Reference no: EM133077650

Where do I begin on this problem? This memorandum is related to market power pricing strategies. They want to know if we keep our current pricing strategy or if the coupon strategy will increase our profits.

Review of Fruit Pricing Strategy

Over the past year, we collected weekly sales data on one of our most popular dried fruit items: organic dried mango, and we are excited to see if you have any suggestions on improving our profit performance from this product line.

Please note that we have not looked at representative household data yet, so we are not equipped to review block or two-part membership pricing strategies at this time.

However, we were able to notice two distinct customer groups in our market level data: (i) one-time customers (new customer ID that does not repeat purchase within the year of data collection) versus (ii) repeat customers (existing customer ID that repeats several purchases within the year of data collection).

Right now we are charging a price of $10 for our one pound bags of organic dried mango. However, we feel that our generic approach to pricing is un-optimal and we think we can get more sophisticated with our promotions targeted at new customers that are shopping around.

Our sales analytics team has supplied us with the following estimates of weekly demand for our organic dried mango, broken down by Repeat-R customers and One-time-O customers:

QR = 3,000 - 100PR

QO = 2,400 - 200PO

Taking into account that our costs are constant at $2 per one-pound bag, please review our current pricing strategy and let us know if we have anyway of customizing prices by targeting the new one-time purchasers with a coupon discount offer. Ultimately we are after ways of increasing our profits, so that is objective number one.