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Setting the Price of the Number One Lip Balm

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Setting the Price of the Number One Lip Balm

Case Summary

Carma Laboratories, Inc., the producer of Carmex lip balm, was founded by Alfred Woelbing in 1937 in Wisconsin state. Carmex comes from the sounds ‘Carma’ and ‘ex.’ Carmex began operating by packaging the balm in small glass jars and selling them from the trunk of Alfred’s’ car. He also sold to Pharmacies in Wisconsin, Illinois, and Indiana. Initially, Alfred would leave free balm samples with pharmacies, prompting pharmacies to start placing orders. In 1980, Don, Alfred’s son, joined the company. He added new products to Carmex, giving the company more flavors, including mint, strawberry, and cherry. The company then expanded into a bigger production facility with marketing expertise and a distribution center. Today, Carmex is managed by Paul and Eric Woelbing, Alfred’s grandsons. To date, the company has succeeded in selling up to a billion jars of Carmex balm. The current development in the company product is Carmex Healing Cream and Carmex Hydrating Lotion.

Which of the four approaches to setting a price does Carmex use for its products? Should one approach be used exclusively?

According to Kerin & Hartley (2020), consumer demand is an important aspect of any business and is affected by the price and availability of the product, in addition to consumers’ preferences and income. Carmex uses several pricing approaches to set the price for its products; these include the competitor-oriented approach, whereby the company compares the price of its products to those of competitors; the profit-oriented approach, whereby the company includes premium products in its line of products; the cost-oriented approach, which is implemented through consideration of the price of ingredients, manufacturing, and packaging. Lastly, the company aims to appeal to the tastes and preferences of consumers to drive up sales.

Why do many Carmex product prices end in 9? What type of pricing is this called? What should happen to demand when this approach is used?

Carmex product prices end in 9 to provoke consumers’ emotional response to an action. This is because the consumers will feel that they are getting a great deal against a similar brand from a different retailer through saving.

This type of pricing is known as Odd-Even Pricing and involves setting the price a few dollars or cents below an even number (Schindler & Wiman, 1989). When this approach is used, the demand for the product will increase since consumer emotions are provoked, thus buying more, which will, in turn, result in more products being sold by the firm at a reduced price.

Should cost be a factor in Carmex’s prices? What do you think is a reasonable markup for Carmex and for its retailers?

Yes, the cost is a factor to be considered in Carmex’s product pricing. For example, if the firm receives discounts on raw materials from suppliers, this will lower the break-even point, and the reduced costs can be passed on to consumers as lower product prices. The reasonable markup should be whereby Carmex covers its production cost, charges less, and still makes a profit.

What is the difference between an EDLP retailer and a high-low retailer? Why does Carmex charge them different prices?

An EDLP retailer purchases more products from a company and charges low prices on a product consistently for a long period without giving a discount, given the product cost remains the same, whereas a high-low retailer purchases less product from a company and charges a high price for the product and later decreases through discounts. In addition to the discounts, High-low retailers engage in promotion endeavors and may ask manufacturers for Marketing Discretionary Funds (MDF) to help in sales and marketing.

Carmex charges the two retailers differently due to economies of scale for the EDLP who buys in bulk and also doesn’t engage in promotional services; hence, it doesn’t require MDF to help in sales and marketing,

Conduct an online search of lip balm products and compare the price of a Carmex product with three similar products from competitors. How do you think the competitors are setting their prices?

My online research was conducted on Walmart online stores, where I concentrated on three lip balm products. The various products retailed as follows:

The research verified that Carmex was the cheapest brand, and Jack Black Intense Therapy Lip Balm SPF 25 was the most expensive.

Competitors are setting their prices through competitive pricing, loss leader, and premium pricing. This is where the competitor sets a price above, at, or below the firm’s price. When it is above, the competitor must create extra features on the product that warrant premium features, competing based on quality (De Toni et al., 2017). When the price is set at the same level as the firm, it may use marketing to differentiate itself and may price below the firm’s price if it believes that the customer will purchase more products once exposed to offerings.

References

Carmex, n.d. Carmex: Setting the price of the Number one lip retrieved from. [Video]

Available at: <https://www.viddler.com/embed/64abee32> [Accessed 19 April 2021].

De Toni, D., Milan, G. S., Saciloto, E. B., &amp; Larentis, F. (2017). Pricing strategies and levels and their impact on corporate profitability. Revista De Administração, 52(2), 120–133. https://doi.org/10.1016/j.rausp.2016.12.004

Kerin, R. & Hartley, S. W. (2020). Marketing: The Core, Eighth Edition. McGraw Hill Education.

Schindler, R. M., &amp; Wiman, A. R. (1989). Effects of odd pricing on price recall. Journal of Business Research, 19(3), 165–177. https://doi.org/10.1016/0148-2963(89)90017-9.

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Question 

Carmex: Setting the Price of the Number One Lip Balm

Watch the video, read the case in the textbook then

Setting the Price of the Number One Lip Balm

  1. complete a summary of the case and
  2. answer the 5 questions at the end of the case.

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