This task will focus on making known a new product in a business line that already exists and focus on how to increase the revenue by developing the good. I will also concentrate on the market structure, elasticity of demand concepts, as well as methods of profit maximization which would prove beneficial to further this good and also the entry barriers. Pricing strategies and product differentiation of will be the other important topics which will be discussed as well. I am choosing the shaving cream company Skintimate, founded in 1972. It made its entrance into the European and American market as a premium shaving cream line, replete with outstanding scents and glass bottles. Skintimate has recently developed a custom shaving cream solution which I will put emphasis on (Daniels, 2006).
Elasticity of Demand
It is true to say, the demand for Skintimate shaving cream is highly elastic due to the fact that in recent days there are numerous available substitutes and so a number of corporations debut their shaving cream products every day.
The shaving cream industry market structure is that of Monopolistic Competition. This is whereby many sellers create a service or product that is seen by consumers as not being similar to that of a competitor but is in fact not different at all. This dissimilarity perception is because of product differentiation. Products can be differentiated on the basis of image, quality, price, or any other characteristics, subject to the product (Cliff, 2002).
Increasing Revenue/Profit Maximizing Quantity
Skintimate makes about $2 billion in sales per year and the sum of units sold per year are about $250 million with a normal retail price of $6.50. Since it is unable to downcast price as it has already taken up a competitive price, the other ways of growing sales revenue will involve cuts in the production and manufacturing departments. It would necessitate that they redo the unproductive, labor-intensive and slow system of inventory by manipulation of the new Inventory Technology. Price and Profit maximizing quantity and price can be determined by setting marginal revenue equal to zero. The maximum value of marginal revenue curve is the point that Marginal revenue equals zero (McDonnel, 2007).
Pricing and Non Pricing Strategies
The pricing strategy for the product is set at the Retail Price of $6.50 with a $5.00 wholesale price. The gross margin (15%) is $0.75 with a $7 million budget. Other factors of pricing for example: quality of product, market place, the manufacturing costs, etc. also will have to be looked into. The non-pricing strategies will be like more effective advertising, Brand validation by a celebrity (David Beckham in our case).Operative and eye-catching messaging also will capture niche audience by: magazine publicity, displays in stores, money-off coupons and giving away free prize.
Barriers to Entry
These are hindrances that make it hard to get into a specific market and may be barriers such as economies of scale, licensing requirements, Government regulations etc. Skintimate can craft some barriers to entry by doing heavy advertising to steer far ahead of the potential competitors. Having the customer loyalty card and the cost advantage as well would generate a barrier to entry for newcomers. The Intellectual Property card could be played since it possesses a vast base of development and research and can bar potential newcomers as they may not have a correspondingly operative technology for invention and production (Clavis, 2007).
Skintimate’s new creation is well differentiated as it proposes distinctive personalized shaving cream scents for individuals with different tastes. In addition it uses David Beckham as its Power Icon who also is seen in Gillette advertisements and this additionally validates this product and increases its credibility rating. This new product of Skintimate advertisement visibly outlines that for each new pack sold Skintimste will contribute $0.80 to the American Cancer Foundation.