DIRECCIÓN COMERCIAL

1. Dance is Cool: break-even point

2. Westside Manufacturing: break-even point
3. Mr. Smith: Gross margin, Mark up and Retail price
4. Mayoral: Psychological prices
5. Ray-Ban: Phycological prices

1. Dance is Cool

Last year, Dance is Cool, with its 900 learning dancers, organized a yearly gala. The costs
incurred were as follows:
• Renting the hall: €8,000 a night.
• DJ (with material and animations): €3,000
• Decoration: €1,500 euros
• Beverages: €12 a head
• Food: €7 a head.

Questions:

1. The team organising the gala expects roughly 2/3 of the will attend the gala. In that
case, what is the minimum price they should charge for a ticket?
2. The usual price for this type of event is €35. If the organising team decides to charge
that price, how many tickets should sell to breakeven?

Pricing tutorial 1
Noelia Jiménez-Asenjo
 2. Westside Manufacturing

Westside Manufacturing is a small company manufacturing pillows for sale through specialty
bedding and dry-cleaning stores. Following are Westside Manufacturing’s income and costs for
a typical month:
• Sales: 4,000 units
• Wholesale price: $10.00 per unit
• Revenue: $40,000
• Variable costs: $5,50 per unit
• Fixed costs: $15,000

1. Is Westside Manufacturing making money or losing money? How much?

2. Which one is the break-even volume of the company?

Westside is considering a 5% price cut, which, it believes, would make it more competitive with
alternative suppliers, enabling it to further increase its sales. Management believes that the
company would need to incur no additional fixed costs as a result of this pricing decision.

3. Which one is the new break-even volume?

4. If the company sells 4.250 units, is it worth to cut prices by 5%?
5. How much would the sales volume have to increase to profit form a 5% cut in price?

Westside company realized that it can not increase its output without incurring in additional
fixing costs. The company needs to increase the production capacity installing new equipment,
at a monthly cost of $800.

6. What is the new break-even point?

7. What is the minimum sales increase required to justify a 5% price reduction if fixed costs
increase by $800 a month?

Pricing tutorial 2
Noelia Jiménez-Asenjo
 3. Mr. Smith
Mr. Smith runs a company that sell cash registers to supermarkets. He gives you the following
prices for some different products he has in his catalogue. The tax rate just changed to 20%.
Mr. Smith needs to update his list of prices.

1) Fill in the following table:

In € Device 1 Device 2 Device 3 Device 4

Purchasing price 550 700 225 1000
before tax
Profit margin 60 140 55 500

Mark-up

Gross margin

Before tax retail

price
After tax retail
price

2) Mr. Smith needs you to update the following table:

In € Device 5 Device 6 Device 7 Device 8

Purchasing price 100
before tax
Profit margin 200

Mark-up 28 % 25 %

Gross margin 20% 18 %

Before tax retail 228

price
After tax retail 453,60
price

Pricing tutorial 3
Noelia Jiménez-Asenjo
 4. MAYORAL
Mayoral is a Spanish multinational textile design, manufacturing, distribution and marketing
company, specialized in the children's fashion sector. It is headquartered in Malaga, Spain.
Mayoral operates 150 of its own stores, with a commercial presence in 75 countries around the
world, 8000 points of sale and 16 subsidiaries
The head of marketing is considering launching a child fragrance in the Fall 2021. Different
scents are offered: pear, strawberry & clementine.
Two questions were asked during a market survey developed over a sample of 1,000 mothers.
• Question 1: Above what price would you not buy this fragrance because it would be too
expensive?
• Question 2: Below what price would you not buy this fragrance because its quality
would not seem in line with the image you have of this product?
The results are showing in the following table:

PRICE Too expensive Too cheap

(€) % % A+B
Question % Cumulated Question % Cumulated % Non- % Buyers
1 downwards 2 upwards buyers 100-A-B
A B
7 0 80

9 20 80

11 20 120

13 40 180

15 80 200

17 100 140

19 120 80

21 260 60

23 180 40

25 100 20

27 80 0

Questions:
1. Determine the psychological price for this fragrance thanks to the table studied in class.
2. Does the psychological price enable to maximise the revenue?
3. What are the limits of this method?

Pricing tutorial 4
Noelia Jiménez-Asenjo
 5. RAY-BAN

Ray-Ban is an American-founded brand of luxury sunglasses

and eyeglasses created in 1936 by the American company
Bausch & Lomb, whose objective was to create aviation
sunglasses that would reduce the distraction for pilots
caused by the intense blue and white hues of the sky. Since
1999, the brand belongs to the Italian Luxottica Group and
reported US $640 million.
Currently the company wants to launch a new personalized sunglass and the brand wants to
know the right price for its new line of products.
The company asked 2.000 people a couple of questions:
1. Below what price would you not consider buying a Ray Ban personalised sunglasses as it
will be too cheap and won’t fit your Ray-Ban positioning and image?
2. Above what price you would you not consider buying a Ray Ban personalised sunglasses
as they would be too expensive?
The results are showing in the following table:

PRICE Too Cumulated Too Cumulated too Number of Expected

cheap too cheap expensive expensive buyers revenue
(€)
100 200 0

135 360 140

150 500 250

180 550 400

200 160 550

225 140 390

240 90 150

265 0 120

Questions:
1. Determine the psychological price for these sunglasses and the expected revenue for
each price.
2. Does the psychological price enable to maximise the revenue?

Pricing tutorial 5
Noelia Jiménez-Asenjo