Question

Twinkies- Primary product

Suggested Retail Price Company	$     2.99
Mark Up	50%
Selling Price to the distributor/merchandiser	$     1.99
Suggested Retail Price to the company	$     1.99
Less: Cost of twinkie 69.03%	$     1.37
Gross Margin 30.97%	$     0.62

Pop tarts- Competitor product

Suggested Retail Price Company	$2.00
Mark Up	50%
Selling Price to the distributor/merchandiser	$     1.33
Suggested Retail Price to the company	$     1.33
Less: Cost of twinkie 64.02%	$     0.85
Gross Margin 35.98%	$     0.48

1.        Comment on the differences in cost between the two competitors, and assert the reason for this difference (e.g., does the company compete on cost or differentiation?)

2.        Apply the concept of the value chain to this product. What types of costs would be relevant for each segment of the value chain for this product?

3.        Research a single critical ingredient of your snack and its source. Do you expect significant increases in the cost of this ingredient over the next year? Support your response with input from the commodities market or other economic data.

Answer 1

1)cost strategy v/s differentiation strategy : cost strategy is built on no frills.Cost leadership strives towards cutting costs to minimum possible levels in order to provide customers with lower prices and thus boost their savings.In this case study, the companies compete in cost strategy as the competitor pop tarts offer lower prices to the customer than the primary product twinkie.on the other hand,differentiation strategy is built on a belief that needs a clear and unique positioning.differentiation focuses in providing perks that add value for the customers,while high pices are the make up for their higher costs.

2)a value chain is a set of activities that a firm operating in a specific industry performs in order to deliver a valuable product or service for the market. A simple value chain will be

1. DESIGN AND PRODUCT DEVELOPMENT
2. PRODUCTION,INBOUND LOGISTICS,TRANSFORMING,PACKAGING
3. MARKETING
4. CONSUMPTION/RECYCLING   

​the different segments incur diferent costs as the design and product development leads to research and development cost , survey and planning cost and other related sunk costs.the production segment leads to raw material cost, wages,fuel and power,transportation,carriage inwards,packing cost, labelling cost etc.marketing cost leads to advertising and brand development cost,brand awareness cost etc.consumption cost and recycling cost is also to be taken care of.

3.one of the main ingredient of twinkies are eggs ,eggs rates increases as it totally depends on the market demand and the supply flow of the eggs, there is significant increse in price of eggs as the demand increases with the same supply flow.As per the economic reports,egg prices in the first quarter of 2018 are likely to cost 35% more than during the same period of 2017,according to US department of agricultural production.