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On the other hand, her second goal of settling her overhead costs would be met as mark-up pricing allows Sherry to factor in overhead costs in the price to be charged.
In regard to group 2 clients, it would be prudent for Sherry to use competition-based approach to pricing. It is however important to note that Sherry could also settle for mark-up pricing in this case as the approach would enable her to factor in a profit for herself over and above the total costs incurred (both fixed and variable). Competition-based pricing seeks to base the price of goods and services on the price the market leader charges for its services and products. Hence in this case, Sherry would be benchmarking her pricing on the price the market leader charges as far as the massage marketplace is concerned. In my opinion, before settling on this approach, Sherry should first take into consideration her costs and the actual profit she would want to make on the services she offers. If the two appear to be higher than the competition-based price, then it would be prudent to embrace the mark-up...
However, if her costs plus proposed profit are lower than the competition-based price, she should adopt the competition-based pricing approach as in this case; she could price her services just below what other service providers are charging so as to attract clients. This is more so the case given the fact that she is a new entrant.
Computation: Cost to the Manufacturer
Markup on the manufacturer's cost = 20%
Markup on the wholesaler's cost = 50%
Markup on the retailer's cost = 100%
In this case, I take the cost to the manufacturer of producing the table to be x. In that regard;
Manufacturer selling price = x + (x * 0.2) = 1.2x
Wholesaler selling price = x + (1.2x * 0.5) = 1.6x
Retailer selling price = x + (1.6x * 1.6x) = 3.56x
Hence in that case, taking the price Sherry buys the massage table to be y, we have;
y = 3.56x
Thus the cost to the manufacturer of buying the table (x) would be presented in the…
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