Pricing Strategy of Beauregard Textile Company
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Beauregard Textile Company
Beauregard is a company operating in the textile sector. It is a strong entity in the industry which decides its price structure based upon its needs and cost considerations. Recently it decided to increase its price at the start of the year from $3 to $4 a yard of T-30. This price increase was based on the cost increase at the start of the year and also by the encouragement from the board to increase the prices to strengthen the working capital of the company and to finance future growth and modernization of existing plants.
Identification of the pricing challenges
There are many challenges that company is facing in relation with its pricing strategy. As it can be seen from the discussion of company’s sales manager and controller that the company is losing its customers through changing its price for product T-30. Company changed its product price because it was not able to meet the cost on this price level. They were operating below the breakeven level at the price of $3.The company has changed the price of T-30form $3 to $4 and after that, the company has seen a material loss of 20% in its sales level (Nagle & Hogan, 2006, 34-48). On the other side, the main competitor the Beauregard Company, Coulhoun & Pitchhard has captured that entire market share because they remained their sales price on $3 for this product. Now the company has a main challenge with the price of product T-30. Calloway, the sales manager of the company is also feeling the fear that, it is the strong possibility, if Beauregard cut its sale price to $3 then its competitor C&P Company will cut its price below $3. In this situation, the company will face many adverse situations such as more decreased in sales demand. The company’s sales controller has also supported the argument of sales manager and state that, it is the strong possibility that C&P will cut its price below $3 due to its competitive nature. The second main problem is that, if the company will reduce its price to come back on its previous track, then it will not able to meet with the cost of the product. The company need to asses that which pricing strategy can give the maximum advantages in this situation.
It can be seen in the case study that, Company is covering all its cost at the price of $4. On the other hand, the company has also lost its major share of customers. The main reason is that, the customer prefers to buy the product T-30 at the price of $3. In this case, there are many alternatives are used by the management (Nagle & Hogan, 2006, 34-48). Some of them are mentioned below. If Beauregard does not want to change its price for product T-30 and also want to maintain its market share then there is a need to offer some extra incentives to the customers. This will capture the attraction of potential customer towards the product T-30.
Extra incentives are in the form of better quality or any other promotional benefits. It is also mentioned in the case study that C&P is only a competitor of the product T-30. So Beauregard can achieve maximum advantages by enhancing the product quality and by introducing extra promotional benefits. If the company wants to achieve customer satisfaction then it can consider, changing its pricing strategy. The company can use the “Target costing method” as a preferred pricing policy. Target costing involves setting a target cost by subtracting a desired profit margin form a competitive market price. Target cost may less than the planned initial cost, but it is expected to be achieved by the time the product reaches the maturity stage of the product life cycle.
It is recommended to Beauregard Company that, they should use the Target pricing technique to maintain the customer demands and profitability. The main reason is that, the price of $4 is also giving a small portion of benefit. As the statics of the company shows that,
If the company remains its cost at $4 for product T-30 then the incurred cost will be $3.90 per unit. It means that the company is only earning $0.10 on unit basis. In this case, of the competitor C&P offer any of promotional benefit on T-30 then Beauregard can face many adverse situations (Nagle & Hogan, 2006, 34-48). Another problem can also arise in the result of increase in the fixed cost. If the fixed cost is increased over breakeven level, then the company will surely face many ambiguities with their profitability. So it is recommended to use Target pricing technique as a future strategy. In addition, company can work on product T-30 separately because this product has no effects on the sale level of other company’s products.