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Now, I was alluding to the relationship between price and movement, and you can see that the spots are matching up. Let's look at a scatter plot between movement and price. We see some type of non-linear relationship, but if we take the log of movement against price you see much more of a linear relationship. This isn't going to be perfect, obviously, with just two variables. We want to think about not only my own price, but also the price of the other brands and my promotional strategies. And that's going to start explaining a lot of this.
The main notion is that price is a very important variable in determining what my sales are. There are 12 different brands in this category. Essentially it breaks into three tiers: the premium tier, the products that are made directly from fresh orange juice; the next, the national brands, essentially made from reconstituted orange juice; and finally the store brands. The store brands are perceived as being lower quality, but really they are very similar to the national brands. The idea is that the market shares are differing across the brands. Tropicana Premium has a market share of 15% and the 96 oz. has a share of 10%. The average price tends to be around $2.90 and then it drops to around $2.30. Finally, for the individual, the store brands, it's going down to about $1.80. So you see that the retailer is first differentiating the price of these products. What is going to be important for our case is differences across product and differences across stores in price levels. Then we will combine that by going across the stores. At that point, the profit margins typically average around 25%, which means that if a retailer is charged $1.00, they're going to charge you $1.25. That will be their gross profit margin and that's going to cover all their administrative and selling costs.
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