Case Study

You are Brand Manager of three Brands

A,B,&C and responsible for profitable
growth of these three Brands a net profit
margin of 5% of selling price and their
respective variable cost are 25%, 50% &
75% of their selling price. The management
is not happy with the current low level of
profit and profitability and they want you to
be enhanced.
Although there is no change in any cost
whatsoever you have three alternatives of
prices changes for increasing the profit what
is the impact of each of these action
revenue, cost,& profitability.
2. Reduce the price of each by 10% but the
volume of sale by 10% of A & 30% of B
3. Neither increase the price nor reduce the
price but collect the dues/revenues 90days
faster after the sale compare the current.
Even after reducing the credit limit assume
volume remain same & opportunity gain for
the co. o the additional cash made available
because of faster collection is 24% per
annum.
 QUESTIONS
• What strategy you recommend for
each brand to increase the
profitability.
• what are the strategy consequence.
• What thumb rules of the prices
changes, can you formulate for
future use of brand managers.
 A- BRAND
• First brand :- 25% V.C.
100*100 = 10,000
on 25% V.C 2,500
contribution= 7,500
profit @ 3%= 300
fixed cost = 7,200
• First condition:- increase 10% price
and volume drop by 10%
price * volume
110*90 = 9,900
90*25 = 2,250
contribution= 7,650
fixed cost = 7,200
profit = 450
• second condition:- increase 10%
price and drop the volume by 30%
price * volume
110*70 = 7,700
70*25 = 1,750
contribution= 5,950
fixed cost = 7,200
Loss = 1,250
• third condition:- Reduce the price
10% and increase the volume by
10%
price * volume
90*110 = 9,900
110*25 = 2,750
contribution= 5,250
fixed cost = 7,200
Loss = 1,950
• Forth condition:- Reduce the price
10% and increase the volume by
30%
price * volume
90*130 = 11,700
130*25 = 3,250
contribution= 8,450
fixed cost = 7,200
Profit = 1,250
• Neither increase the price nor reduce
the price but collect the revenue 60
days faster compaire the current
purchases of collecting the prices of
90 days
• Even after reduce the credit limit, the
volume is same and the
opportunities gained for the company
on the additional cash made avaible
and b’coz of faster collection is 24%
• Total amount of sale = 10,000 Rs.
(Assumed)
it received 60 days faster, then we
will invest it at 24% per annum for 2
months .

Then profit is 400 Rs.

• Now we will select the third strategy
in which price is reduce by 10% and
volume increase by 30%. B’coz in
this case profit is maximum 1,250 Rs.
 B- BRAND
• Second brand :- 50% V.C.
100*100 = 10,000
on 50% V.C 5,000
contribution= 5,000
profit @ 3%= 300
fixed cost = 4,700
• First condition:- increase 10% price
and drop the volume by 10%
price * volume
110*90 = 9,900
90*50 = 4,500
contribution= 5,400
fixed cost = 4,700
profit = 700
• second condition:- increase 10%
price and drop the volume by 30%
price * volume
110*70 = 7,700
70*50 = 3,500
contribution= 4,200
fixed cost = 4,700
Loss = 500
• third condition:- Reduce the price
10% and increase the volume by
10%
price * volume
90*110 = 9,900
110*50 = 5,500
contribution= 4,400
fixed cost = 4,700
Loss = 300
• Forth condition:- Reduce the price
10% and increase the volume by
30%
price * volume
90*130 = 11,700
130*50 = 6,500
contribution= 5,200
fixed cost = 4,700
Profit = 500
• Neither increase the price nor reduce
the price but collect the revenue 60
days faster compaire the current
purchases of collecting the prices of
90 days
• Even after reduce the credit limit, the
volume is same and the
opportunities gained for the company
on the additional cash made avaible
and b’coz of faster collection is 24%
• Total amount of sale = 10,000 Rs.
(Assumed)
it received 60 days faster, then we
will invest it at 24% per annum for 2
months .

Then profit is 400 Rs.

• Now we will select the first strategy
in which price is increase by 10%
and volume decrease by 10%. B’coz
in this case profit is maximum 700
Rs.
 C- BRAND
• Third brand :- 75% V.C.
100*100 = 10,000
on 75% V.C 7,500
contribution= 2,500
profit @ 3%= 300
fixed cost = 2,200
• First condition:- increase 10% price
and drop the volume by 10%
price * volume
90*110 = 9,900
90*75 = 6,750
contribution= 3,150
fixed cost = 2,200
profit = 950
• second condition:- increase 10%
price and drop the volume by 30%
price * volume
110*70 = 7,700
70*75 = 5,250
contribution= 2,450
fixed cost = 2,200
profit = 250
• third condition:- Reduce the price
10% and increase the volume by
10%
price * volume
90*110 = 9,900
110*75 = 8,250
contribution= 1,750
fixed cost = 2,200
Loss = 450
• Forth condition:- Reduce the price
10% and increase the volume by
30%
price * volume
90*130 = 11,700
130*75 = 9,750
contribution= 1,950
fixed cost = 2,200
Loss = 250
• Neither increase the price nor reduce
the price but collect the revenue 60
days faster compaire the current
purchases of collecting the prices of
90 days
• Even after reduce the credit limit, the
volume is same and the
opportunities gained for the company
on the additional cash made avaible
and b’coz of faster collection is 24%
• Total amount of sale = 10,000 Rs.
(Assumed)
it received 60 days faster, then we
will invest it at 24% per annum for 2
months .

Then profit is 400 Rs.

• Now we will select the first strategy
in which price is increase by 10%
and volume decrease by 10%. B’coz
in this case profit is maximum 950
Rs.