Day #5 of the Rollercoaster Sale!

[RUI-Products]

The AR-R Rollercoaster is dropping from 39% off to 18% off! If you missed out on the wild ride yesterday, it is your own fault.

Today and through the weekend, the store is 18% off. AR-R offers the highest quality, purest grade research materials within the industry. The AR-R website serves hundreds of thousands of customers each year. Our goal always has been to maintain this quality and consistency for the long haul. Being in business for a decade proves our dedication to this cause. This isn't a flash in the pan, here one day gone the next day store. WE ARE IN THIS FOR THE LONG HAUL. Hopefully this Rollercoaster sale PROVES our commitment to you, our customer.

And guess what?? The Rollercoaster sale has only just begun

http://www.ar-r.com/?utm_source=roll...aster%2B-%2BMB

AR-R

[RUI-Products]

Hold on!!!!!!!!

[Far from massive]

Ahh lets see it was 38% off yesterday, but if I buy now or through the rest of the weekend its 18%, less than half of what it was yesterday?? But wait AR-R's not done yet... its my fault I did not happen to look yesterday...Ohh hell yeah let me order now!!!

Sorry guys but from everything I learnt gettn my deagreh in bidness this is not great advertizing.

PS to anyone reading, AR-R does offer great products and service and prices...I am just expressing an opinion on this post.

[thex95]

This actually is probably an extremely effective strategy. Your thinking form the viewpoint of a single customer. The company needs to think of all different angles of the business. I believe the main concepts to consider are the customer base, the contribution margin of products, and the price elasticity of the different customer bases.

Lets consider a completely theoretical example;

For example let's say there are two main customer bases. The first is individuals who have a pre-existing account with AR-R and are return customers, and the other is a group of customers who use guest accounts to place orders and have never used AR-R before.

Let's say the pre-existing account customer base typically orders a total of 150 products and the contribution margin of each of these products is 40 dollars ($100 selling price - $60 to make). So the total profit supplied by this group is $6000 when products are sold at standard cost. Now we consider the price elasticity of demand of this group. Let's say based on past experience AR-R knows this group will increase demand by 8% per 1% discount in prices. Obviously by decreasing the price for a sale this will also decrease the contribution margin of each product. This is because the price to manufacture the product remains the same for AR-R but the selling price has gone down.

Now we consider the other customer base. This is the group of members who do not have an AR-R account and have never used the website before. Let's say based on past experience this group typically orders 100 products and each of these products has a contribution margin of 40 dollars as well ($100 selling price - $60 to make). So the total profit supplied by this group is $4000 when products are sold at standard cost. Now we consider the price elasticity of demand of this group. Let's say based on past experience AR-R knows this group will increase demand of products by 16% per 1% decrease in prices. Once again by decreasing the selling price of the products this also decreases the contribution margin.

So what we have so far is this

Customer base- pre existing customers. Normal demand 150 products. Price elasticity of demand = 8%

Customer base- new customers. Normal demand 100 products. Price elasticity of demand = 16%

So now it is a simple matter of finding an equilibrium between all of these variables. Reference the diagram and data charts below. In this situation the optimal discount is 14% to obtain a total profit of 16,692. Any discount higher than this will decrease profits. So in this situation while some customers will not order, many customers still will and this creates a maximized profit.

All of these figures are obviously theoretical. My point is that there are many more factors at work to direct management decisions than simply one single individuals unwillingness to place an order.

I do not represent AR-R in any way, the views, statements, and opinions in my posts are my opinions only.