3 Pages Posted: 30 May 2017
This case is intended for MBA audiences and is used for the first-year and second-year elective, Data Analysis and Optimization. Swati Su's boss had been planning to raise prices for their brand, Jonstan's, across all forms and sizes for each of its four major customers (consisting of the largest retailers in the United States). When Su questioned his thinking, he offered two justifications.
Aug. 9, 2011
Swati Su was not so sure her boss knew what he was doing. He had been planning to raise prices for their brand, Jonstan's, across all forms and sizes for each of its four major customers (consisting of the largest retailers in the United States). When Su questioned his thinking, he offered two justifications.
He said, “First, prices of the resin used to manufacture Jonstan's have recently jumped by about 5%.” Although Su knew this to be true and understood the importance of having a “story” or “reason” for price increases, she believed the manufacturer's price for Jonstan's should not be based on cost alone—but also on “what the market will bear.”
His second justification came after reading the book Power Pricing, by two well-known marketing academics, Robert J. Dolan and Hermann Simon. As her boss explained it to Su, price was the single most important driver of profit; a 10% increase in price had a bigger impact on the bottom line than a 10% decrease in unit costs, a 10% decrease in fixed costs, or even a 10% increase in unit sales volume. He said:
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Keywords: marketing pricing
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