Question

In 1988, the total fabric wash sales were estimated to be 263,050 tonnes in Pakistan consisted of 247,000 tonnes of laundry soap, 14,500 tonnes of non-soap detergent (NSD) powders, and 750 tonnes of NSD bars. Lever Brothers’ Rin brand was the only NSD Bar in the Pakistan fabric wash market. The price of Rin was Rs 6 for the 250-gram pack. RIN was distributed through 315 distributors to 60,000 retail outlets in the country. This represented almost 100 percent coverage in retail outlets selling detergents. When RIN was launched in 1984, the distributors received a margin of 3 percent on the retail selling price. The retailer margin was at 7 percent of the retail price. In 1988, excise and octroi taxes were together totalling to 5% of the retail selling price. Production department transferred Rin at Rs. 3.6 per unit to marketing department. Marketing department has planned to spend 1 Mn. on selling plus transportation costs and about Rs. 3.5 Mn. on advertising expenses.

a) What is the unit contribution? How many bars of RIN would be required to be sold in 1988 by Lever Brothers to break-even? How much sales in units Rin NSD bar is expected to make in 1988? What is the Gross Marketing Contribution? What is the Net Marketing Contribution?

b) If active fabric wash ingredient is removed from Rin it can still be sold for dish washing purpose. In such a case, the production cost per unit is likely to be reduced by 1/3 of the current transfer cost. However, as the market for dishwashing bars is just 60,000 tonnes with high competition and the repositioning exercises may have negative impact on the sales of Rin. Rin brand manager expects that the sales may reduce to 2/3 of the current sales even if the marketing cost is increased by 20%. If Lever Bros decide to sell Rin as dishwasher, what would be the break-even quantities (in number of bars) required? What would be the net marketing contribution? How much additional profit (net contribution) the brand can add if it sells as a dish washer?

Answer 1