Figure 9.12: Bakery Price Elasticity and Profit Impact
INPUT (Yellow Cells)
- No Negative Numbers
| CURRENT | PRICE STRATEGY | HOLD PRICE | |||
| Price (Customer Transaction) | $10.00 | $10.50 | |||
| % Price Change | 5.00% | 5.00% | |||
| Customer Volume | 1200 | 1120 | |||
| % Customers Volume Change | -4.17% | -6.67% | |||
| Elasticity | -0.83 | -1.33 | |||
| PERFORMANCE | |||||
| Revenue | $12,000 | $12,075 | $11,760 | ||
| Variable Cost | $3.00 | $3.00 | |||
| Margin Per Unit | $7.00 | $7.50 | $7.50 | ||
| Gross Profit | $8,400 | $8,625 | $8,400 | ||
| Fixed Cost | $7,500 | $7,500 | |||
| Profit | $900 | $1,125 | $900 | ||
| Profit (% of Sales) | 7.5% | 9.3% | 7.7% | ||
| Breakeven Customers | 1071 | 1000 | 1000 | ||
Instruction: Change the price (yellow cell) under Price Strategy up or down any amount. (2) Then estimate what you would believe to be the new customer volume at that new price. You can experiment with the profit impact with this new price with a different variable cost and/or different fixed cost. Note: The Hold Price computes the volume and price elasticity needed to hold current profits given the Price Strategy you explored.