Lipman Bottle Company

In November 1982 Robert Lipman, vice president of Lipman Bottle Company, was wondering what pricing strategy he should recommend to his father. Located in Albany, New York, Lipman Bottle began operations as a bottle distributor in 1909. Distributors maintain a close working relationship with several major bottle manufacturers (e.g., Owens-Illinois). In return for acting as a sales representative, distributors receive a discount of 5-8 percent off regular prices. This permits distributors to charge users of bottles the same price as if a purchase were made directly from the manufacturer.

Typically, distributors maintain a warehouse with an inventory of commonly used bottles and closures. For special or large orders, distributors arrange for an order to be shipped directly from the manufacturer to the distributor's customer. The manufacturer bills the distributor at factory price less 5-8 percent, and the distributor bills the user at factory price. The advantages for the manufacturer are that a smaller sales force is required and that the distributor will service accounts too small to be served by one manufacturer. The advantages to the user are that the distributor can provide immediate delivery of many items, can offer the advantage of greater buying power, and can serve as an expert who is familiar with bottles and closures from many manufacturers.

In the past 20 years the growing use of plastics had increased business for bottle distributors for at least two reasons. First, the choice of bottles had expanded greatly, making expert advice more valuable. The growing variety of caps, lids, and spray pumps handled by distributors had had a similar effect. A second reason was that distributors began specializing in printing labels directly onto plastic bottles. For many users it was convenient to have both purchasing and printing of plastic bottles handled by one vendor.

THE PROBLEM

Mr. Lipman asked Thomas Shull, a consultant, to review the firm's pricing policy:

We publish a price list for simple jobs printed on our bottles. Since we earn a commission on the bottles, prices aren't all that important for printing. However, I'm not sure that the industry pricing is correct. Prices decrease with order size and increase with bottle size. I think that the decrease in price with order size is reasonable, since we don't have to search for more business to keep our shop full if we have large orders. Bottle size pricing doesn't seem quite right, however. It does take longer to print a large bottle than a small one, but the difference isn't all that great. Maybe the price differential shouldn't be as large as it is.

A second factor is the new automatic machines that print both sides of an oval without reloading. Most of our competitors use semiautomatic machines. Maybe we shouldn't be charging as much for ovals with the new machines.

The final problem is our custom decorating. We are trying to expand in the New York-New Jersey area, and almost all of the business we might get would be custom decorating. We would have no commissions on bottles, so our profit would be entirely from printing. We would also have to pay freight.

I would like to see our published price list revised to reflect our costs. However, I don't want it to vary greatly from the ones published by major manufacturers. I would also like to know variable cost for bidding on custom decorating. That won't be published, since I have to adjust each price for difficulty of the order; but I'll use the cost list as a guide. Finally, I'd like costs adjusted for transportation to New York-New Jersey. My goal is to earn 30 percent on sales before tax when we're at capacity.

Before preparing price lists, Mr. Shull, Mr. Lipman, and the operations manager agreed that the scrap and shipping costs in Exhibit 3, and the operating information in Exhibit 4, would be used in pricing calculations.

Abstract

Give a very brief description of your assignment and what you concluded. You do not have to write this as an introduction, not do you have to support your claims here. Just tell the reader what you found. Please note that this document can be used as a template; the formatting is correct. However, you may have to include additional parts not shown.

Case Title

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Case Contents
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Attachment:- case and exhibit.rar