Lumen Skincare: Pricing a Refillable Serum
Lumen Skincare plans to launch a refillable vitamin-C serum. Research on 1,200 UK consumers found 12% would 'definitely' buy at a retail price of $28 and 8% at $32; the market for vitamin-C serums is 1.4 million units a year. Lumen's fixed costs for the launch are $240,000; variable cost is $9 per unit. Retailers require a 35% margin and will not stock the brand without a $60,000 launch campaign. A direct-to-consumer subscription would avoid retailers but add $4 per unit fulfilment cost. The brand has 40,000 Instagram followers and a 2.1% engagement rate. A rival sells at $32 with 18% market share. Lumen's managing director wants a penetration price of $28; the sales director prefers $32 to protect margins. The company needs to recover launch costs within 18 months.
1. Calculate the break-even volume at each retail price through retailers, including the campaign cost, and interpret the results.
Read the worked answer
Revenue per unit through retailers
Retailers take 35% of the retail price, so Lumen receives 65%.
- At $28: revenue = $28 × 0.65 = $18.20; contribution = $18.20 − $9 = $9.20.
- At $32: revenue = $32 × 0.65 = $20.80; contribution = $20.80 − $9 = $11.80.
Fixed costs including the campaign = $240,000 + $60,000 = $300,000.
Break-even
- At $28: $300,000 ÷ $9.20 = 32,609 units.
- At $32: $300,000 ÷ $11.80 = 25,424 units.
Interpretation
Both volumes are small relative to the 1.4 million-unit market: about 2.3% share at $28 and 1.8% at $32. That is achievable for a niche brand. However, the $32 price cuts break-even by about 7,185 units, giving more margin for error. The survey figures cannot be read as certain demand: 12% of 1,200 respondents is 144 people, and 'definitely buy' usually overstates actual purchase. A price rise from $28 to $32 is 14.3%; with elasticity of −1.8, demand could fall by about 26%, so volume risk is real even though unit contribution rises.
2. Evaluate the pricing and channel options and recommend a launch strategy.
Read the worked answer
Penetration pricing at $28 through retailers
A lower price supports rapid trial and helps win shelf space against the $32 rival. But the retailer margin reduces Lumen's revenue to $18.20, so break-even needs 32,609 units. The $60,000 campaign adds to the cash burden, and Lumen has only 18 months to recover launch costs. Penetration may build share but leave little contribution for future marketing.
Skimming at $32 through retailers
This matches the rival's price and raises contribution to $11.80. Break-even falls to 25,424 units. But Lumen is an unknown brand: charging the same as an established competitor requires credible differentiation, such as refillable packaging and ingredient transparency. If the product is not seen as superior, consumers may choose the rival.
Direct-to-consumer
DTC avoids the 35% retailer margin but adds $4 fulfilment. At $28, contribution is $28 − $9 − $4 = $15; at $32 it is $19. That is far higher than through retailers. However, DTC requires Lumen to acquire customers itself. With 40,000 followers and 2.1% engagement, owned reach is limited; paid acquisition could consume the margin advantage.
Recommendation
Launch at $32 through a hybrid model: DTC subscription first to protect margin and gather data, then selective retail listing after proving repeat purchase. A $28 penetration price is attractive for share but weak on contribution and recovery speed. The $32 price is defensible if the refillable, sustainability-led positioning is communicated clearly.