Case Study Unit 5 Carmex
Nicholas Konicki, MBA 630
7 July 2018
Starting in 1937 based on the entrepreneurship of Alfred Woelbing and his wife, the company Carmex was founded. Alfred Woelbing was experimenting with “ingredients such as camphor, menthol, phenol, lanolin, salicylic acid and cocoa seed butter” (Kerin) which are now the basis of ingredients in the Carmex lip balm. A hugely successful company that started in an effort to combat a common problem such as cold sores.
Carmex Current Pricing Structure
As we evaluate the current pricing strategy of Carmex, we find that Carmex uses a mix of pricing structure based on the variable factors of the market and customers. The pricing structure that Carmex uses is demand-oriented pricing approach, cost-oriented pricing approaches, profit-oriented pricing approaches and competition-oriented pricing approaches.
Within the demand-oriented pricing approach “which weigh factors underlying expected customer tastes and preferences more heavily than such factors as cost, profit, and competition when selecting a price level”. (Kerin) Within the demand-oriented approach, prestige pricing is being used on one of the new products as Moisture Plus. Prestige pricing “involves setting a high price so that quality-or status-conscious consumers will be attracted to the product and buy it.” (Kerin). Moisture Plus is primarily marketed toward women which is sleek looking, higher end looking cosmetic stick instead of the normal yellow tube that Carmex is known for. Moisture Plus uses the same ingredients found in normal Carmex but is distributed in a classier silver stick that looks more cosmetic and demands a higher price than the normal yellow tubed Carmex. The prestige pricing isn't as profitable as a normal prestige pricing model is for name brands such as Rolls-Royce, Chanel or Cartier but in essence, Carmex Moisture Plus has a prestige price approach. Secondly, within the demand-oriented approach, Carmex uses quite effectively the odd-even pricing. The odd-even pricing “involves setting prices a few dollars or cents under an even number, in theory the demand increases if the price drops by a few dollars or cents under an even number.” (Kerin). In the stores that Carmex typically sells to such as Walmart, it is not uncommon to see the price point of normal yellow tubed Carmex being priced using the odd-even pricing approach.
Carmex also uses yet another pricing approach for its large customers such as Walmart and Walgreens. Walmart is known in the business as an Everyday low pricing (EDLP) type of store. “Everyday low pricing uses a clear marketing message: every item in the store will always be available for a low price. This message offers the advantage of clarity.” (Gartenstein, 2018). An everyday low pricing store deals in a higher volume of merchandise thus their costs from the manufacturer or distributors are often lower as well as their profit margin. In contract to the EDLP there are stores such as Kroger's and Walgreens that are seen by Carmex as high low account that move less volume, pay slightly more for the products and make a slightly higher profit margin.
The cost-oriented pricing approach is also used by Carmex. A subset of cost-oriented pricing is known as standard markup pricing which is “adding a fixed percentage to the cost of all items in a specific product class. High-volume products usually have smaller markups than low-volume products.” (Kerin) Therefore in high volume stores that have a high-volume product such as Carmex, the standard markup will be slightly lower than in a store that moves lower volume of the products. If we categorize Carmex as a discretionary purchase as opposed to a staple purchase such as milk, eggs and flour, the markups “range from 27 to 47 percent. The markups must cover all the expense of the store, pay for overhead costs, and contribute something to profits.” (Kerin)
The profit-oriented pricing approach is used also by Carmex. In a profit-oriented pricing approach “a price setter chooses to balance revenues and costs to set price using profit-oriented approaches. These might either involve setting a target of a specific dollar volume of profit or expressing this target profit as a percentage of sale or investment.” (Kerin) Carmex determines the total revenue that it seeks to attain each year based on historical revenue figures then compares them to the total costs that are likely to be incurred in that year to produce an estimated profit at a certain sales price.
Lastly, Carmex uses the competition-oriented pricing approach. The first step in the competition-oriented approach is to know who the competition is. Currently for Carmex the competition includes Chapstick, Burts-Bee and Blistex. After identifying the competition research is conducted on what the competition is marketing their product for at various stores. Carmex has found that if there is a substantial price gap between the competition then Carmex loses a part of the market share that they typically have, so Carmex focuses a lot on the price gap between the competition.
Pricing considerations for future Carmex products
The future of Carmex products is bright. Carmex recently added a team of professionals such as Rich Simonson who is the chief operating officer as well as” Jona Mancuso, vice president of marketing : and Ketih Edgett, vice president of research and development.” (Thomas, 2017). This team of professionals have changed certain aspects of the production and marketing to achieve higher profits. An example of the change is to alleviate the middle man in the distribution of their merchandise. Carmex typically sold to “The issue was Carmex was sold to retailers like Walmart though wholesalers, leaving gaps in distribution. The solution was to sell direct to the retailers to fill in the holes.” (Thomas, 2017). This change put Carmex on track to achieve more thant their normal “percent per year profit and put them on track to achieve the market average of 17 percent”. (Thomas, 2017).
Even with the team of professional, the way Carmex has performed during the past years is a testament to their methodology in pricing their products. I do not recommend changing their approach as the multifaceted approach to pricing that they have been using will keep their company on track in the future to attain their profitability. The multifaceted approach and the gentle balance in each of these approaches has to be managed properly for Carmex to remain successful as they have been.
Carmex has managed successfully since its inception in 1937. The company has used different marketing strategies and pricing strategies making them a historically profitable company. Carmex should stay on track with its multifaceted approach to price setting as it has kept them successful for over 80 years. Adding the special team of professionals as they have done will also keep them on track to forecast the changing market conditionals and changing some of their past practices that can lead to a higher profit margin.
Kerin, R. A. & Hartley, S. W. (2017). Marketing. (13th ed.). New York, New York: McGraw-Hill Education. Pg 394-396
The Carmex History. (n.d.). Retrieved from https:/www.marcarmex.com/history
(n.d). Retrieved from http://www.viddler.com/embed/64abee32
Gartenstein, D. (2018, April 20). The Strengths & Weaknesses of the Everyday Low Pricing Approach. Retrieved from https://yourbusiness.azcentral.com/strengths-weaknesses-everyday-low-pricing-approach-6741.html
Thomas, A.(2017,August 07). Iconic Carmex brand reaches new heights. Retrieved from https://www.biztimes.com/2017/industries/advertising-marketing-media/iconic-carmex-brand-reaches-new-heights/
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