A Sample Office Memorandum for Marketing Majors
Bend and Bounce
To: Ola Lee, President of Bend and Bounce
From: Drea DeFoe, Marketing Manager
Date: November 19, 2010
Subject: Pricing Policy
In the past, Bend and bounce has based its product pricing exclusively on costs. However, this method of pricing may not be as effective as other pricing methods. Cost-based pricing may make the price of our products too expensive for our target market which may cause a decrease in sales, or our product prices may be too low to bring in appropriate revenues. After reviewing the previous years’ financial data, I have recognized instances when each of these issues has occurred. Due to this, we should consider methods of product pricing other than cost-based pricing.
Bend and Bounce could begin using markup pricing which adds an amount of profit and expense to the cost of buying the products. To do this we would need to determine an appropriate gross margin/profit to decide on prices. However, markup pricing is usually based on experience. Bend and Bounce has only been in business for two years, so we have no previous years data on markup pricing to gauge consumer responses to this form of pricing.
Break-even pricing would allow Bend and Bounce to determine its bottom-line or break-even point where costs are equal to revenue. This would tell us how much revenue we need to cover all of our costs before we begin to see profit. This can help Bend and Bounce discern how much profit it can earn from achieving a higher sales volume. If Bend and Bounce recognizes that it is operating near its break-even point we can develop new ways to bring in more sales or lower our costs to increase profits. Break-even pricing does not require information on marginal revenue or marginal cost. This is nice since our accountants do not always have that information readily available.
We should avoid the issues associated with cost-based pricing and the uncertainty of markup pricing. Therefore, I recommend that Bend and Bounce alter its current cost-based pricing to break-even pricing. At your convenience, I would like to schedule an appointment to discuss further details on this issue.