Shayla McGrorey, marketing manager of consumer products for Wireway, is trying to set a price for her most promising new product-a space-saving shoe rack suitable for small homes or apartments.
Wireway-located in Ft. Worth, Texas-is a custom producer of industrial wire products. The company has a lot of experience bending wire into many shapes and also can chrome- or gold-plate finished products. The company was started 16 years ago and has slowly built its sales volume to $3.6 million a year. Just one year ago, McGrorey was appointed marketing manager of the consumer products division. It is her responsibility to develop this division as a producer and marketer of the company's own branded products-as distinguished from custom orders, which the industrial division produces for others.
McGrorey has been working on a number of different product ideas for almost a year now and has developed several designs for DVD holders, racks for soft-drink cans, plate holders, doll stands, collapsible book ends, and other such products. Her most promising product is a shoe rack for crowded homes and apartments. The wire rack attaches to the inside of a closet door and holds eight pairs of shoes.
The rack is very similar to one the industrial division produced for a number of years for another company. That company sold the shoe rack and hundreds of other related items out of its "products for organizing and storing" mail-order catalog. Managers at Wireway were surprised by the high sales volume the catalog company achieved with the rack. In fact, that is what interested Wireway in the consumer market and led to the development of the separate consumer products division.
McGrorey has sold hundreds of the shoe racks to various local hardware, grocery and general merchandise stores, and wholesalers on a trial basis, but each time she has negotiated a price-and no firm policy has been set. Now she must determine what price to set on the shoe rack, which she plans to push aggressively wherever she can. Actually, she hasn't decided on exactly which channels of distribution to use. But trials in the local area have been encouraging, and as noted earlier, the experience in the industrial division suggests that there is a large market for this type of product. Further, she has noticed that a Walmart store in her local area is selling a similar rack made of plastic. When she talked casually about her product with the store manager, he suggested that she contact the chain's houseware buyers in the home office in Arkansas.
The manufacturing cost of her rack-when made in reasonable quantities-is approximately $2.80 if it is painted black and $3.60 if it is chromed. Similar products have been selling at retail in the $9.95 to $19.95 range. The sales and administrative overhead to be charged to the division will amount to $95,000 a year. This will include McGrorey's salary and some travel and office expenses. She expects that a number of other products will be developed in the near future. But for the coming year, she hopes the shoe rack will account for about half the consumer products division's sales volume.
Evaluate Shayla McGrorey's strategy planning so far. What should she do now? What price should she set for the shoe rack?