Manufactures’ Suggested Retail Price (MSRP)
The Manufacturer’s Suggested Retail Price (MSRP), list price or recommended retail price (RPP) of a product is the cost at which the manufacture proposes that the retailer offer the product. Although the goal is to aid to institutionalize costs, it is not often the value the retailer use or the value the customers are willing to pay. The retailer has the freedom to sell the products at a price lower than the MSRP to move the product faster or they can set it higher than the MRSP to bring in more profits if the item is selling faster than initially foreseen.
The MSRP for Allround suggested retail was $5.29, according to the PharmaSim case study, “The manufacturer’s suggested retail price (MSRP) for Allround is relatively high with volume discounts ranging from 25–40%, not including promotional allowances”. Our pricing decision for the PharmaSim simulation we felt was important because consumers have alternatives to choose from and are better informed. Our initial retail price of $5.45 was an increase from the suggested retail of $5.29 to adjust with inflation rate of 3.1%, which boost sales from $355.3 million to $434 million totaling $78.7 million in sales growth. We purchased survey data to help establish the price. Consumers perceived our product being the most effective in cold relief which allowed Allstar to raise the price incrementally and consumers were still willing to purchase the product.
During period 1 the retail price increased from $5.45 to $5.59 to reflect an inflation rate of 2.7% from last period, we again purchased pricing survey data to compare with our competitors and consumers continue to perceive our product being the most effective which allowed Allstar to increase the retail price, we also found that our price closely resemble with Tradeoff. Period 2 we increased the retail price by .09% from $5.59 to $5.64 to accommodate an expected inflation rate, unfortunately, due to sales plummet of $6.8 million in period 1 we decided to remain at the retail price of $5.64 for period 3 and also with Allstar introductory of a line extension named Allround+ in the form of cold liquid for children, we price this competitively at a suggested retail price of $5.29.
An increase of $19.5 million in sales the decision to have the retail price remain at $5.64 in period 3 paid big dividends. In period 4 there are some factors that lead to increase in retail price to $5.85 for our Allround product such as the price average increase of 3.7% and inflation also increased 4.1%. Moreover from customer survey on Tradeoffs, found that our price of Allround was higher than our competitor of Besthelp so we decided to increase the price. Our price decision for Allround+ remained at the retail price of $5.29 in this period, sales continued to strengthen by $80.5 million with the decision to increase the retail price. In our final pricing strategy for period 5 we decided to remain with the retail price of $5.85 for Allround
The Allstar product was priced quite high compared to the competitors, but it was reasonable price for high performance of it.
Discounts and Allowances
Discounts and allowances are important for a company to provide as an incentive to purchase goods or services. They are used as a major consumer promotion tools and major trade promotion tools. Many people often purchase items mainly because they have a coupon or there’s a promotion made for it. We at PharmaSim felt it was necessary to have discounts and allowances for our consumers and to our retailers as a way to show our appreciation for them and to increase sales, especially during our introduction of the Allround+. We provided coupons to the consumers and we allocated funding for our retailers in the Point of Purchase, coupon budget, and the Co-op advertising.
Allstar strategies to achieve the marketing objective were a combination of factors. Selecting the pricing objective; determining the demand; estimating costs; analyzing competitors costs, prices and offers; selecting a pricing method and selecting the final price. In selecting the pricing objective, we believe in our product and also making it affordable for the consumers supporting our brand. Secondly, determining the demand, our focus was on product quality and effectiveness. We did not need our product to be excessively costly for the normal customer additionally no sufficiently low for the consumer to scrutinize its quality and substance since a few consumers take the higher cost to imply a superior product.
Next, estimating cost since the estimated unit cost was $1.24, we had room to raise the price but kept it low enough to make a profit.
Advertising Budget Allocation
Advertising plays a major role in establishing brand awareness among consumers and in helping to shape consumers’ perceptions of products. Allround is the current market share leader in the over-the-counter (OTC) cold and allergy remedy market, having had consistent success in terms of profitability and sales. For the aforementioned reasons, the continued success of the Allround brand is a critical component of the pharmaceutical division’s long-term growth.
We purchased several reports in an effort to increase our total sales while increasing our stock price. This strategy proved to be sound as we saw an increase in the stock price in period one from $38.35 to $52.18 with an advertising budget allocation of $24.4 million. The budget allocation for periods 2 through 5 for Allround was $27.4 million which was presumed to be a high percentage from our overall budget but it paid off with brand recognition. In period 4 we allocated $6 million and $7.1 million for period 5 for our brand extension Allround+. The graph below illustrates the advertising expenditures allocations for Allround from period 0 through 5 and Allround+ in periods 4 and 5.
Advertising Agency Selection
Brewster, Maxwell, and Wheeler (BMW) was initially Allround’s advertising agency at the start of the PharmaSim simulation. BMW is known for its high quality work and charged a fifteen percent commission on media placement. In period one we chose Sully & Rodgers (S&R) which has a reputation of providing mid-range quality work but charges only ten percent on media placements and was due to cost savings. Even though Allround name is well established, we felt that a decrease in the quality of advertising might not hurt the brand significantly and potential cost savings could result in an increase in profits. We were concern that lower quality advertising might cause irreparable damage to Allround’s brand image, re-investing in the most expensive advertising agency, BMW throughout the remaining periods proved to be a promotional success. One of our performance objectives in our initial strategy memo was to achieve brand awareness of at least 85% and Allround through five periods achieved 89.4% the highest; also a 49.2% brand awareness for Allround+ in only two periods.
The initial advertising message for Allround was to increase overall demand for OTC remedies while increasing Allround’s unaided awareness along with a reminder message to maintain consumer awareness and stimulate repurchase. This message was selected due to Allstar Brand adding a more interactive dimension to the marketing plans, such as social media and internet marketing. Our advertising message was designed to reach and remind consumers of our product using another channel. Going into period 3 and also for period 4 we decided to add to our advertising message due to the reformulation of Allround and then launching Allround+. Since the alcohol was dropped from the product and Allround+ was launched for children we choose to message the systematic relief properties of Allround. When it came to developing Allround advertising message we wanted it to be clear, correct, and complete. We did not want consumer to get false information or be misled by wordy advertising.
Allround brand took advantage of all promotional activities such as co-op advertising, point-of-purchase display, trail size mailings, and coupons. Each promotional activity was used from the start of our brand management efforts for Allround. For periods 0-3 promotional allowances increased, especially in period 3 where we decide to reformulate the product and period 4 introduce Allround+. On average 10.94% of the annual budget was used to help promote the brand. Compared to industry average Allround’s spending allocation compared to the industries average was fair. Our promotional spending compared to our rival, which was B&B, declined as the periods advanced. After period 1, B&B aggressively increased their promotional spending, which proved to be a great move according their rising stock prices over the periods.