Abstract
Keywords: This case introduces sophomore-level managerial
Managerial accounting accounting students to pricing decisions. The case
Cost drivers also offers an opportunity to discuss the concepts
Relevant costs of business strategy, business risk, and cost drivers
Breakeven analysis Students draw on concepts such as relevant costing,
Contribution margin break-even analysis, and contribution format income
Pricing decisions statements to recommend price quotes for a small
business.1
2008 Elsevier Ltd. All rights reserved.
1. Introduction
Joe Haddad and Nick Dadas founded University Tees in 2007 to sell customized t-shirts, embroidered apparel, and other promotional items. While Joe and Nick sensed that there would be a niche for their business in the college town of Oxford, Ohio (home to Miami University), they understood that success would not come easy given the daunting reality of small business failure rates. The success of their venture hinged in large part on being able to calculate intelligent bid prices for new business opportunities. If bid prices were too low, then the company would secure many customer orders, but it would not generate any profit. If bid prices were too high, then the company would not secure enough customer orders, let alone earn sufficient profits. The question Joe and Nick wrestled with was obvious: ‘‘How do we develop a pricing strategy that will enable us to grow our customer base and our profits at the same time?” As a starting point, Joe and Nick decided to focus their attention on pricing their company’s most important product line, t-shirts. 本文来自优'文,论-文·网原文请找腾讯324.9114
2. Customer analysis
University Tees serves college students and the organizations and activities that they participate in, such as intramural sports teams, sororities and fraternities, theatre and band groups, and professional societies. These student groups have a large amount of bargaining power with t-shirt suppliers for two reasons. First, the quality of screen-printed t-shirts is largely the same regardless of who supplies them. Second, numerous price quotes can be easily obtained through phone calls or internet-based inquiries and then readily compared to one another. While switching costs tend to be minimal, student groups often remain loyal to a supplier who makes a favorable impression while handling their first order, primarily because setting up accounts and payment plans through university-held funds can be complicated and time-consuming.
University Tees’ customers typically use four factors in choosing a t-shirt supplier. First, college students and student organizations often have a limited amount of money, so cost is a critical factor. Second, college students tend to be short on time, and they fulfill their extra-curricular commitments in the evening hours and on weekends. This requires that suppliers provide hassle-free service and convenient business hours. Third, students’ busy schedules suggest that they need suppliers that can deliver products on short notice. Fourth, customers prefer t-shirts with visually appealing art work that is customized to their creative vision. While students often have interesting ideas about how to design their t-shirts, they do not have the artistic skills to translate those ideas into a drawing that can be used for silk screening purposes. 2678
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