Stevens Outdoor Furniture has just introduced a new line of products in the southeastern United States. Owner James Bilby discovered the new line, which includes outdoor furniture and other lawn items, on a recent vacation to California. The market is extremely promising because none of his main competitors stocks this type of furniture. He’s concerned, however, about pricing because shipping costs will drive his prices higher than those charged by stores closer to the manufacturer’s West Coast factory. Initial promotion and advertising costs, as well as warehousing expenses, are also on Bilby’s mind. He’s called a teleconference with his ten store managers to develop a pricing strategy that must take effect immediately.
-The traditional practice of cost-based pricing is worth a try if Bilby thinks it important to establish a market for his ten stores.

Question

Quizplus · Accepted Answer

Cost-based pricing involves setting prices based on the costs of producing, distributing, and selling the product plus a fair rate of return for effort and risk. Given Bilby's concerns about shipping, warehousing, and initial promotion costs, using cost-based pricing would allow him to cover these expenses and potentially establish a market presence despite higher prices due to distance from the manufacturer.

Stevens Outdoor Furniture Has Just Introduced a New Line of Products