You are a salesperson for Mile High Beverage Company and are

You are a salesperson for Mile High Beverage Company and are introducing a new bottled water product called Bighorn Sweetwater, sourced from underground springs and naturally filtered through mineral rich basalt rocks in the Bighorn Mountains of Central Wyoming. You are preparing to call on The Get-a-Lot Convenience store chain in an attempt to gain authorization for Bighorn Sweetwater distribution and floor displays in all 85 of the chain\'s outlets. Your regular wholesale price (to the retailer) is $16.80 per case of twenty-four 20 oz. bottles. In order for Get-a-Lot to obtain its standard margin of 44%, it would need to establish a price to consumer of per 20 oz. bottle.

The chain estimates that it will sell 10 cases per store (240 bottles) each week at this price. However, to generate strong consumer trial of your new product, you would like to convince the chain to authorize large Bighorn Sweetwater displays in each store and offer an introductory price to consumer of 99 cents. To facilitate this, Mile High Beverage is offering a \"Make it Fly\" promotional $12.00 per case cost to the retailer when the store buys 50 cases or more at a time and fulfills certain merchandising requirements (e.g., mandatory lobby or end-aisle display, 2 cooler facings, cooler/window signage) How many cases per week would the chain have to sell in each store to break even and make this proposition viable for Get-a-Lot?

Although you hope to sell Get-a-Lot on this program, Mile High also offers a slightly less attractive deal of $14.40/case (\"High Profile\" promotion) with a 20-case minimum per store purchase and less aggressive merchandising requirements. How many cases would each store have to sell to break even in this scenario if it still ran a 99 cent introductory price to consumer? What about if it ran a 1.09 sale price instead?

In test markets, Mile High found that retailers that took advantage of Mile High\'s $12.00/case \"Make it Fly\" deal and merchandised Bighorn Sweetwater 20 oz bottles as per the requirements with a 99 cent price to consumer generated on average a 75% increase in sales over those stores that just priced the product at the regular price to consumer of $1.25. Assuming Get-a-Lot experiences similar results, what would the total incremental profit impact be to the Get-a-Lot chain if it chooses to take advantage of the \"Make it Fly\" promotion and offer a consumer price of 99 cents versus agreeing to the Make it Fly promotion but offering a consumer price of $1.25?

What would the total profit impact be to the Get-a-Lot chain if it chooses to not take advantage of the \"Make it Fly\" promotion and instead buy Bighorn Sweetwater at the regular price of $16.80/case and sell it to consumers for $1.25/bottle?

Solution

a.

In the above table of facts and data, on using Solver in excel and solving for X

we get X = 36.3636 cases

which would get a Total SP of $864.00 which provides a margin of $264.00

Thereby getting a 44% margin for the 50 cases bought for $600.

b. (i) For a minimum order of 20 cases, minimum cases requored to be sold to make 44% profit @ $0.99 a bottle

With similar facts as above:

No of cases required to be sold = 17.4545 cases

bringing in a profit of $126.72

b. (ii) For a minimum order of 20 cases, minimum cases required to be sold to make 44% profit @ $1.09 a bottle

No of cases required to be sold = 15.8532 cases

bringing in a profit of $126.72

c. (i)

Assuming CP per case = $12.00

CP / bottle = $0.99

SP / Bottle = $1.25

Consider each store sells teh same amount of cases (36.3636 cases),

Teh profit each week, each store will make = $490.91

Which is 46.21% higher than taking the introductory offer.