Question

What factors should be considered by top management if Walmart was trying to decide if they should drop their automotive services from every Super Walmart?

Answer 1

Every product reach a stage of late maturity or early decline stage and it becomes a difficult decision for management whether to continue with that product or to stop its sale. Various factors have to be considered before taking such decision. Following are few of them:-

1. Profitability:- A product may have been profitable when it was launched or initial stage but company need s to see its profitability on year on year basis. Sometimes it may be that sales of product may be increasing but margins may be decreasing as a result the product is not generating enough profits. Managers should make a profit ,sales and growth analysis and if it seems profit is reducing at a rapid rate. They should make decision of dropping or maintaining product.

2. Resource Utilization :- Company should take into account overhead cost, labour cost , maintenance cost and running cost and check whether product is using more resources for little benefit. It may be that this product is using more resources as compared to the one which if would have used those resources would have generated more profit as compared to the on in picture.

3. Product mix:-Company should consider whether they have right product mix to satisfy their customer base. It is easier to drop a product if a company has wide variety of products to satisfy its customer requirement .For example a company is producing 3-4 types of digestive biscuits. It can think of dropping one as others can satisfy customer case

4. Brand image:- Every company needs to improve its product to maintain its brand image. If the product is detorating band image of company it needs to be discontinued or improved

5. Company should consider whether freed up capacity could be used to produce more profitable profit as compared to one in question

Thus walmart should make a segment contribution margin income statement of automotive sales and if contribution margin is positive  , they should consider all other abovestated factors like effect on sale of other products, utilization of freed capacity and so on and then make a decision of whether to stop automotive sales or not