Green Gro is an innovative new pH-balanced lawn fertilizer that will be sold by the manufacturer directly to homeowners. In the area where Green Gro has been developed, the fertilizers currently being sold are spread on a lawn only after a layer of lime has been applied. Green Gro has the advantage of not requiring an application of lime.
The manufacturer’s variable costs for producing Green Gro are $11.00 per 50-pound sack. A 50-pound sack of Green Gro covers approximately 1,000 square feet of lawn. The amount of currently sold fertilizer necessary for covering one square foot of lawn costs the homeowner $0.02. The amount of lime necessary for covering one square foot of lawn costs the homeowner $0.005. Market research has determined that the value of the homeowner’s leisure time necessary for spreading something on 1,000 square feet of lawn is approximately $8.00.
(a) Use this information to calculate the value to the typical homeowner of a 50-pound sack of Green Gro. Show your work.
(b) Name and describe the three basic new-product pricing strategies discussed in the course and indicate when, in general, each would be most appropriate. Then give and justify your opinion concerning which of the three strategies should be used by the manufacturer of Green Gro.
(c) Assuming your answer for Parts (a) and (b), give and justify your recommendation of the price that should be charged for a 50-pound sack of Green Gro. What would be the manufacturer’s contribution margin at that price?
