CHILDCARE SERVICES PRICING IN A SKI RESORT
Actual Price Charged By the Business
Based on the per baby per day data during whole year average figures Ski Resort is charging $142.50 per baby in order to generate 60% gross profit margin. (Exhibit 4)
Evaluation of Actual Price Charged In Terms of Profit Maximization and Recommendations Thereon
However, the fixed rental cost makes the pricing decision more complicated for Ski Resort, because the Ski Resort has to pay the additional rental cost during the winter season and distribution of that additional rental cost over the whole year’s cost makes the cost lower in winter season but at the same time it increases the cost of service during off peak seasons, which leads to inappropriate prices being charged during off-peak seasons and peak seasons, consequently, the demand will be affected due to the inappropriate prices that is being charged.
Since, the Ski Resort’s baby care business is seasonal; therefore, it should charge a price which is based on the peak season and off-peak season. Further, during the peak seasons Ski Resort should charge lower price of $125 per baby which will generate 60% gross margin, in addition to this, the demand will increase due to the lower prices which will increase the profits, meanwhile, during peak season Ski Resort should charge premium prices in order to control the demand within the limit of available owned space of Ski Resort. This approach will not only avoid the need to pay for extra rentals but will also increase the gross profit margin. On the other hand, if Ski Resort does not increases its price and matches the additional rent only with the revenues of peak season it will only be able to generate gross profit margin of 45%.
Therefore, in order to maximize the profits Ski Resort should charge different price during the off-peak seasons and peak seasons that will maximize its revenues.
PRICING OF PRINTERS AND INK CARTRIDGES
Demand Curve for the Base Product
Base product comprises of a printer and a single cartridge and in order to derive demand curve of base product, number of hospitals which are represented as segment size are taken as demanded quantity and maximum economic value which they will enjoy will the maximum price that they will be willing to purchase, furthermore, the relationship between price and demand in a sort of negative, i.e. increase in price will decrease the demand. Based on the above understanding demand curve of base product has been drawn in exhibit below. (Exhibit 5)
Profit-Maximizing Price of Printer without Replacement Ink Cartridges
Profit is maximized when per unit marginal contribution is maximized and contribution is the difference between price and variable cost. According to the facts in this case, variable cost of a printer is $400 and we have established in question one above that we have three different prices at which three categories of hospitals are willing to purchase base printer, meanwhile, cost of capital is 5%; which means that the minimum price of base printer must generate profits in equal to the cost of capital so the minimum price will be variable cost of base printer that is $400 plus a 5% markup on cost making a total price of $420/-. Thus, a maximization price must be higher than $420, therefore, third segment with 6,000 hospitals cannot be considered, which offers $200 for base printer. However, if sales price is selected at $500, it will attract hospitals of segment one and segment two and a total number of 1,400 hotels will be willing to pay $500 for base product and this price will generate total revenues of $700,000/-. For the mean time, variable cost will be $560,000/- ($400x 1,400); consequently, offer price of $500 per base product will generate total contribution of $140,000/-. On the other hand, offer price of $800/- will attract segment one hospitals that are 400 hundred in numbers and will generate total contribution of $160,000/-, therefore, the highest contribution offer price of $800/- will maximize the profits of base product with no consideration of replacement ink cartridge. (Exhibit 6)..................................
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