Bandit & Max

Bandit & Max (BM) is a partnership between Dr. Jones and Dr. Morris that produces specialist food for dogs with health problems. BM’s unique selling point/proposition (USP) is food for dogs with diabetes and digestive or kidney problems. BM’s mission statement is, “To help strengthen the bond between people and their dogs.”

BM uses a cost-plus (mark-up) pricing strategy; however, the costs of raw materials are rising. BM has an excellent brand image and sells its products only through veterinarians and large pet shops that provide advice to customers. Veterinarians recommend BM’s dog food because of its high quality and nutritional value. However, potential customers in some areas lack access to BM’s food. BM’s sales are not growing.

Dr. Morris wants to diversify into specialist cat food, as more people are buying or adopting cats. BM has experience in developing new products. In the past, BM outsourced its research and development. Now, Dr. Morris wants BM to build its own research facilities, but building costs are high. BM’s warehouse will need refurbishing to stock more food. BM could become a private limited company to raise the necessary finance.

Dr. Jones disagrees. He believes BM should not diversify. BM’s current distribution costs are high. He has suggested introducing a new distribution channel for the dog food that includes a large supermarket chain, a wholesaler, and many small pet shops.

Flussbiegung CityRoller (FC)

Flussbiegung CityRoller (FC) is a private limited company that sells scooters in a large German city. Its shop is situated in an excellent location near the city centre. In 2014, FC sold 1200 scooters at a sales price of €2200 per scooter. The business has few variable costs.

FC only sells one brand of scooter, called Rasen, which consumers regard as high quality. Rasen’s competitors are:

Brand	Price (in $€$ s)	Consumer opinion
Electrico	2800	medium quality
Elegante	2300	low quality
Zoom	1900	low quality

Elegante and Zoom have both become popular in the last five years. Despite some problems with quality, both are seen as fashionable scooters. Elegante has successfully built a brand identity as a stylish scooter. Electrico scooters are electric-powered and are popular with people concerned about pollution. Rasen, Elegante and Zoom scooters all use petrol (gas).

Despite Rasen’s reputation for quality, in the last five years FC’s market share has decreased. Rasen’s manufacturer has also been losing market share across Germany. The problem, according to FC, is that the manufacturer does not invest enough to update the brand’s image. Rasen scooters appeal to an older generation in Germany, but younger people prefer products that are fashionable. FC uses below the line promotions. These promotions do not have the same influence on market perception as the manufacturer’s above the line promotions, which emphasize Rasen’s quality. Another possibility for Rasen is, rather than update its brand image, to maintain
its current brand identity but try to sell its product in different geographic markets where its current brand identity may have more appeal, such as in eastern Europe or Africa.

Sharon’s Super Lunches (SSL)

Sharon’s Super Lunches (SSL) is a cooperative that provides healthy school lunches. The lunches are delivered daily to students, who order them online. SSL aims for a minimum order size of 50 lunches to deliver to a school.

Table 2: Sales and other financial information for SSL for one week

$$\begin{array}{|l|r|} \hline \text { Forecasted sales of lunches } & 3200 \\ \hline \text { Maximum sales of lunches } & 4000 \\ \hline \text { Price of lunches } & \$ 10.20 \\ \hline \text { Variable costs per lunch } & \$ 6.40 \\ \hline \text { Fixed costs for SSL } & \$ 7980 \\ \hline \end{array}$$

SSL is considering a new promotional strategy for healthy school lunches: they will donate a free school lunch to a student in a lower-income area for each lunch purchased in a higher-income area.

Jacob Strutz (JS)

Jacob Strutz (JS) is an American multinational company that produces jeans. Founded in 1860, for 100 years JS enjoyed steady growth in sales, mostly in the United States and then in Canada and Mexico. In the 1960s and 1970s, when teenagers worldwide began wearing jeans, JS’s sales increased significantly. JS’s premier product is Strutz’s No.5 jeans, one of the best-known brands in the world.

In the late 1970s, JS operated 71 factories in the United States. In 1994, its sales peaked at $7.6 billion worldwide, but then began to decline. In 2002, JS made the decision to close its last remaining factories and outsource manufacturing to foreign manufacturers, whose quality was more difficult to control. By 2017, annual sales were only $4.5 billion. Even sales of Strutz’s No.5 jeans declined, and JS faced intense competition, including foreign competition.

JS briefly experimented with fast fashion, an industry practice developed in the United States in response to cheap, foreign imports. In fast fashion, new design concepts are quickly manufactured once they have been tested at fashion shows. Unfortunately, fast fashion worked against JS’s brand identity. Surveys indicated that JS’s brand has value and inspires loyalty, though focus groups of young consumers did not perceive JS as cool.

JS has been a leader in corporate social responsibility (CSR). Since the 1890s, it has pursued profits through values. More recently, JS introduced Strutz’s chemical-free jeans. Because many of JS’s suppliers operate in areas with few pollution regulations, to remain consistent with its image of CSR, JS is insisting that suppliers follow innovative but expensive chemical-free processes.

JP

JP produces electric guitars. It is a cooperative owned by a committed workforce who share in the management and success (or failure) of the company and its profits. Workers enjoy having control over the workplace and are productive. However, JP’s continued success is threatened by insufficient finance, which prevents them from spending more on traditional promotional methods.

JP’s guitars are expensive relative to the competition but are known for their quality. Its customers are very brand loyal. The use of social media marketing by many famous musicians influences JP’s brand loyalty and awareness. Unfortunately for JP, one especially famous musician using a _JP_guitar on social media recently received negative publicity about his private life.

JP follows strict quality procedures that include quality circles. JP’s management believe that teams of workers employed on the production line know the production process best and are in the best position to make any necessary improvements. Staff turnover at JP is very low.

XYZ, a large company known for its kitchen appliances, is considering moving into the musical instrument market as part of a growth strategy – they want the high gross profit margins on guitars (compared to the low profit margins on kitchen appliances). XYZ wants to take over JP. XYZ has a strong balance sheet and large cash reserves and is an expert at marketing.

The cooperative has refused to consider the takeover bid from XYZ. The cooperative has argued that the culture of XYZ is too different to JP’s. XYZ’s management are viewed as too controlling. However, increased price competition has led to falling sales, forcing JP to make redundancies. Some cooperative members argue that unless JP accepts XYZ’s bid, additional jobs will be lost.

Sotatsu Electronics (SE)

Sotatsu Electronics (SE) manufactures electronic products and is famous for its innovativetelevisions. In late 2015, SE introduced a new high-definition television with twice the quality ofthe best-selling television of its chief competitor. Determining that it would be two years before itscompetitors could have a similar product, SE adopted a price skimming strategy.

Table 1: Select financial information for SE for 2015 and 2016.
Figures in $000 000.

	$\mathbf{2 0 1 5}$	$\mathbf{2 0 1 6}$
Cash	300	250
Cost of goods sold	2100	2300
Creditors	180	230
Expenses	1200	1300
Fixed assets	1075	1275
Gross profit	$\mathbf{X}$	2800
Net profit before interest and tax	1000	$\mathbf{Y}$
Sales revenue	4300	5100
Total current assets	650	700
Total current liabilities	275	300

Red Squirrel Apple Juice (RS)

Red Squirrel Apple Juice (RS) is a cooperative of apple farmers. _RS_was named after the red squirrel, whose population is declining because of growing numbers of grey squirrels. Originally from North America, grey squirrels are aggressive and take over red squirrels’ habitats. RS’s founders thought that the red squirrel would be a good symbol to reverse the declining popularity of traditional apple juice due to consumer preference for high-sugar American-style beverages. With the symbol, RS aimed to appeal to environmentally aware and health-conscious consumers.

Originally, RS only sold apple juice in bulk to beverage companies. These companies bottle the juice and sell it under their own labels. RS requires these companies to place RS’s logo of a red squirrel on their labels. Although RS only sells to a small number of beverage companies, its logo is on juice bottles in stores across the country.

Awareness of the RS brand grew. The cooperative’s managers recently opened another channel of distribution: direct sales of bottled juice to consumers at the cooperative’s processing plant. RS charges lower prices than stores. The new channel of distribution required capital expenditure for bottling equipment and additional revenue expenditure. _RS_experienced increased labour and promotion costs, which some farmers complained about.

In recent decades, RS’s home country has experienced rising anti-immigrant sentiment. Some politically motivated organizations have begun to use images of red squirrels to symbolize this sentiment, so some beverage companies no longer want to use RS’s logo on their labels.

Some of RS’s stakeholders are concerned.

Cool Meals (CM)

Cool Meals (CM) produces frozen organic ready-made meals that are sold to food retailers throughout the country.

CM buys large quantities of organic ingredients from local farmers for its just-in-case (JIC) stock control management. It uses a cost-plus (mark-up) pricing strategy.

CM is known for its:

• good-quality organic frozen meals, which are perceived as good value for money
• flexibility with retailers in terms of quantity of meals supplied, credit given and efficient delivery at pre-arranged dates
• corporate social responsibility (CSR) based on a long-term commitment made to farmers to purchase large quantities of organic ingredients every four months and pay a fair price promptly
• CM has an excellent working relationship with farmers, who always prioritize CM’s requests in terms of quantity and delivery.

Recently, an economic downturn and increased competition, especially from non-organic frozen meal suppliers, has decreased demand for frozen organic meals.

The finance manager of CM, Kayleigh, provided the following financial information.

Table 1: Selected financial information for CM

	$\mathbf{2 0 1 7}$	$\mathbf{2 0 1 8}$
Total revenue	$6000000	$3500000
Gross profit margin	$16 \%$	$14 \%$
Net profit margin	$6 \%$	$3 \%$
Creditor days	10	5
Debtor days	50	70
Stock turnover days	20	40
Current ratio	2.1	2.4
Acid test (quick) ratio	0.8	0.6

Kayleigh is worried about the cash flow of CM and suggested the company changes the stock control method from just-in-case (JIC) to just-in-time (JIT). She is also looking at other strategies to improve CM’s financial position.

Adventures for All (A4A)

Tama Toki founded Adventures for All (A4A), which owns four adventure parks employing 342 people. The parks offer adventure activities such as high wire and mountain biking. A4A_’_s target market is teenagers and adults. A4A’s mission statement is “safety and affordability at A4A are the most important reasons for a great time for all”.

A4A uses predatory pricing. Its competitors are theme parks and adventure centres. However, social trends are
changing. Many teenagers prefer social networking rather than adventure activities. A4A’s sales revenue and profits are falling.

Tama discussed with senior managers two possible growth strategies:

Option 1. Through extensive promotion, attract children and adults with disabilities and access requirements to the parks. This approach would require specialized training for existing staff. No modifications to the parks would be required.

Option 2. Offer corporate team-building activities. A4A would develop specially designed programmes for senior leadership teams to spend three days in newly built conference centres located at the parks. Corporate teams would engage in adventure activities together and then discuss strategic options for their organizations.

Option 2 could be highly profitable. A4A could charge high prices for these programmes. However, some of Tama’s senior managers argued that A4A should continue to provide “adventures for all” and not just to a group of highly paid senior leadership teams.

The two options created major disagreements. Two senior managers, working with Tama since the creation of A4A, threatened to resign if Option 2 was implemented. Two other senior managers argued that without Option 2 many jobs at A4A were under threat.

KapTan

KapTan (KT ), which manufactures rechargeable batteries for cordless consumer products like vacuum cleaners, began five years ago as a business with a product orientation. It sells business to business (B2B). Multinational companies dominate the rechargeable battery industry, and KT suffered from cash-flow problems in its first year of trading. Its profits are small and, in the last two years, have fallen.

KT has now developed an innovative battery that is small and lightweight. This battery is an emergency power source allowing electric cars to reach a charging station. However, the battery can only be used ten times before it runs out. KT has insufficient finance to create a battery that can be recharged an unlimited number of times.

Through market research, KT has discovered that:

• no other emergency batteries for electric cars exist
• owners of electric cars fear running out of power
• KT ’s new battery could be obsolete in five years.

KT has the capacity to produce 90 000 of these new batteries each year. The average cost is $200 per unit. KT has insufficient funds to invest in additional capacity.

KT is considering two options:

Option 1: Market and sell directly to existing car owners through business to consumer (B2C) at a retail price of $400. KT will need to borrow significant capital to finance this option.

Option 2: Accept an offer of a five-year strategic alliance with a manufacturer of electric cars. KT would provide its product exclusively at $250 per unit. Sales are guaranteed.

Table 2: KT’s forecasted and guaranteed worldwide unit sales (in 000s) for the two options

Year	Option 1 forecasted sales	Option 2 guaranteed sales
1	50	40
2	60	50
3	100	85
4	110	80
5	90	60
Total sales	410	315