2019 Atlantic Taffy Pricing Case (Essay Sample)

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Executive Summary
As the newly appointed manager of Atlantic Taffy, I will perform various calculations and generate information to support the pricing strategies of the business. In the analysis, the report starts by conducting the Price Elasticity of Demand using different price estimations. The next step will involve the calculation of the Price Elasticity of Supply to determine the number of deliveries that will be made of Salt Water Taffy Bars. In addition, various recommendations have been generated after the calculations of the Price Elasticity of Demand and Supply. Lastly, the paper is concluded by a summary of the key parts of the report.
2019 Atlantic Taffy Pricing Case
Introduction
The analysis and review of the pricing strategies of a business are essential in attempts at enhancing the financial performance of the business, especially the profitability. Different techniques have been used to provide information about the pricing and its relationship to the quantity demanded of the products including the Price Elasticity of Demand and the Price Elasticity of Supply. The Price Elasticity of Demand is a financial statistic that determines the percentage change in the quantity demand as a result of various price movements. On the other hand, the Price Elasticity of Supply is a statistic that determines the percentage change in the number of deliveries that will be made as a result of a percentage change in the price of the product (Dhingra).
Atlantic Taffy Company is a manufacturer and distributor of Salt Water Taffy Bars in boxes of 50 each to gift shops in different markets stretching from Atlantic City, New Jersey, to Mount Desert Island near Bar Harbor Maine. As the new manager of the company, I have been tasked with growing the profitability of the business. The process must involve a critical analysis of the pricing strategies and the prevailing market factors, to leverage on every emerging opportunity to grow the profits of the business (Dhingra). This report involves a critical analysis of the pricing strategies of Atlantic Taffy and recommending the best ways of enhancing the financial performance metrics of the business. This will involve the calculation of the Price Elasticity of Demand and Price Elasticity of Supply.
Pricing Case
Q1. Analysis of Pricing
When the price is lowered from $81 to $73 and the monthly sales quantity in May grown from 35,000 to 37,000 boxes, the Price Elasticity of Demand of Atlantic Taffy’s Salt Water Taffy Bars is 0.53, as calculated in the attached excel file. The negative sign in the Price Elasticity of Demand is ignored since all similar calculations create negative results, because of the inverse relationship between the change in Price and change in the Quantity Demanded. In the May interval, the Price Elasticity of Demand of the Salt Water Taffy Bars is determined to be Inelastic because 0.53 is lower than 1 (Dhingra). A Price Elasticity of Demand of 0.53 can be translated to mean that a 1% increase/decrease in the Price of Atlantic Taffy’s Salt Water Taffy Bars would only result in a 0.53% decline/growth in the Quantity Demanded. Such information is critical to the pricing decisions of a firm and consequently its financial performance. The price drop from $81 to $73 will result in a decline of $134,000 in the overall revenue from $2,835,000 to $2,701,000 in the May interval. As a result, the profitability of Atlantic Taffy will drop by $230,000 when the price is reduced from $81 to $73 as calculated in Sheet Q1 in the attached excel. Thus, it is not recommended for Atlantic Taffy to lower its price to $73 per box because of the decline in the overall revenue and profitability of the business.
Q2
If David’s prediction about the profitability of Atlantic Taffy after the May Interval comes true and the May Profits declined, thus the Unit Price will be retained at $73. As a result of the retention in price and subsequent increase in the quantity demanded to 40,000 boxes, the Price Elasticity of Demand has been calculated as 0.00 because there was no real change in price, as seen in the attached excel file. The Price Elasticity of Demand of Atlantic Taffy’s Salt Water Taffy Bars is considered to be perfectly inelastic because 0.00 is less than 1. This means that when the price of the Salt Water Taffy Bars is grown or reduced by 1%, the quantity demanded declines or increases by 0.00%, which is necessary for informing the future pricing strategy of Atlantic Taffy.
When the price was $73 in May, the Revenues declined from $2,835,000 to $2,701,000 as seen in Q1 in the attached excel file (Greenlaw, et al). As a result, the prices were retained at $73 and the quantity demanded moved to 40,000 in June, which grew the Revenues of Atlantic Taffy from $2,701,000 in May to $2,920,000 in June. Despite the perfectly inelastic demand curve of 0.00%, the Revenues grew by $219,000 from May to June when the price was retained at $73 and the quantity demanded changed to 40,000 units. At this point, since the profits did not suffer a loss despite the price being retained at $73 and the quantity demanded at 40,000 units and therefore the prices will not be raised to $81 as evidenced in Q2. Thus, I would recommend the increase in the Quantity Demanded of the product by 40,000 boxes as it results in higher revenues and profits for the business. This may be achieved by investing in some promotional activities especially o social media which is not very costly.
Q3
The price per box is restored to $81 and the quantity demanded maintained at 35,000 units in June as a result of the complaints from workers about being overworked to achieve the May target of 37,000 units. The new statistics resulted in the Price Elasticity of D