Question

Owing to greater consumer concern about sugar in prepared foods, a Canadian syrup manufacturer formulated a new product: Slim Maple Syrup. The product was basically regular maple syrup with less than half the sugar, but with added cinnamon and brown sugar flavoring. Focus groups indicated that the product would be very popular once people tried it. The manufacturer planned to sell the maple syrup in a 250-millilitre squeezable plastic bottle. Test marketing indicated that consumers would be willing to pay somewhere between $4.29 and $5.29 per bottle. Recognizing that it had to allow reasonable margins for wholesalers and retailers, the manufacturer finally decided on a suggested price to consumers of $4.89 per bottle and trade discounts of 20/15%, with the expectation that wholesalers would pass along the 20% to retailers and keep the 15% discount for themselves. The variable cost of producing Slim Maple Syrup was $2.96 per bottle, and it was packaged 24 bottles per case. Fixed costs that the manufacturer allocated for this product totaled $55000.

e. The brand assistant for this product suggested that the manufacturer might be better off lowering the price to $4.69. Her research indicated that at this price, sales volume would increase by 4%. However, the brand manager was adamant that $4.89 would be the suggested retail price. Do you agree with the brand assistant or the brand manager?

Answer 1

e. Yes, I agree with the brand assistant of the product This is because the demand for the product will be relatively elastic. In this case any fall in the price will lead to increase in the total revenue derived from the product. This increase in total revenue will occur because increase in quantity demanded will be more than increase in price of the product and this will lead to increase in total revenue derived from the product. Thus, the brand manager should agree with the brans assistant and reduce the price level to increase revenue derived from the product.