Price Analytics Prompt
Marketing – Price Analytics Prompt: You are the marketing manager for (fictitious) Acme Lamp Company. Acme specializes in the manufacture of lamps (light bulbs) for industrial applications. You are in charge of launching Acme’s new LED-12 light emitting diode (LED) lamp. The LED-12 uses an array of 12 high-intensity LEDs to replace a standard medium-base incandescent lamp. As part of the launch plan, you must select a price. You have gathered the data shown below.
Provided Data:
| Attribute | Description | Data |
| Investment | Money invested to develop product | $20,000 |
| Fixed Cost | Overhead costs not changing with quantity produced | $10,000 |
| Variable Cost | Labor and material costs to produce each unit | $10 |
| Unit Sales | Quantity of units forecast to sell at $20 per unit | 5,000 / year |
| Unit Sales, Max. | Constraint on production; Maximum production quantity | 10,000 / year |
| Markup Percentage | Desired return on sales | 20% |
| Target ROI | Target return on investment for new projects | 20% |
| LED-12 | Life – Long life due to rugged LED design | 24 years |
| Existing Lamps | Price – Price of existing lamps: incandescent and CFL | $1.00 |
| Existing Lamps | Life – Shortened life due to sever conditions in industrial plant | 3 months |
| Existing Lamps | Labor – Labor cost to replace existing lamp | $20 / lamp to replace |
| Price Elasticity | Percentage change in demand given a percentage change in price | 1.0 |
My Data Charts:
| My Calculations | |
| Unit Cost | $12 |
| Markup Price | $15 |
| Target Return Price | $12.80 |
| Annual cost of existing lamps | $8,400 |
| Value in Use Price | $148 per unit |
Target Price to maximize profit based on the price elasticity of demand:
| Input | Results |
| Variable Cost per Unit: $10 | Optimal Price: $25 |
| Fixed Cost: $10,000 | Current Revenue: 100,000 |
| Current selling price: $20 | Optimal Revenue: 93,750 |
| Current selling units: 5,000 | Current Profit: 40,000 |
| Maximum capacity (in units): 10,000 | Optimal Units: 3,750 |
| Price elasticity of demand: 1 | Current Price: 60,000 |
| Optimal Cost: 47,500 | |
| Optimal Profit: 46,250.00 |
Questions: What comments do you have for Acme Lamp Company? Are they doing the right thing by emphasizing LED lamps? Is the demand there?
