John Wenman, merchandising manager at the Goodmark’s stationary store, is setting price for Craft fountain pens. The pen cost him $5 each . the store usual markup is 50 percent over cost, which suggest that John should set the price at $7.50. However, to make this price seem like an unusually good bargain, John begins by offering the pen at $10. he realizes that he wont sell many pens at this inflated price, but he doesn’t care. John holds the price at $10 for only few days, and then cuts it to the usual level $7.50 and advertises: “Terrific bargain on craft pens. Were $10, Now only $7.50”

Questions:

01. If consumers perceive Craft pens to be a good value at $10, is it fair for Goodmark’s to sell the pen at that price?
02. Is John’s price setting approach ethical ? Is it legal? Explain.
03. How would you have set and advertise the Crafts pen’s price? Would you have used a cost plus approach or some other method? Explain.

ScholarMatic: Explanation & Answer

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