FastWash is a new service that allows businesses, such as restaurants and hotels, to send out linens to be washed, dryed, and folded. They are new to the market and the first business of their kind to enter. After some initial research, FastWash has learned the following about its potential customers:
• Companies wash an average of 20 loads per week (assume 50 weeks/year)
• Companies currently use two people an average of two hours each to wash, dry, and fold each load
• Companies pay their workers total pay and benefits of $12/hour
• The washers companies currently use cost $12,000 and typically last 1,000 loads
With FastWash, a company no longer needs any equipment and its employees take only a 1/3 as much time to finish the laundry (versus without FastWash). To provide its services, FastWash incurs fixed costs of $500,000 for completing 100,000 loads per year, and variable costs of $15 per load.
1) What price would you recommend FastWash charge per load? Detail how you arrived at a specific number, and explain your rationale.
2) How would your previous recommendation change if you heard a rumor that a competitor Speedy Clean might start a similar service at $25 per load? Explain your rationale.