Marketing 18th Edition by William Pride,Ferrell

Exercise 1

Pricing at the Farmers' Market
Whether they're outside the barn or inside the city limits, farmers' markets are becoming more popular as consumers increasingly seek out fresh and local foods. Today, more than 7,000 farmers' markets are open in the United States, selling farm products year-round or only in season. Although some are located within a short drive of the farms where the fruits and vegetables are grown, many operate only on weekends, setting up stands in town squares and city parks to offer a combination of shopping and entertainment. "These markets are establishing themselves as part of our culture in ways that they didn't used to be, and that bodes well for their continued growth," says the director of Local-Harvest. org, which produces a national directory of farmers' markets.
Selling directly to the public enables farmers to build relationships with local shoppers and encourage repeat buying week after week as different items are harvested. It also allows farmers to realize a larger profit margin than if they sold to wholesalers and retailers. This is because the price at which intermediaries buy must have enough room for them to earn a profit when they resell to a store or to consumers. Farmers who market to consumers without intermediaries can charge almost as much-or sometimes even more than-consumers would pay in a supermarket. In many cases, consumers are willing to pay a higher price for top-quality local products, and even more for products that have been certified organic by a recognized authority. Competition is a factor, however. Consumers who browse the farmer's market will quickly see the range of prices that farmers are charging that day for peppers, peaches, or pumpkins. Competition between farmer's markets is another issue, as a new crop of markets appears every season.
Urban Farmz, like other vendors, is adding unique and complementary merchandise to its traditional lineup of agricultural items. Diversifying by selling certified organic soap at its stand, online, and to wholesale accounts will "juice up the brand," as Caleb says. The producers of the organic soap sell it for $14 per bar on their own website, and they ask Urban Farmz to avoid any conflict by selling at a higher price. Thinking fast, Caleb suggests a retail price of $15.95 per bar, saying that this will give Urban Farmz a reasonable profit margin.
Will buyers accept this price? It's time for some competitive homework. The lavender-lemon verbena scent is very popular, and certified-organic products have cachet. Caleb thinks that visitors to the Urban Farmz website will probably not click away to save a dollar or two by buying elsewhere, because then they'll have to pay the other site's shipping fee, as well as the Urban Farmz site's shipping fee. Urban Farmz will also have to set a separate wholesale price when it sells the soap to local restaurants. Will this new soap be the product that boosts Urban Farmz's profits and turns the name into a lifestyle brand?
In the pursuit of profits, how might Urban Farmz use a combination of cost-based, demand-based, and competition-based pricing for the products it sells? Explain your answer.