8-11(pricing and marketing strategy problem)
The I. Kruger Paint and Wallpaper Store is a large retail
distributor of theSupertrexbrand of vinyl wall-coverings. Kruger
will enhanceits citywide image
in Miami if it can outsell other local stores in total number of rolls ofSupertrexnext year. If is able to
estimate the demand functions as follows:
Number of rolls ofSupertrexsold = 20 x Dollars spent on
advertising + 6.8 x Dollars spent on in-store displays + 12 x Dollars invested
in on-hand wallpaper inventory – $65.000 xmarke-up
taken above whole sale cost of a roll.
The store budgets a total of $17,000 for advertising, in-store
displays and on-hand inventory ofSupertrexfor next year. It decides it
must spend at least $3,000 on advertising; in addition, at least 5% of the
amount invested in on-hand inventory should be devoted to displays. Markups onSupertrexseen at other localstores range from 20% to 45%.
Kruger decides that its markup had best be in this range as well.
a) Formulate as an LP problem
b) Solve the problem
c) What is the difficulty with the answer?
d) What constraint would you add?
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