Tru-Pic Pricing At each stage within the channel of distribution, profits are earned. Manufacturers make profits when they sell to wholesalers. Wholesalers make profits when they sell to retailers. Retailers make profits when they sell to consumers. This stream of profits is known as the "markup chain." While it seems inefficient, each member of the channel provides functions which actually decrease the overall cost to the consumer.
Serious musicians demand quality in their equipment choices. While many people don't realize it, the sound produced by an instrument is dependent on more than just the instrument quality. This is especially true for guitars. The instrument itself is most critical in generating a quality sound, but the combination of amplifiers, strings, cables, and even guitar picks contribute to the unique sound produced by a guitarist.
Read the report and answer all questions.
As a twenty-year veteran guitar player and music shop owner, Josh Grogan knew the ins and outs of the music business. Throughout the years, he had played in several bands and for the past four years, he and his business partner Alicia Mapes had operated the "Ye Olde Music Shop." Located in the heart of the Los Angeles music district, the store merchandises full lines of music-related equipment, but really catered to guitarists. Josh and Alicia had worked over the years to build a very broad selection of vintage guitars that provided truly unique sounds. Many of the "up and coming" bands used the shop for supplies and Josh and Alicia are well recognized as a quality supplier by local musicians.
What many of their clientele don't know is that Josh and Alicia actually supply over 300 bands located throughout country with custom guitar picks. Most marketing is done directly over the web and from word of mouth. At a recent trade show for music store owners, Josh and Alicia noted that there wasn't a single guitar pick company attending. It appears that most of the pick manufacturing is now done in China and about four importers sell the products to wholesalers who then distribute to independent music shops. The import distributors generally sell in larger quantities to the wholesale music supply houses and primarily use direct mail and the web to market their products.
After the trade show Josh and Alicia began wondering whether they could distribute a branded pick through music stores. The import distributors focus exclusively on providing cheap picks made of plastic. The problem with this type of pick is that over time, the plastic leaves small traces on the guitar string which can hurt the sound quality of the instrument. Josh and Alicia would focus on picks made of the best quality celluloid and nylon. Also, given they already own custom printing equipment, Josh and Alicia could also print their retail customers' logo on the pick for little additional cost. The brand name they have chosen is Tru-Pic to convey the quality of the sound produced by the pick.
As plans for the new endeavor began to coalesce, the topic of pricing the Tru-Pic line was introduced. The imported picks are generally sold to consumer at a price of 3 for $1.00. They feel that serious musicians would be willing to pay a 40 percent premium for a quality branded pick. Because of their involvement in the retail side of the music industry they know that music stores generally purchase the imported picks for about $0.13 each. Furthermore, some basic marketing research has indicated that wholesaler music supply houses make an 18 percent markup on price. However, to gain representation with the wholesale music supply houses, Josh and Alicia are planning to build in a 25 percent markup on cost. They feel this extra margin will be appealing for the premium pick. The duo is pretty sure they can turn a profit as their costs to manufacture a pick average $0.12 per unit for unprinted picks. Printing the logo on the pick generally runs and additional $0.01 per unit.
what is the dollar amount (approximate) that wholesale music houses would earn (per unit) by selling tru-pic picks as opposed to the imported picks currently available?
A. $0.12
B. $0.11
C. $0.05
D. $0.46
E. $0.15
