Pricing strategies for a tire retail business

Pricing Strategy

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PRICING

OVERALL COSTS

The initial set up and marketing costs in starting the business will be treated as capital costs and thus, they will not be considered in the determination of the product and service price. The cost to be considered in setting price will be:

Tire Purchase cost

Cost of tire shipment

Buildings lease hold cost entailing the office and store rents,

Sales and administration personnel costs,

Future costs of marketing, advertisement and promotional activities

Cost of market evaluation exercises

Legal fees and Licenses

Materials used in service provision

Factory running costs including Electricity, heating and lighting costs

TEMPORARY PRICE PROMOTIONS

Temporary price promotions will be considered when there is low demand for tires or harsh economic time. The price promotion will be considered to boost sales revenue and increase the businesses grasp in the market.

In case of potential competitors, temporary promotion price will be considered to retain demand for the products and services. Competitive pricing strategy will however, ensure that commodities contribute to business expenses and profits. Competitive price will also target low cost tires since they have a price elastic demand.

Additional promotional pricing strategy will be used where new tire products are introduced in the product range or the company is venturing in a new market. This strategy will enable the business to attract demand for tires and increase its market share.

Promotional price on seasons such as holidays will be used to serve as a means to communicate the company's existence, excite current customers and entice potential customers. This strategy will serve to increase the company' revenue and also retain customer.

The promotional prices will be on quantity discounts, specific products or for purposes of clearing old stock. Additional the promotional prices, gift contest promotional will be introduced to serve as customer loyalty advantage prize.

PRICE DISCRIMINATION

The business venture will also segment the market to identify possible partnering companies. The partnering companies will comprise of tire outlet shops, tire service stations and shops and, large transport companies. These companies will be considered as Endovile's market intermediaries' for whom a discount price on their purchase will be considered. The discounted prices will serve to encourage large quantity purchases and customer loyalty.

The price discrimination venture serves to give preferential treatment to customers with high special demand (Marn, Michael, & Rosiello, 2004). Price discrimination on individual tire will be reflected on the premium tires considered to be a prestigious. The pricing for these tires will not necessarily be based on markup price but be a reflection of the market's attitude towards them. A high price tag on premium tires will be distributed to first class citizens in Minnesota town and surrounding environs. They will serve to increase the company's profits and compensate low price strategies used.

PROFITS

Tire Brand

Markup %

Markup price in $

Tire purchase cost in $

Profit $

Expected demand in units

Expected Profits in $

All season truck tires

25%

Nil

85.99

21.5

11,825

All terrain truck tires,

25%

Nil

75.69

18.94

15,152

Radial tires,

25%

Nil

63.39

15.84

4,752

Cross-ply tires,

25%

Nil

65.59

16.39

10,489.6

Performance winter tires,

Nil

68.39

68.39

50

3,419.5

Normal Winter tires

25%

Nil

36.37

65

2,364.05

Sport and prestige tires

Nil

85.59

85.59

13,352.04

Total

61,354

Expected quarterly profits will be $61,354