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Recommendations: Sell the 5 HP unit under $4/unit, thus making up the largest margin per volume than with a higher price and an unlikely volume. Sales estimates of roughly $10.5 million would be generated, and allow for a great ROI than pricing at a premium level, but dramatically cutting the number of units sold in the market. Further, pricing the 5 HP unit reasonably, there are greater inroads to the variable speed and larger speed units; the larger speed units requiring more time to sell and investment from the client.
Negatives- Despite the increase volume in annual sales that pricing at a lower fixed price for the 5HP model, and assuming that they make up 11% of the total volume of drives sold, we see a bit of diminishing return on the marginal costs at the levels...
This can be accomplished using a few sales techniques: 1) price bundling (multiple units per client); 2) leasing (recovery of capital expenditure in 1-year or less, profit for the next 12 months, potential new unit in the 3rd year); 3) Use the funds and sales impetus of the 5 HP model to buttress sales for the variable speed unit, and find ways to tool manufacturing so that offsets from the 5HP are available for the variable speed. if, however, the company is not dedicated to continued R&D and launching of new variable products, expansion of the 5HD model may not make sense…
REFERENCES
"Avon Company," Harvard Business School. Case Study 9-590-022, October 30, 1989.
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