Question

1. You are a salesperson for Bottoms Up Beverage Company and are introducing a new bottled water product called Fresh-is-Best Sweetwater, sourced from the natural springs of the Great Lakes near Flint, Michigan. You are preparing to call on the GO GO! Convenience store chain in an attempt to gain authorization for Fresh-is-Best 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. a. In order for GO GO! 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 Fresh-is-Best Sweetwater displays in each store and offer an introductory price to consumer of 99 cents. To facilitate this, Bottoms Up Beverage is offering a “Get Rolling” 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., displays and advertising). b. How many cases per week would the chain have to sell in each store to break even and make this proposition viable for GO GO!? ____________

Although you hope to sell GO GO! on this program, Bottoms Up also offers a slightly less attractive deal of $14.40/case (“Get Started” promotion) with a 20-case minimum per store purchase and less aggressive merchandising requirements. c. 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, Bottoms Up found that retailers that took advantage of Bottoms Up’s $12.00/case “Get Rolling” deal and merchandised Fresh-is-Best 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. d. Assuming GO GO! experiences similar results, what would the total incremental profit impact be to the GO GO! chain if it chooses to take advantage of the “Get Rolling” promotion and offer a consumer price of 99 cents versus agreeing to the “Get Rolling” promotion but offering a consumer price of $1.25? ___________ What would the total profit impact be to the GO GO! chain if it chooses to not take advantage of the “Get Rolling” promotion and instead buy Fresh-is-Best Sweetwater at the regular price of $16.80/case and sell it to consumers for $1.25/bottle? ____________

Answer 1

Sol:

No of stores		85
Regular Wholesale cost		$16.8	20 oz
Bottles / case		24
Standard Margin		44%
Approx sale / week		10 cases	240 bottles
Intro price / bottle		$0.99	SP / case   $23.76
Promotional cost price		$12
Min order	50 cases	$600

Per case	Normal	Intro	Order Size	Weekly
CP	$16.80	$12.00	50	$ 600.00	$864.00
SP	$24.19	$23.76	="X"	="X" * 23.76 = Y	=Y*1.44
Margin	>=44%			= Y - 600

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.

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

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
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.

Assuming the CP per case = $16.80 SP per bottle = $1.25 OR $30 per case, For 36.3636 cases bought and sold, The chain would have profit = $480.00 which is $216.00 more than buying 50 cases at $12.00 Therefore gaining additional 45% profit than the introductory price.