Assignment
For the past two Christmas seasons, Courtney's, an upscale gift store, has carried a sweet-smelling potpourri in a plastic bag with an attractive ribbon. Heavily scented with cloves, the mixture gives a pleasant holiday aroma to any room, including the store. Two years ago, the mixture cost $4.50 a bag. Courtney's (the only store in town that carried it) sold 300 pieces for $9.50. Courtney's supply ran out 10 days before Christmas, and it was too late to get any more. Last year, the manufacturer raised the price to $5.00, so Courtney's raised its retail price to $9.95. Even though the markup was lower than that in the previous year, the store owner felt there was "magic" in the $10 ($9.95) price. As before, the store had a complete sellout, this time five days before Christmas. Sales last year were 600 units. This year, the wholesale price has gone up to $5.50, and store personnel are trying to determine the correct retail price. The owner once again wants to hold the price at $10 ($9.95), but the buyer disagrees: "It's my job to push for the highest possible markup wherever I can. This item is a sure seller, as we're still the only store around with it, and we had some unsatisfied demand last year. I think we should mark it $12.50, which will improve the markup to 56 percent. Staying at $10 will penalize us unnecessarily, especially considering the markup would be even lower than last year. Even if we run into price resistance, we'll only have to sell 480 to maintain the same dollar volume." The owner demurs, saying, "This scent is part of our store's ambience. It acts as a draw to get people into the store, and its pleasant smell keeps them in a free-spending state of mind. I think we should keep the price at $9.95, despite the poorer markup. And if we can sell many more at this price, we'll realize the same dollar gross margin as last year. I think we should buy 1,000. Furthermore, if people see us raising a familiar item's price 25 percent, they might wonder whether our other prices are fair."
DISCUSSION QUESTIONS
1. What prices caused Courtney's new charges?
2. Which price would result in the highest profit?
3. What other factors should Courtney's consider?
4. What price would you charge, and how many units would you order?
The response should include a reference list. Double-space, using Times New Roman 12 pnt font, one-inch margins, and APA style of writing and citations.