As a pricing analyst for the Value Supreme grocery chain, you are asked to prepare the analysis of a proposal to price whole frying chickens low in order to attract shoppers to Value Supreme stores.
The current price for whole fryers is $.89 per pound. The proposal is to set a promotional price of $.59 per pound. The wholesale cost of the fryers, prepackaged and ready for sale, is $.55 per pound.
By tracking past changes in sales of chicken with changes in sales of other grocery products you discover that each one pound change in the sales of whole fryers is associated with the following changes in the sales of other products:
Product
Dollar Change $CM
Fruits and Vegetables
$+.154 50%
Packaged Groceries
+.692 20%
Frozen Foods
+.114 33%
Other meat including
chicken parts
-.250
40%
(a) If this past relationship between sales of whole fryers and increased sales of other goods holds, by how much must chicken sales increase to make this price promotion profitable?
(b) How might you structure the promotion to increase the likelihood that additional chicken sales will in fact result in a corresponding high level of sales for other products?
(c) Could this store have profitably promoted whole fryers at $.49 per pound?