Wilkerson Case

Pricing Policy

Case 1: Wilkerson Company

Dedi Erdheim 031475361

Laura Fromwald 914941190

Luca Sassatelli 951757756

Nili Haran 061986550

Ilan Mayer-Wolf 034992669

Question 1:

Wilkerson Company is a mid-sized manufacturing company for water purification systems producing mainly 3 products: valves, pumps and flow controller. It has only one producing department, where all components are machined and assembled.

 Wilkerson’s competitive situation differs between its products.

-       Pumps: commodity products produced in high volumes for a market with high rivalry and stiff price competition - severe price cutting by competitors led to a drop of Wilkerson’s pre-tax margin to under 3%, gross margin on sales for pump sales has fallen below 20% (p. 2), threat of new entrances is low as it is a saturated market and profitability constantly decreases

-       Valves: medium rivalry, valves are a standard product but still no competitor has tried to gain market share by cutting prices, gross margins have been maintained at 35% (p.1), threat of new entrances is medium as new entrants enter until price competition takes off

-       Flow controllers: customized products sold in a market with low rivalry. Competition is not intense and demand is inelastic at the current price range - Wilkerson raised flow controller prices by 10% without any negative reaction of demand, as competition is not intense. Yet the threat of new entrances is very high as the market for flow controllers is growing.

Question 2:

The problem in the current pricing method used by Wilkerson is that the real manufacturing cost of each product is not realistic because of the high proportion of overhead costs (over 50% of the product manufacturing cost).

The current method assumes the overhead costs are in correlation to the labor costs (@ 300% rate), while many of the overhead activities are performed per product line regardless of the amount of units produced.

The suggested method of...