Pricing

Each period, you must set the recommended retail price for each of your marketed brands. The retail price is the list price for customers. The average selling price is the price at which you sell your product to distributors. It varies by distribution channel since different margins hold in each of the three channels, as explained in the Distribution Channels section.

Specialty stores tend to respect the recommended retail prices set by companies. However, mass merchandisers and online stores use promotions or special offers to sell products. On average, these promotions are equivalent to a discount rate of 10% off the list price for mass merchandisers and 5% for online stores. Figure 5 provides a summary of prices, margins and discounts for a recommended Retail Price of $400 and a unit transfer cost of $123.

Dumping is strictly forbidden in the Markstrat world; therefore in all channels the recommended retail price must be set so that the selling price of a product is higher than its transfer cost.

Prices must be entered each period in the Marketing Mix decision form. Price increases or decreases greater than 30% in one period are highly discouraged as they often result in negative market reactions. On one hand, an excessive price increase is usually not accepted by consumers who may react strongly and stop purchasing the brand. On the other hand, an excessive price decrease will result in a proportional cut in the distributors’ margin and your commercial team may have a hard time finding distributors for the brand. A message will warn you when such decisions are made. If you ignore the warning, the recommended retail price will be automatically adjusted up or down to stop such adverse reactions.

Figure 5 – From retail price to unit contribution