetration pricing strategy? Explain your reasoning.
How do you think Proctor and Gamble, the company who produces Vicks NyQuil, would respond to the ad?
Guided Response: In 300 words or more, please, provide your response to the above discussion question. If Bayer is currently making normal profits on most of the products in its product line, but is making pure profits on its new Alka-Seltzer Plus with decongestant, what should Bayer do to increase its profits? Respond substantively to at least two of your classmates' postings. Substantive responses use theory, research, and experience or examples to support ideas and further the class knowledge on the discussion topic.
Assignment
Price Quotes and Pricing Decisions Applied Problems
Please complete the following two applied problems:
Problem 1:
Jessica Alba, a famous actress, starts the baby and family products business, The Honest Company, with Christopher Gavigan. Alba and Gavigan set up their site so families can choose what kinds of non-toxic, all-natural products they'd like to use and get them in a bundle. Families can choose all kinds of products from food to hygiene necessities and cleaning supplies. Suppose they are thinking of expanding their business into five domestic markets: Phoenix, Dallas, Chicago, New York, and Atlanta. Assume their primary goal of business is to maximize economic profits, although they want to do business honestly.
Show all your calculations and process. Describe your answer for each question in three to five complete sentences.
a. You are a business adviser for Alba and Gavigan. Describe a skimming price and a penetration price, and advise them whether they should charge a skimming price or a penetration price, with supportive reasoning for and against each pricing alternative.
b. Are they likely to make economic profits initially? Can they continue to make economic profits in the long term? Why or why not? Discuss.
c. What advice would you give to Alba and Gavigan to help them make more profit in the long term?
Problem 2:
You operate your own small building company and have decided to bid on a government contract to build a pedestrian walkway in a national park during the coming winter. The walkway is to be of standard government design and should involve no unexpected costs. Your present capacity utilization rate is moderate and allows sufficient scope to understand this contract, if you win it. You calculate your incremental costs to be $268,000 and your fully allocated costs to be $440,000. Your usual practice is to add between 60% and 80% to your incremental costs, depending on capacity utilization rate and other factors. You expect three other firms to also bid on this contract, and you have assembled the following competitor intelligence about those companies.
Show all of your calculations and processes. Describe your answers in three to five complete sentences.
a. What price would you bid if you must win the project?
b. What price would you bid if you want to maximize the expected value of the contribution from this contract?
c. Defend your answers with discussion, making any assumptions you feel are reasonable and/or are supported by the information provided.
Required Resources
Text
Please read the following chapters in: Managerial Economics:
• New Product Pricing and Pricing in New Markets.
• Competitive Bids and Price Quotes
Douglas, E. (2012). Managerial Economics (1st ed.) [Electronic version].
Multimedia
FeelVibe10. (2014, May 14). Alka Seltzer Plus cold and cough TV commercial, ‘library' [Video file].
Recommended Resources
Websites
Bloomberg
Cable News Network
The Economist