Break Even Analysis
Please make sure the break even analysis is done in Excel and it has formulas so that if I make changes it’ll work. I’ve attached the pricing strategy with the cost within the writing. Please look at the if/when scenarios. If you have ANY questions, please email me immediately. Please Note: Break-Even Analysis The break-even analysis estimates how many units of the product have to be sold in order to cover your costs. To calculate the break-even point you will need data on your Fixed Costs, Revenue per unit, and Variable Costs per unit.
4.5 Pricing Strategy
When trying to come up with a pricing strategy for Right Height Tees, Nike must first look at its product positioning and determine the elasticity of demand for the product. As discussed in the positioning strategy portion of the marketing plan, many companies have failed in the golf tee market because their high-tech offerings have been considered overpriced and have come off gimmicky. It is critical that Nike avoids these common mistakes made by golf tee manufacturers in the past.
The elasticity of demand for golf tees is pretty high. Golf tees are absolutely needed to play the sport of golf; however, due to the break frequency and the amount of tees that players go through in the course of a golf season, the price must remain low. While the elasticity of demand is high, if the product proves to help golfers perform better, that elasticity would go down. This will account for the slightly higher price of the Right Height Tee.
In order to avoid the label of being a gimmick, and the entice new customers to try the product, the Right Height Tee will be made, packaged, and sold just like traditional golf tees. The addition of the height adjuster on the tee will require more materials and a more detailed manufacturing process; however, these changes will only result in a 5% increase in production costs compared to a traditional tee. Taking into account the 5% increase in manufacturing costs and the benefits that the tee will provide the customer, Nike plans to sell the Right Height Tee at a price 20% higher than traditional tees. While the elasticity of demand may be higher for traditional tees, the improvements that the tee can potentially make on the customer’s golf game, makes the 20% mark up an absolute bargain. If traditional tees sell in the range of $5-$7 for a 100-pack, Nike will sell the Right Height Tee 100-pack in the range of $6-$8.50. With smaller quantity packs of tees, Nike could even increase the mark-up percentage a little bit more.
As with every other product and service being sold in a variety of markets, pricing, at least to some extent, will be a game of trail and error. With the production costs only increasing 5%, Nike has the 15% buffer zone on the 20% mark-up price. If Nike is finding that the elasticity of demand in the market is just too high and their sales aren’t meeting projections, they can drop the prices slightly in the future. With that said, Nike should have no problem being successful selling these tees at a price 20% higher than traditional tees.
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