Price Recommendation for Avon adjustable speed drive
...es, factoriesSource of adjustable speed power: machine tools, materials handling, draw presses, printing presses, power shovels and other types of stationary and mobile heavy equipment Executives believed over long run it would account for substantial portion of Avon’s sales and profitsThey expected other companies to introduce similar unitsProduct was probably not patentable Price Recommendation for Avon adjustable speed drive: Avon will need to charge a price that covers its production, selling and distribution costs, while ensuring a fair return for their effort, as stated by Kotler. While production of 200 units per week may be beneficial in terms of manufacturing costs, inventory costs increase. Further, variable costs would increase relative to higher production levels. This would be caused by the necessity to increase wages paid relative to an increase in hours required for workers to keep up with higher production levels. An important factor in pricing for Avon is demand elasticity. In the long run, customers may switch to another manufacturer once they have successfully mimicked Avon’s drive. This factor is further enhanced by Avon’s uncertainty regarding their ability to patent the new drive. Elasticity of demand increases with an increase in the number of competitors. The case states there are 14 other manufacturers capable of producing AVDC drives. Demand elasticity lends itself to variability in terms of what Avon can expect if they are forced to make a price change after establishing an initial pricing scale. This may be necessary in order to remain competitive. Should a price change be required, determining the effects would n...