Case Study:
Pricing Light Bulb Market
You are the marketing manager for Acme Lamp Company. Acme specializes in the manufacture of lamps (light bulbs) for industrial applications. You are in charge of launching Acme's new LED-12 light emitting diode (LED) lamp. The LED-12 uses an array of 12 high-intensity LEDs to replace a standard medium-base incandescent lamp. As part of the launch plan, you must select a price. You have the following data:
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Attribute
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Data
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Description
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Investment
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$20,000
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Money invested to develop product
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Fixed Cost
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$10,000
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Overhead costs not changing with quantity produced
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Variable Cost
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$10
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Labor and material costs to produce each unit
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Unit Sales
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5,000/ year
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Quantity of units forecast to sell at $20 per unit
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Unit Sales, Max
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10,000/ year
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Constraint on production; Maximum production quantity
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% Markup
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20%
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Desired return on sales
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Target ROI
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20%
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Target return on investment for new projects
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LED-12: Life
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24 months
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Long life due to rugged LED design
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Existing lamps: Price
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$1
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Price of existing lamps: Incandescent and CFL
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Existing lamps: Life
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3 months
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Shortened life due to severe conditions in industrial plant
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Existing lamps: Labor
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$20/ lamp to replace
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Labor cost to replace existing lamp
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Price elasticity
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1
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% change in demand given a % change in price
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1. Calculate the target price using Markup/ Cost-Plus pricing.
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Pricing Calculations
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Results
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Unit Cost
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Markup Price
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2. Calculate the target price using Target Return pricing.
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Pricing Calculations
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Results
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Unit Cost
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Target-Return Price
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3. Calculate the target price using Value-In-Use pricing. Assume industrial plant uses 100 lamps.
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Pricing Calculations
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Results
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Current cost
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Value In Use Price
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4. Calculate the target price using the Optimal Price Analysis:
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Pricing Calculations
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Results
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Optimal Price
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