Clocky: The Runaway Alarm Clock

What is the cost of Clocky for Nanda?

If Nanda decides to manufacture Clocky overseas, her manufacturing cost will be little less than $15. We
will assume it to be $15.
The table below shows the distribution of total cost: Manufacturing cost
Shipping cost
Warehousing and packaging cost
Credit card processing fees
Cost of wasted merchandise
Total

$15
$1
$1
$1
$3.17
$21.17

Since, 15% of the products sold were expected to be returned, the cost of those products had to be
distributed over the rest to avoid losses. Cost of wasted merchandise is calculated by distributing the cost

15
of 15% of the products over 85% of the products ie 18* 85 .
The cost is $21.17
What should she price her product at? Why?
Nanda should position it as a utility appliance. It shouldnt narrow itself down to only people with sleep
disorders but should also include office going people in the age group of 26-45. Looking at Exhibit-8,
only about 30% of the people in the age group wanted it as a gift. Overall, 2532 out of 7085 people in the
mailing list wanted it as a gift, constituting about 35% of the total. Moreover, since the younger
generation were the early adopters for such products, it made sense to target them.
If we look at Exhibit-4, we get a sense of average markup distributors put on products. If we want it to be
a household appliance then the margins are on an average 34%, however, for gifts it is 49%. The markup
for our product will be less than the average markups given in the table.
If she chooses Brookstone to be the distributor, the markup will be slightly less than 168%. Lets say the
markup is 150%. Then given the cost, it should be priced at $52.99.
The price should be $52.99