Marilyn Lysohir and her husband, Ross Coates started Cowgirl Chocolates located on 3rd street in Moscow, Idaho in 1997. Cowgirl Chocolates offered hot and spicy creations in three basic forms: individually wrapped truffles, chocolate bars, and a hot caramel dessert sauce and provided various packaging offers such as gift boxes, collectible tins, plain plastic bags or gold wrappers. Truffles were available in plain chocolate, mint, orange, lime tequila, and espresso and the chocolate bars were available in orange espresso or lime tequila crunch.
Despite not paying herself a salary and occasionally bartering her art for services, the small business’s revenues of $30,000 did not come close to covering her $50,000+ in expenses. She just was not sure how to turn her award winning products into a profitable business (Peter/Donnelly, Jr. , pp. 488-491). The following paragraphs are discussion on the relative merits of using a cost-based, demand-based, and competition-based pricing method in reference to Cowgirl Chocolates.
Cost-based pricing is a certain amount of everything within the business industry. When deciding on the price of products, a company must first calculate the cost expenses of the production of the items or services. Demand-based pricing represents pricing products by demand flow. When products are in demand then the price of the items can be increased safely. But, if the demand is low then you have to be methodical in your price increase strategy. So it is beneficial to create alternative products just in case is extremely necessary.
Demand based pricing is a policy that sets the price of a product according to the perceived amount that customers are willing to pay, rather than according to the production cost (Encarta, 2009). Competition Based pricing compares products in the market to your products and distinguishes whether those products have an advantage over your current products. Four options that Cowgirl Chocolates could consider as far as pricing may be price lining, promotional pricing, premium pricing and demand-based pricing.
I would utilize demand based pricing which is a policy that sets the price of a product according to the perceived amount that customers are willing to pay, rather than according to the production cost (Encarta, 2009). It must be recognized also that the effect on profit will be a factor; there may be several factors other than profit influencing the selling price decision. Even taking an iterative approach, it may be unrealistic to expect single demand estimates to be made.
Sales demand forecasting is difficult and a range of demand possibilities at each possible selling price may be used to guide management decision making (Coulthurst, 2002). Although I am not usually a chocolate eater, I do have a few recommendations that might have helped Marilyn in her time of decision: • New Market Prospect: Marilyn may want to contact her mentor at“Daffins Chocolates” in Sharon, Pennsylvania. She could send him/her a sample of each “Cowgirl Chocolate” product and ask her mentor’s opinion; if they like the product, then she could ask them if they would be willing to allow her shelf space to market her product.
She could capture wholesale and a portion of the retail dollars to dump back into her business. • Repackaging: I originally was going to recommended that she eliminate the multiple colors for the packaging of her products due to the cost but after looking at her website the colors are quite eye catching. I would tell her to capture more capital for her business she should concentrate on the website she has and market that a bit more. The website is more personable and only cost $25. 00 a month and was a third of her product sales; she would also capture the wholesale and retail dollars.
Lastly, not everyone likes hot and spicy products so her decision to make a “mild” line is a great decision and will help her expand her customer base. • Spicy vs. Mild: Cowgirl Chocolates is focused on promoting spicy chocolates, but realistically it should concentrate on a different variety as a back-up plan in the event that demand is low for the spicy version. For Cowgirl Chocolates, most competition in the industry comes from the businesses producing sweet chocolates. Cowgirl Chocolates may have an advantage on packaging and possibly taste for the spicy chocolates but does not have an advantage on sweet chocolates.
• Utilize Inventory Wisely: Marilyn needs to cut the labels that she currently has in inventory to fit the tin modifications. She already has $7000 in extra packaging & labels on hand, it is not wise to dump more money into new labels that will cost $395 for a plate/printing die plus $152 for the new labels to be printed. She could offer packaging product in the gift boxes purchased 3 years ago, possibly charging $1. 00 extra to try and capture the $9000 expense. This way at least she can recuperate something for inventory that has proven to be a very bad investment.
• Ingredients: They could balance the elements that are contributing to the production costs of the chocolates and then they could balance out with their competitions. This way the company would be able to increase market demand and therefore expect an increase in profit sales as well. For the Cowgirl Chocolates, coming up with a cost-based price would mean decreasing some expenses by modifying packaging or possibly modifying their recipes and/or chocolate ingredients they use. I researched “Cowgirl Chocolates” and found that they have a great selection; they sell tens of thousands of chocolate a year and double their sales every year.
The ingredients stand alone on their own and the sauces are used by several restaurants to cook with. To her credit Marilyn has won two awards in 2010 for her chocolates. The internet and word of mouth keep her business flowing, she receives orders from all over the world including Antarctica! I even joined her email list and intend on trying her chocolates. . Works Cited: J. Paul Peter/James H. Donnelly, Jr, (2008), Marketing Management, Knowledge and Skills Eighth Edition. pp. 489-492, McGraw-Hill Companies, Inc. J. Paul Peter/James H. Donnelly, Jr, (2008), Marketing Management, Knowledge and Skills Eighth Edition.
Retrieved from online. pcdi. com, BM350_Assignment_08; McGraw-Hill Companies, Inc. http://online. pcdi. com/ec/crs/cntentItem. learn? CourseID=2901074&47=6493555&dt=8%2F15%2) . Demand-based pricing definition – Dictionary Encarta, 2009 http://encarta. msn. com/dictionary_561538482/demand-based_pricing. html Demand-based pricing definition – Niguel Coulthurst 03 Apr 2002 http://www. accaglobal. com/students/student_accountant/archive/2002/25/404831 Cowgirl Chocolates – 2009 Cowgirl Chocolates http://www. cowgirlchocolates. com/beta/thankyou. shtml