Marketing Questions
1. A new hotel has been opened in Downtown USA for approximately one year. The hotel is located in the main business district of the downtown area, which is thriving and growing. Several new businesses have entered that area over the past year as regentrification occurs. The businesses range from small restaurants to specialty shops and some professional services. As a part of the regentrification program, several new condominium style homes have been incorporated. There are currently two major groups relocating into these complexes : the young professionals who have just finished college and are taking jobs in the area (a part of the millennial generation) and a group of baby boomers who have recently entered or are about to enter into retirement. Both groups have moved into the area for the lifestyle provided through the local businesses.
As a part of the hotel amenities, they have offered a variety of activities for their guests. The main amenities that they have offered over this past year include:
Professional massage package – price: $60 for a 30 minute massage (40% PM)
Paddle boating/kayaking on the river (transport guests to the dock which is about a mile from the hotel) – price: $25 for the first 60 minutes rental and $5 for each additional 30 minutes beyond the first hour (35% for the first hour and 20% for the remaining hours)
Spa package (sauna, facial treatments, heated rock therapy but does not include a massage) – price: $95 for a 30 minute sauna followed by a facial treatment and then heated rock therapy (30% PM)
Aerobics classes – price: $35 for a 30 minute session (40% PM)
Based on the previous years’ experience, management has realized that while occupancy rate at the hotel was high (80%+,) the use of the above amenities was not. They determined that these facilities were only being used at 45 percent capacity. To maintain the offerings of these amenities, it is important for the hotel to increase the usage. Management decided there were two options. Option 1 is to increase the number of hotel guests that are using these amenities. One possible option would be to create a package type deal. Option 2 is to develop and promote a program for non-hotel guests from the local community.
After a quick price comparison, the hotel determined that their pricing structure is close to the prices offered by other facilities in the area. Currently, they desire a 35 percent profit margin on all of their price offerings; however, this is not always possible as noted above with the prices.
As a marketing consultant, you need to address the following questions for management:
a: You are to assemble a bundled pricing program for the amenities of the hotel. The goal is to combine any three of the amenities that you feel would be the best combination. Your desire is to establish a pricing mechanism for the bundle that would allow you to maintain a 25% profit margin for the hotel. Explain your pricing system, your final price you would offer, and how you determined that price. How would your packaging and pricing differ if you knew the price elasticity is 1.3, and how would this impact your pricing decision?
b: Hotel management wants you to develop a package or set of packages to offer to non-hotel residents. They would like to see the profit margin for this package be approximately 40%. The additional profit margin is to cover the additional costs related to outsiders using the facilities. Identify the primary target market you would use for this project. What would you offer and why? Explain the pricing approach and final price you would use for the bundle(s). If you know the customer group has a high level of price sensitivity, what is your concern with this pricing scenario?
c: Develop a promotional program that would be used for the non-hotel guest program. Be very specific in the program you would develop including the media platforms you would use.
d: What, if any, concerns should management have in terms of the brand image and equity of their company? Be specific in your answer.
e: Create a slogan for the business, less than 20 words, which captures the essence of the brand. Explain your rationale for the slogan. Then show how it should be incorporated within your brand image development and integrated marketing communication campaign.
2. You are currently working for a company called Pierogi’s and More. This company specializes in authentic ethnic European style foods. Product offering includes Blintzes, Golabki, Kaputsa, and Kielbasa, but the main item in the product line is the traditional Pierogi. A pierogi is best described as a piece of pastry or dough that is stuffed with various ingredients. Going back to the tradition of the product, the original pierogis were normally stuffed with mashed potatoes, spinach, sauerkraut and/or variety of cheeses. The pierogi was the ‘worker’ or ‘laborers’ meal, so consequently did not include meats as they were not affordable but when available, some meats would be an ingredient in the pierogi. These meat-based pierogis were considered a delicacy and used mainly for special occasions.
The pricing strategy has been quality/value-priced based. The company has been trying to develop a reputation and perspective of a high quality item. The standard price for one dozen pierogis has been $5.99 per dozen. This price is a little higher than the prices of the main competitors. Depending upon the ingredients, the competitors’ prices range from $2.79 to $5.39 per dozen in most grocery stores. Based on the current production costs and overheads, there is some room to manipulate price, but there is a desire to make sure that the pricing strategy reflects the quality of the product. While the company has completed no in-depth research or analysis, management believes they offer the highest quality pierogi on the market and believes their price should reflect as much. A breakdown of the cost structure revealed total variable costs of $1.87/dozen and total fixed costs of $0.20/dozen.
Pierogi’s and More is starting to enter a new phase of distribution. To this point, sales were through the current company store front or direct sales to a few local markets. The company is now branching into specialty or higher end grocery retail. This change will require the inclusion of a wholesaler into the marketing channel. Studies have shown that most grocery wholesalers maintain a 30 percent mark-up while the retailer maintains a 25 percent mark-up. Pierogi’s and More desires to maintain their current price point at the retail level when they enter this new distribution channel. The company would also like to maintain a 45 percent mark-up.
Based upon the above information, please respond to the following:
a: Using the target price of $5.99, determine the price point the company should use for the wholesaler. Does this price point allow the company to maintain its desired 45 percent mark-up? If you know that the consumer price elasticity for this product group is 0.80, what would be your concerns when establishing the price?
b: Do you believe the company should continue to use a value-based pricing mechanism? Why or why not? If you know the customer group has a high level of price sensitivity, what is your concern with this pricing scenario?
c: In addition to the pricing decisions, Pierogi’s and More does not have a promotional campaign designed for this new marketing channel. Prepare an appropriate marketing campaign to enter the new market. Be specific in your response. Does brand play a role in this process?
d: Pierogi’s and more has the opportunity to distribute the product through the specialty store in both a frozen offering and a fresh offering in the deli/meat counter. Should their pricing structure be the same or different for the two products? How would this impact other aspects of the promotional mix? Does brand play any roll in this process?
e: Create a slogan for the business, less than 20 words, which captures the essence of the brand. Explain your rationale for the slogan. Then show how it should be incorporated within your brand image development and integrated marketing communication campaign.
3. Fresh Dog Treats is a newly developed company that is focusing on catering to the premium pet market. Specifically, the company is creating gourmet/organic grain-free fresh dog treats. While these treats are similar to some treats offered on the market currently by such companies as FreshPet, one of the biggest differences is the packaging approach. One of the limitations to FreshPet products is the product must be refrigerated in the store, which limits the number and types of retailers that will adopt the product. Most stores do not want to put a refrigeration unit in the middle of their pet food aisle.
Fresh Dog uses aseptic packaging that only requires the product to be refrigerated after opening. This will allow the product to be displayed in the normal pet aisle without the requirement of the refrigeration unit. As the company progresses forward with this product, there are several marketing issues that have not been resolved.
Your task is to assist them in this decision-making process. Please respond to the following decision points for the company:
a: Identify for this product a specific target market group they should focus on. In your description of the target market, you also need to address where you believe this group of individuals would most likely purchase this type of dog treats.
b: After calculating the cost of goods sold, the company has determined that the cost per 8 ounce bag of treats is approximately $2.97. The company desires a 40 percent contribution margin on each package sold. They also know that most wholesalers in this industry use a 32% mark-up and many retailers maintain a 25% mark-up as well. Following this channel and based solely on the calculations, what will be the price that the normal retailer will charge for the product? Reflecting on the psychological aspects of pricing and specific pricing tactics theories, what would your final price recommendation be? Support your answer. How would the price vary based on a price elasticity of 0.3?
c: Design for the company an appropriate promotional campaign for this product based upon your described target market. Be specific in your discussion. Be sure to address the influence of the brand will have on this component of the marketing strategy.
d: Discuss how the aspects of differentiation and positioning will impact the acceptance of this product by the desired target market. What must the company consider in terms of its products and the competitor products when entering the market?
e: Create a slogan for the business, less than 20 words, which captures the essence of the brand. Explain your rationale for the slogan. Then show how it should be incorporated within your brand image development and integrated marketing communication campaign.
