Risk Analysis Model Strategies with Remanufacturing

Question: Describe about the Application of adversarial risk analysis model in pricing strategies with remanufacturing. Answer: 1. The initial price level of Sheridan in the year 1982 was set at $ 3.90 for the 104 carpet. When the price was increased from this level it observed that company suffered severe loss due to this decision. The marketing manager of the company Mel Walters also estimated that the company will be able to sell more than 630000 square yard of the carpets in the beginning of the year 1983. The company was further sure that it would be able to sell more than 150000 yard of the carpet material if it decided to drop the price back to $ 3.90. It was evident the the company would suffer loss in the share price if it decided to hold back the prices at $ 5.20 per carpet (Wu and Cheng-Han). The product was considered superior to many products when it was compared with other carpets in the market. Hence Walters was confident that even the price remained at $5.20, Sheridan will be able to sell a minimum of 65000 yard of the carpet volume. Despite of the fact that the company will be able to attract lot of customers at a price point of $ 5.20, it is not feasible for the company to set the price level of the carpet at this price range (Huang et al.). It was observed that the companys percentage share in the sale of the carpet in the year 1981 and 1982 was approximately 35% (192000/549000*100) and 181000/517500*100). At this point it can be observed that Sheridans pricing strategy was set at 5.20 which are same as the competitors pricing strategy. In the selling season at the end of the year 1982 the company decided to increase the price per square yard from $3.90 to $ 5.20 there was the fall observed in the overall selling price of the company with a sale volume of only 30% (135000/450000*100). Later on in the season it was further observed that the company was able to sell only 22.22%. (112500/562500*100) this decrease in the percentage of the company showed that it is not a good decision for the company to sell the existing carpets at a rate of $ 5.20. The previous decisions of the company lead to the reduction in the sales volume when the pricing strategy was set at $ 5.20 (Sato et al.). It was also observed by Rosen that the decision to keep the price at $ 3.20 would not impact on the competitors policy to set the price level. The other companies in the same line of the business will keep the same price of $ 3.90 and due to the specialized product quality of the company the company will be able to increase the sale volume and generate more amount of revenue. This would not have been possible if the company decided to keep the price level to $3.20. This was possible as there was no interdependence between the sales and other suppliers of the carpet existing in the market (Deng et al.). 2: If the company decided to holds its share price at $ 3.90, Sheridan needs to sell a total quantity of $ 41250 and will be able to earn a gross profit of $ 214500. The calculation of the same has been illustrated with the diagram as follows: Statement of Cost Profit:- Quantity : 150000 units Particulars Amount per unit Total Amount Sales Amount (A) : 3.90 585000 Cost of Goods Sold : Raw Material 0.52 78000 Materials Spoilage 0.049 7350 Direct Labor 0.962 144300 PRIME COST (B) 1.531 229650 Direct Depertment Overhead 0.13 19500 Indirect Department Overhead 0.52 78000 General Overhead 0.289 43350 FACTORY OVERHEAD ( C) 0.939 140850 COST OF GOODS SOLD (D=B+C) 2.47 370500 Gross Pofit (A-D) 1.43 214500 Calculation for Required Quantity:- Particulars Details Sale Price Per Unit 5.2 Total Gross Profit 214500 Required Sales Quanity 41250 3. Based on the available information it can be observed that there was no major interdependence between the sale of the carpets with the other carpets available for sale. It was observed that the company will be able to sell more than 630000 yard of the carpet material at a price per unit of $3.90. In this way the company would be able to keep the price competitive and at the same time able to achieve higher amount of sale and generate more revenue. This decision is ideal for the company in the beginning if the selling season of the year 1981 and the till the beginning of the selling season in the year 1982. The company may decide to increase the price per carpet in the end of the selling season 1982 this will enable the company to achieve higher amount of revenue (Oh et al.). 4. The companys decision to raise the price level at the end of the year 1982 was a good one as Sheridan was able to increase the volume of sales. In the year 1980 it was observed that the market share of Sheridan rose from 34.97% to 34.99% in the year 11981. Despite of this fact the sale revenue was observed to decrease from 1939600 to 1111500, this depicted a reduction in the sales volume by -42.69%. In the year 1982 the company decided to increase the selling price per unit and it was observed that the company was able to increase the total sales amount by 15.79%. Despite of the fact that companys market share and change in the total market share experienced a decrease, the company was able to increase the total sales volume by 1287000. Hence this shows that the companys decision to raise the price level in the year January of 1982 was a good one (Shen et al.). In the show the rationale and the comparison for consideration of this decision is shown below with the following details: Selling Season Industry Total Sale of Sheridan Market Share Change in Market Share Sheridan's Selling Price per Unit Total Sales Volume Change in Sales Volume 1980-1 549000 192000 5.2 998400 1980-2 517500 181000 5.2 941200 1980 1066500 373000 34.97% 1939600 1981-1 387000 135500 3.9 528450 1981-2 427500 149500 3.9 583050 1981 814500 285000 34.99% 0.017% 1111500 -42.69% 1982-1 450000 135000 5.2 702000 1982-2 562500 112500 5.2 585000 1982 1012500 247500 24.44% -10.546% 1287000 15.79% Reference List :- Deng, Liurui, and Bolin Ma. "Application of adversarial risk analysis model in pricing strategies with remanufacturing."Journal of Industrial Engineering and Management, vol. 8, Vicenc Fernandez, Barcelona, 2015..doi:10.3926/jiem.1223 Huang, Hu, and Hua Ke. "Pricing decision problem for substitutable products based on uncertainty theory."Journal of Intelligent Manufacturing, 2014..doi:10.1007/s10845-014-0991-7 Oh, Sechan, James Rhodes, and Ray Strong. "Impact of cost uncertainty on pricing decisions under risk aversion."European Journal of Operational Research, vol. 253, Elsevier Sequoia S.A, Amsterdam, 2016..doi:10.1016/j.ejor.2016.02.034 Sato, Kimitoshi, and Katsushige Sawaki. "A continuous-time dynamic pricing model knowing the competitors pricing strategy."European Journal of Operational Research, vol. 229, 2013..doi:10.1016/j.ejor.2013.02.022 Shen, Luxi, et al. "Overpredicting and Underprofiting in Pricing Decisions."Journal of Behavioral Decision Making, vol. 25, Wiley Subscription Services, Inc, Chichester, 2012..doi:10.1002/bdm.746 Wu, Cheng-Han. "Product-design and pricing strategies with remanufacturing."European Journal of Operational Research, vol. 222, Elsevier B.V, Amsterdam, 2012..doi:10.1016/j.ejor.2012.04.031