Pricing Strategy for Start Ups

Given the comprehensive information provided, I'll outline a pricing strategy for your handcrafted wooden watches. Let's break it down step-by-step:

Cost Analysis:

Total cost per unit = Production ($40) + Marketing ($15) + Overhead ($10) = $65
Desired profit margin is 40%. Therefore, the desired profit per unit = 0.4 * Final Retail Price.
Let's say the final price is "P".
P * 0.4 = Profit
P * 0.6 = $65 (Since 60% of the final price is your cost)
From this, P = $108.33 (rounded off to the nearest dollar)
However, this is the base price. Considering other factors, we'll evaluate whether adjustments are required.

Competitive Landscape:
Your competitors are pricing their watches between $100-$150. Your brand perception in the market is that of a high-quality, eco-friendly fashion brand. This gives room for a potential premium.
Customer Feedback:
Since some customers expect premium pricing, and many find your current pricing affordable, you can potentially increase the price without alienating your core audience. However, caution should be taken due to the elasticity of demand that you’ve mentioned.
Historical Pricing & Demand Elasticity:
A price increase from $80 to $90 led to a 10% drop in sales. This indicates that further price hikes should be gradual and calculated.
Value Proposition:
Given the sustainable sourcing, unique designs, and long-lasting quality of your watches, these can be key differentiators that could justify a higher price than competitors with similar offerings.

Proposed Pricing Strategy:
Base Price: As calculated above, your base price considering costs and desired profit margin is $108.33.
Premium Pricing: Given your brand's value propositions and its perception in the market, consider a moderate premium. This premium can be around 10-15%. Therefore, an added premium would be $10.83 - $16.25.
Final Price: Adding the premium to the base price, we get a new price range of $119 to $125.
Discounting: Remember, during seasonal sales, you offer a 20% discount. Make sure that the discounted price doesn’t go below the break-even point. If we take $125, a 20% discount would mean a price of $100 during sales – ensuring profitability even during discount periods.
Communication: When implementing this pricing, communicate the reasons behind the price hike to your customers, focusing on the value they get, such as sustainable sourcing, unique designs, and long-lasting quality.
Evaluation: After adjusting the price, monitor sales volumes and customer feedback closely. Given the moderate elasticity, if sales decline sharply, consider introducing bundle offers or limited-time promotions to boost sales.
Phased Increase: Instead of jumping straight to the new price range, consider increasing the price in two phases, first to $119 and then, after a few months, to $125. This can help ease your customers into the new pricing structure.
Remember, pricing isn't static. It’s important to frequently reevaluate the strategy based on market dynamics, competitors’ moves, and feedback from customers. Ensure that the price aligns with the value you're offering and the brand image you've cultivated.