Basic Marketing: A Global Managerial Approach

Perreault−McCarthy: Basic
Marketing: A
Global−Managerial
Approach, 14/e

9. Elements of Product
   Planning for Goods and
   Services

Text © The McGraw−Hill

Companies, 2002

Elements of Products Planning for Goods and Services 273

22 .You operate a small hardware store with emphasis

on manufacturer brands and have barely been

breaking even. Evaluate the proposal of a large

wholesaler who offers a full line of dealer-branded

hardware items at substantially lower prices. Specify

any assumptions necessary to obtain a definite

answer.

23 .Give an example where packaging costs probably

(a)lower total distribution costs and (b)raise total

distribution costs.

24 .Is it more difficult to support a warranty for a service

than for a physical good? Explain your reasons.

Suggested Cases

1 .McDonald’s “Seniors” Restaurant 13 .Paper Supplies Corporation

Computer-Aided Problem

9 .Branding Decision

Wholesteen Dairy, Inc., produces and sells Wholesteen

brand condensed milk to grocery retailers. The overall

market for condensed milk is fairly flat, and there’s sharp

competition among dairies for retailers’ business.

Wholesteen’s regular price to retailers is $8.88 a case (24

cans). FoodWorld—a fast-growing supermarket chain

and Wholesteen’s largest customer—buys 20,000 cases of

Wholesteen’s condensed milk a year. That’s 20 percent of

Wholesteen’s total sales volume of 100,000 cases per year.

FoodWorld is proposing that Wholesteen produce

private label condensed milk to be sold with the Food-

World brand name. FoodWorld proposes to buy the

same total quantity as it does now, but it wants half

(10,000 cases) with the Wholesteen brand and half with

the FoodWorld brand. FoodWorld wants Wholesteen to

reduce costs by using a lower-quality can for the Food-

World brand. That change will cost Wholesteen $. 01

less per can than it costs for the cans that Wholesteen

uses for its own brand. FoodWorld will also provide

preprinted labels with its brand name—which will save

Wholesteen an additional $.02 a can.

Wholesteen spends $70,000 a year on promotion to

increase familiarity with the Wholesteen brand. In addi-

tion, Wholesteen gives retailers an allowance of $.25 per

case for their local advertising, which features the

Wholesteen brand. FoodWorld has agreed to give up the

advertising allowance for its own brand, but it is only

willing to pay $7.40 a case for the milk that will be sold

with the FoodWorld brand name. It will continue under

the old terms for the rest of its purchases.

Sue Glick, Wholesteen’s marketing manager, is con-

sidering the FoodWorld proposal. She has entered cost

and revenue data on a spreadsheet—so she can see more

clearly how the proposal might affect revenue and

profits.

a. Based on the data in the initial spreadsheet, how will

Wholesteen profits be affected if Glick accepts the

FoodWorld proposal?

b. Glick is worried that FoodWorld will find another

producer for the FoodWorld private label milk if

Wholesteen rejects the proposal. This would immedi-

ately reduce Wholesteen’s annual sales by 10,000

cases. FoodWorld might even stop buying from

Wholesteen altogether. What would happen to profits

in these two situations?

c. FoodWorld is rapidly opening new stores and sells

milk in every store. The FoodWorld buyer says that

next year’s purchases could be up to 25,000 cases of

Wholesteen’s condensed milk. But Sue Glick knows

that FoodWorld may stop buying the Wholesteen

brand and want all 25,000 cases to carry the Food-

World private label brand. How will this affect profit?

(Hint: enter the new quantities in the “proposal”

column of the spreadsheet.)

d. What should Wholesteen do? Why?

For additional questions related to this problem, see

Exercise 9-5 in the Learning Aid for Use with Basic Mar-

keting,14th edition.