Pricing strategy for Sherry Crow’s Massage Therapy Practice
The best way to help Sherry set her price per massage session is through a six step price setting illustration.First, estimate costs.Say after thorough investigation she finds that her Fixed Costs which include rent and equipment are $1000 per month.
Her Variable Costs which include massage oil, soap, airtime, and internet and so on are $2000 per month. In total it will cost her $3000 or $100 per day to run her practice. Secondly, select the pricing objective.
It is either that she wants to survive, maximize profits or penetrate the market. Her plans to ‘give back to the society and make a profit’ shows that she wants to penetrate the market. Thirdly she needs to determine demand by conducting a survey and price experiments. Say from this exercise she realizes that she will, on average receive 10 customers per day. With this information it is now easy to calculate how much a unit massage session will cost her to break even. Total costs $100 per day ? 10 customers per day =$10 per session.
Now that she knows how much it costs her to administer 1 massage session, step four is to analyze competitor’s costs, prices and offers and select a pricing method. Say she finds that the competition charges $20 per session. She then adopts a price discriminating strategy for her ‘two different market segments’. Through markup pricing she adds a 100% mark up on her cost for those ‘able to pay’ or $20 and 50% mark up to the ‘disadvantaged’ or $15. (Kotler 480) Sherry buys the table at $500. We start calculating from the retailer backwards.
The mark-up on the retailer’s cost is 100%. If the retailer’s cost were c then (c + 100% of c = 500) We know that 100% of c = c. Therefore c + c=500. 2c=500, c=500? 2 =$250 Therefore the retailer’s selling price is $250. The mark-up on the wholesaler’s cost is 50%. Let the wholesaler’s cost be b. his selling price will be b+50%b=250. b+0. 5b = 250. 1. 5b=250. b=$166. 67. Let the manufacturer’s cost be a. His selling price is the retailer’s buying price which is $166. 67. The mark-up on the manufacturer’s cost is 20%.
Therefore costs (a) + 20%markup on the cost (20%a) is the selling price. Therefore is a + 20%a =166. 67. Further calculation will reveal that 1. 2a = 166. 67 a=138. 89. The manufacturer will sell at $138. 9 (Shari par. 4) Works Cited Kotler, Kotler. Marketing Management. 11th ed. Upper Saddle River, New jersey, USA: Pearson Education, Inc. , 2003. Walters, Shari. Retail Math Formulas: Equations to Calculate Retail Sales. May 24, 2010, http://retail. about. com/od/retailingmath/a/retail_formulas. htm