Deluxe Carpets: pricing strategy and competitive positioning

Managerial Economics

What does your company produce? What utility or benefits does it provide to the consumer? How do consumers use it?

The company is one of the top luxury carpet manufacturers in the world. The benefits provided by the luxury carpets include; elegance, class, status, comfort and durability. The primary use of luxury carpets by the consumer is for decoration of home or office interior spaces.

What is your company's history with this product or service?

Deluxe Carpets has been in the market for more than 250 years. This company is based in rural England, collects plants from all over the world and then exports a major portion of their turnover. It is the biggest market including United States.

What does the competition in the market look like for this product or service?

There is good competition in the market because some other companies offer low cost alternative products.

First-Degree Discrimination: Considering Individual Customers

First-degree price discrimination is the mechanism through which we ascertain the selling price of an item with which customers are more inclined to buy. Through this mechanism, either you bargain with customers or set prices by profiling your customers and set personalized prices for them based on previous trend (Glass, 2016). We are in luxury carpet business, and our customers are usually well-off. Due to this reason, they don't hesitate to pay for their desired item.

In order for your proposal to generate more profits, will you recommend markup or margin pricing? Why?

In markup-pricing, the firm calculates the cost of the product before adding a proportion of it as markup, therefore it will be recommended. The company decides what amount is to be marked up. Actually, prices that are set through this method cover the production-cost and maintain sufficient profit margin to enable the company achieve its target rate of return, (Boundless, 2015) that is, the percentage of profit is decided by the company.

What is the current price? What will be the new price?

The current price of 500 sq. feet of luxury carpets is $650 whereas the new price will be $780.

How will consumers benefit from your proposal?

The benefit that consumers will get from our proposal is a new, up-dated and exclusive product whose source of exclusiveness is appreciable and admired by consumers.

Explain how implementing your proposal is expected to impact consumer demand

Usually, for goods or services, demand is showed through a downward sloping curve in which the quantity on the x-axis normally inclines when the price on the y-axis declines (or vice versa) (Boundless, 2015). The company is able to set a high price because of the trust our valued customers show on our product, brand satisfaction, good track record and quality. By giving best returns to our customers against their spent money, this will convert into profit (Tacke & Hilleke, n.d.).

How will your proposal impact sales in the first three months?

As customers don't accept price change, in the first 3 months, slow or maybe a decrease in sales is expected. It happens because with every significant change, up to 6%, sales are likely to drop.

How will your proposal impact sales within twelve months?

As customers start understanding and become familiar with the change, they will keep on buying our company's products.

What would increase sales enable the company to do differently?

For constant growth of the company, numerous new projects will be initiated, and besides other things, the next generation process technology will be incorporated. To decrease the economically produced batch sizes, this new process technology will be an advance innovation.