Pricing Strategy For International T-Shirts Essay, Research Paper

PRICING STRATEGY FOR INTERNATIONAL II T-SHIRTS

RATIONALE

Sigma Alpha Epsilon is a national fraternity that is subsequently found on campus at the University of West Florida. This fraternity is well – known for having large parties in which the entire campus of students is invited. At the larger parties, the frat prints up tee shirts that depict the party’s theme as well as a catchy slogan that all in attendance are urged to buy. This “fund raiser” accounts for a good portion of the fraternity’s finances. The fund raiser chair delegate is in charge of all the operations that come with designing and preparing these shirts to be sold to the general public. In order for the fundraiser to be successful, a well thought out pricing strategy must be applied.

Because the design committee for the fraternity works strictly for the well being of the cause, a design is constructed and voted on without a labor charge. Once the design is on paper, the SAE fundraising delegate takes the design to local print shops that specialize in putting these designs on to shirts. An appraisal is made, and the delegate decides which company he is going to go through keeping in mind quality as well as price. Making sure he chooses a company whose shirts will stand up to the test of college students as well as be inexpensive enough to where it can be afforded by these students, he makes his decision.

In this paper I will take you through step by step the process of constructing a personalized tee shirt for sale in a fund-raising effort. I will focus on potential consumers, costs of production, and profit. To summarize all this, “I am going to find out if producing these tee shirts will be a worthwhile investment”. To do this, I am going to

go through all the steps in making these tee shirts available to the consumers with the exception of actually materializing them.

POTENTIAL CONSUMERS

Being the SAE Fundraising Chair delegate, It is my duty to take into consideration the potential buyers of this shirt and decide if it is worth designing and selling the shirts. First off, the theme parties that the organization throws for the public usually draw between three hundred and eight hundred people. This figure is based on the number of people that come through the door on the given night as opposed to the amount that are in attendance at one point in time. Realizing that the party in mind for these tee shirts will be the final party at the fraternity house as well as the last party of the semester, SAE anticipates a record – breaking attendance. Also keeping in mind that not everyone can either afford or desire to own one of the shirts, a safe number of one hundred shirts will be purchased and up for sale at the night of the occasion. This number is considered a safe investment for the fact that there are a total of thirty-eight active members of the fraternity who are willing to purchase a tee shirt. This leaves only sixty-two more shirts that have to be sold within a potential one thousand-person audience. I will also reserve the right to the design providing the shirts are a hit and demand is high enough to have more printed up.

COSTS OF PRODUCTION

To figure out what the overall costs of producing these shirts for the “International II.” theme party, we must first take a look at what these shirts design will

consist of. The tee shirts will be plain white and short sleeve with a small logo on the front right side and a large design on the back of the shirt. On the front right of the shirt will depict the Greek letters SAE in bold and large letters. Underneath these letters will appear the caption: First Annual International II Party. On the opposite side of the shirt will be a large design of the anticipated functions of the occasion. This will also contain a caption that will read “I was there and really can’t remember if you were!” These shirts will be 50% cotton and 50% polyester.

The finest quote I received that fulfilled the needs for this shirt was from the Identity Club!; a company that solely deals with the personalization of tee shirts. The firm’s prices for quantities of personalized shirts decreased with the bulk of the order. Because my needs were at one hundred shirts, the price of the shirts dropped from $8.25 a shirt to $7.70 per shirt(fig.1-1). This estimate takes into account the costs of using unlimited colors to accommodate the specifications of the shirt as well as the price of the shirt which is supplied by the designing company and their labor costs.

PRICING STRATEGY AND PROFITS

In order to promote the optimal point of production of these shirts, I will first have to take a look at how much overall it will take to supply these shirts to my consumers. Then, based on that, I will have to decide how much I have to charge in order to make a

profit. I stated already that the price that I am getting the shirts for is $7.70 a shirt. So, obviously, anything above that price would constitute a profit. Keeping in mind that I want to make a large profit yet, not discourage sales, I have to take into account people’s own reservation price. This is the highest price that a consumer is willing to pay for a

specific good or service. My fixed costs would be $4.70 per shirt plus $3.00 for the ink and printing. Since each shirt is exactly the same, the otherwise variable costs of ink colors is also figured into the fixed costs. No cost is issued by this company for a set-up fee.

By taking a poll of the Fraternity brothers of Sigma Alpha Epsilon, I came up with the average reservation price of $12 a shirt (fig. 1-2). By offering this shirt at this price, I will be able to bring in a total profit of $430 off the initial one hundred-shirt price. See, my price is $770 for the 100 shirts and my total revenue for the shirts sold at $12 a piece is $1200. Subtract my total cost and we get $430 per 100 shirts sold.

Figure 1 – 2:

Reservation Price Quantity demanded Total Revenue Possible Profit For 100 sales Total Profit

$10 79 $790 1000 790-770=20

$12 70 $840 1200 840-770=70

$15 47 $705 1500 705-770=-65

$18 5 $90 1800 90-770=-680

The only tax that would incur through this type of sales would be the sales tax on the cost of shirts that would be imposed on me, the distributor. At a rate of 7.5% in the state of Florida, the overall cost of the shirts would jump from $770.00 to $827.75 subtracting $57.75 from my overall profits. Even with this downside it is perfectly clear that $12 is still the optimal earning price of my good. Because an operation like this is totally legal with the consent of the school, there would be no government regulations or fees. This tax would not affect my total pricing strategy in any significant way.

I obtained my quotes from local Pensacola business’ as well as online shopping guides. As I stated earlier, my best quote came from an online business that deals primarily with bulk purchasing of personalized tee shirts and designs. The name of the business is The Identity Club! at http://www.freetees.com/quantityFM.htr.

My projected sales of this shirt will take place at the actual gathering. It is here that I feel my product will sell at a higher rate opposed to on campus at the University where people probably won’t have money on them as well as won’t be nearly intoxicated enough to spend money that a normal (broke) college student doesn’t have. Even though some will say that I am taking advantage of my potential audience, I feel that that is the way that business goes anyway. Businesses hit the consumers where they are vulnerable in order to achieve a selling technique that exceeds that of any other.

In the future, I may consider doing business with this company for I am in actuality in charge of making the shirts for this specific party. From what I have researched, the cost of making these shirts available is well below my once uneducated

figures. To start my actual construction of this design of shirt, I will probably get pre-paid orders from people that will want to purchase a shirt. This will help me come up with the money needed initially to invest. The risk is worth the overall profit in that the chances of me selling 100 shirts are highly in my favor. People will attend the party, people will have a great time, and people will want to remember the occasion. With planning like this, my shirts should be a huge success both in consumer utility and as a money making endeavor for the fraternity.