Vinod 1512

Case Study You are Brand Manager of three Brands

A,B,&C and responsible for profitable growth of these three Brands a net profit margin of 5% of selling price and their respective variable cost are 25%, 50% & 75% of their selling price. The management is not happy with the current low level of profit and profitability and they want you to be enhanced. Although there is no change in any cost whatsoever you have three alternatives of prices changes for increasing the profit what is the impact of each of these action revenue, cost,& profitability.

2. Reduce the price of each by 10% but the volume of sale by 10% of A & 30% of B 3. Neither increase the price nor reduce the price but collect the dues/revenues 90days faster after the sale compare the current. Even after reducing the credit limit assume volume remain same & opportunity gain for the co. o the additional cash made available because of faster collection is 24% per annum.

QUESTIONS • What strategy you recommend for each brand to increase the profitability. • what are the strategy consequence. • What thumb rules of the prices changes, can you formulate for future use of brand managers.

A- BRAND • First brand :- 25% V.C. 100*100 = 10,000 on 25% V.C 2,500 contribution= 7,500 profit @ 3%= 300 fixed cost = 7,200

• First condition:- increase 10% price and volume drop by 10% price * volume 110*90 = 9,900 90*25 = 2,250 contribution= 7,650 fixed cost = 7,200 profit = 450

• second condition:- increase 10% price and drop the volume by 30% price * volume 110*70 = 7,700 70*25 = 1,750 contribution= 5,950 fixed cost = 7,200 Loss = 1,250

• third condition:- Reduce the price 10% and increase the volume by 10% price * volume 90*110 = 9,900 110*25 = 2,750 contribution= 5,250 fixed cost = 7,200 Loss = 1,950

• Forth condition:- Reduce the price 10% and increase the volume by 30% price * volume 90*130 = 11,700 130*25 = 3,250 contribution= 8,450 fixed cost = 7,200 Profit = 1,250

• Neither increase the price nor reduce the price but collect the revenue 60 days faster compaire the current purchases of collecting the prices of 90 days • Even after reduce the credit limit, the volume is same and the opportunities gained for the company on the additional cash made avaible and b’coz of faster collection is 24%

• Total amount of sale = 10,000 Rs. (Assumed) it received 60 days faster, then we will invest it at 24% per annum for 2 months .

Then profit is 400 Rs.

• Now we will select the third strategy in which price is reduce by 10% and volume increase by 30%. B’coz in this case profit is maximum 1,250 Rs.

B- BRAND • Second brand :- 50% V.C. 100*100 = 10,000 on 50% V.C 5,000 contribution= 5,000 profit @ 3%= 300 fixed cost = 4,700

• First condition:- increase 10% price and drop the volume by 10% price * volume 110*90 = 9,900 90*50 = 4,500 contribution= 5,400 fixed cost = 4,700 profit = 700

• second condition:- increase 10% price and drop the volume by 30% price * volume 110*70 = 7,700 70*50 = 3,500 contribution= 4,200 fixed cost = 4,700 Loss = 500

• third condition:- Reduce the price 10% and increase the volume by 10% price * volume 90*110 = 9,900 110*50 = 5,500 contribution= 4,400 fixed cost = 4,700 Loss = 300

• Forth condition:- Reduce the price 10% and increase the volume by 30% price * volume 90*130 = 11,700 130*50 = 6,500 contribution= 5,200 fixed cost = 4,700 Profit = 500

• Neither increase the price nor reduce the price but collect the revenue 60 days faster compaire the current purchases of collecting the prices of 90 days • Even after reduce the credit limit, the volume is same and the opportunities gained for the company on the additional cash made avaible and b’coz of faster collection is 24%

• Total amount of sale = 10,000 Rs. (Assumed) it received 60 days faster, then we will invest it at 24% per annum for 2 months .

Then profit is 400 Rs.

• Now we will select the first strategy in which price is increase by 10% and volume decrease by 10%. B’coz in this case profit is maximum 700 Rs.

C- BRAND • Third brand :- 75% V.C. 100*100 = 10,000 on 75% V.C 7,500 contribution= 2,500 profit @ 3%= 300 fixed cost = 2,200

• First condition:- increase 10% price and drop the volume by 10% price * volume 90*110 = 9,900 90*75 = 6,750 contribution= 3,150 fixed cost = 2,200 profit = 950

• second condition:- increase 10% price and drop the volume by 30% price * volume 110*70 = 7,700 70*75 = 5,250 contribution= 2,450 fixed cost = 2,200 profit = 250

• third condition:- Reduce the price 10% and increase the volume by 10% price * volume 90*110 = 9,900 110*75 = 8,250 contribution= 1,750 fixed cost = 2,200 Loss = 450

• Forth condition:- Reduce the price 10% and increase the volume by 30% price * volume 90*130 = 11,700 130*75 = 9,750 contribution= 1,950 fixed cost = 2,200 Loss = 250

• Neither increase the price nor reduce the price but collect the revenue 60 days faster compaire the current purchases of collecting the prices of 90 days • Even after reduce the credit limit, the volume is same and the opportunities gained for the company on the additional cash made avaible and b’coz of faster collection is 24%

• Total amount of sale = 10,000 Rs. (Assumed) it received 60 days faster, then we will invest it at 24% per annum for 2 months .

Then profit is 400 Rs.

• Now we will select the first strategy in which price is increase by 10% and volume decrease by 10%. B’coz in this case profit is maximum 950 Rs.