Running head: MKT:500 MARKETING STRATEGY/ PRICE 1
MKT:500 Marketing Strategy/ Price
Jennifer Brown
Southern New Hampshire University
20 September 2019
MKT:500 Marketing Strategy/ Price 2
MKT:500 Marketing Strategy/ Price
Pricing is one of the foundational elements of marketing that seems like an easy concept
to understand (from the perspective of the untrained eye). Some people believe that pricing is
nothing more than selling a product for more than it costs, and then ‘wallah’, you created a
profit. But, determining the price you want to charge for a product can be rather complex. Not
only are there physical factors to take into consideration such as cost and profit, but also,
psychological factors. Which is why Front Break Light Company is choosing to use the MSDP
Pricing Strategy.
When products are put on the market many of them are priced based on an MSD pricing
strategy. By using this technique, we are acknowledging the psychological factors that contribute
to significantly higher sales. For example, Front Break Light Company decided to price their
product at $59.99 / $59.95 …as opposed to $60. FBC chose this pricing strategy because studies
show that people tend to focus on ‘5’, which seems a lot less than the ‘6’ even though it’s only 1-
5 cents less. Even when you look at luxury homes that are on the market, Realtors will list them
at $6,995,000 as opposed to $7M. Now, there are some instances where using the MSD pricing
technique will work against you. For example, if you chose to dine at an upscale restaurant, you
may not be flattered to see an entrée priced at $41.95. Instead, it should be priced at $42-. For
whatever psychological reason, people think that fine dining tastes better when pricing is
rounded up.
Before employing the concept of MSD pricing, Front Break Light Company had to find a
base price- which is calculating the total cost to make the product. Then, we added a percentage
markup to determine the final price. Cost + Markup % = Price. In the case of Front Break Light:
Material Cost: $20
MKT:500 Marketing Strategy/ Price 3
Labor Costs: $10
Overhead Costs: $8
50% (fixed) Retail Markup/ Gross Profit= $21
Retail Price: $59.99
Front Break Light Company employed the 50% markup in an effort to keep profit
margins consistent (Taylor). And the price of $59.99 allows for “reasonable profit” because as an
organization, we are more focused on maintaining lower prices with higher sales volume as
opposed to high profit margins (LaVine). As an organization, we have evaluated that our retail
price of $59.99 covers our costs and profits. We intend to review prices at regular intervals to
ensure that they reflect market demand and response to potential competition. We also
understand that in the event that sales are slow, we would need to lower costs in order to lower
the prices. However, the retail markup will always be the same.
The rationale behind the pricing strategy that we have selected started with an evaluation
of the cost to run our business, including expenses such as: property leases, equipment leases,
loan repayment, inventory, utility costs, financing costs, salaries, wages, commissions, cost of
markdowns, shortages, damaged merchandise, employee discounts, cost of goods sold, profits
and general operating expenses. Earlier, when I mentioned mark downs, I wanted to note that
there may come a time when Front Break Light Company needs to re-review their prices. This
may be because of an impact from cost changes, entering a new market, re-evaluating the price
of the competition or because of economic changes (Torres).
When weighting the prices of Front Break Light compared to the competition, we stand
out as a value-added product. With our product, the light is energy efficient and durable, made of
MKT:500 Marketing Strategy/ Price 4
heat-resistant plastic material and is equipped with 24 bright LEDs, which light immediately
when the brakes are engaged.
Front Break Light The Competition
$59.99 $11.99
Approved by DOT Not Approved by DOT
SAE Number on the lens No SAE Number on the lens
Will pass motor vehicle safety inspections Will not pass motor vehicle safty inspections
Swivel to any angle Non-Swivel feature
Although Front Break Light Company’s price is 5x higher than the competition, our
product also has a significantly higher amount of quality, which equates to higher value. Front
Break Light is approved by the Department of Transportation and has a designated number
provided by the U.S. Society of Automotive Engineers. These two valuable features will enable a
consumer to pass a motor vehicle inspection while using our product. Front break Light is also of
significantly greater quality and has additional features such as: Swivel. With all factors taken
into consideration, our target market will be in states that require motor vehicle inspections.
Those states are: Delaware, Hawaii, Illinois, Louisiana, Maine, Massachusetts, Mississippi,
Missouri, New Hampshire, New Jersey, New York, North Carolina, Pennsylvania, Rhode Island,
Texas, Utah, Vermont, Virginia, and West Virginia, plus Washington, DC.
MKT:500 Marketing Strategy/ Price 5
Works Cited
Kalb, Ira. “Three Ways Companies Decide The Price Of A Product.” Business Insider, 2 Oct.
2013, www.businessinsider.com/3-powerful-pricing-strategies-businesses-should-always-
consider-2013-10. Accessed 20 Sept. 2019.
LaVine, Tamara. “Pricing Strategies & Profit Margins.” Azcentral.Com, 2012,
yourbusiness.azcentral.com/pricing-strategies-profit-margins-13196.html. Accessed 20
Sept. 2019.
Sumo Group, Inc. “How To Price A Product: A Scientific 3-Step Guide (With
Calculator).” Sumo, 2019, sumo.com/stories/how-to-price-a-product#2. Accessed 20
Sept. 2019.
Taylor, Michellae. “What Is a Normal Markup Percentage?” Chron.Com, 2014,
smallbusiness.chron.com/normal-markup-percentage-80750.html. Accessed 20 Sept.
2019.
Torres, Bryan. “Pricing a Product Definition - Entrepreneur Small Business
Encyclopedia.” Entrepreneur, 2019, www.entrepreneur.com/encyclopedia/pricing-a-
product. Accessed 20 Sept. 2019.
