MGT301 GDB 3 Solution Spring 2017

Scenario:

Baskin-Robbins is among the world’s largest and greatest chains of ice cream. It was founded in 1945 by Burt Baskin and Irv Robbins in California. The ice cream restaurant is mostly known throughout the world for their 31 flavors slogan. The idea behind this slogan is that a customer can enjoy at least 1 new flavor every day of the month. The company until now has introduced more than 1000 flavors globally.Baskin Robbins has finally opened its doors to Pakistan and had signed a master licensing agreement with a local company, AHG Flavors Pvt Ltd.  Baskin-Robbins has initially targeted Lahore & Karachi to start its operations and is intending to cater rest of the metro cities of Pakistan in near future. In Pakistan, quite a few restaurants had been selling ice creams in the name of Baskin Robbins, but nearly all of them were not the original product. In order to grow economically and gaining fame among public, Baskin-Robbins needs to be very vigilant and cautious in setting its pricing strategies, as there are numerous ice-cream brands operating in Pakistan and catering the need of every social class.

Point of discussion:

After reading the above case, which new-product pricing strategy do you think “Baskin-Robbins” should employ to increase its sales; should it be “Market-Penetration Pricing Strategy”or “Market-Skimming Pricing Strategy”? Support your discussion with logical arguments.

Solution :

GDB Solution:

In the above case Market-Penetration Pricing Strategy will used.

  • high volume of sales and deep market penetration of a new product
  • the product does not have an identifiable price-market segment,
  • it has elasticity of demand (buyers are price sensitive),
  • the market is large enough to sustain relatively low profit margins

The competitors too will soon lower their prices.

 

  • In this case Baskin Robbins use Market-Penetration Pricing Strategy. Penetration pricing is the practice of initially setting a low price for one’s goods or services, with the intent of increasing market share. The price may be set so low that the seller cannot earn a profit. However, the seller is not irrational. The intent of penetration pricing can follow any of these paths:

  •  Drive competitors out of the marketplace, so the company can eventually increase prices with little fear of price competition from the few remaining competitors; or  Obtain so much market share that the seller can drive down its manufacturing costs due to very large production and/or purchasing volumes; or  Uses excess production capacity that the seller has available; its marginal cost to produce using this excess capacity is so low that it can afford to sustain the penetration pricing for quite some time

  • Low prices create positive branding among initial customers who will then share that opinion with other possible customers. Increasing market share can lead to high sales volume and hence, lower production costs. Finally, a customer who buys a low price product will often buy a regular or high-priced related product out of convenience.

 

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