What action should Hans Thorborg take? Why?
One option Hans Thorborg has is to develop a new marketing strategy to incorporate the remaining inventory into new sales. For example, he can instruct Gerhard Henk the sales manage to offer the customer a new set of replacement plastic rings free after the first rings wear out. The promotion would help PWI to fortify the vendor to customer relationship commitment of quality and satisfaction while potentially increasing sales as well. The assumption would be the plastic rings are produced by the time the rings wear out. Hans would then have to deal with the total cost of two rings ($279.65 + $1107.90 = $1387.55 per hundred). In this scenario Hans would be face with a net loss of $37.55 ($1387.55 - $1350 = $37.55) since the two combined cost are over the selling price of $1350 per hundred rings. The net loss of $37.55 would be significantly less than trying to sell the units that will soon be obsolete and can reasonably expect the selling price to fall from $1350 to $337.5 per hundred ($1350*.25) which would be one fourth the current selling price of $1350 since the plastic ring is 4 times more durable than the steel rings.. To recover from the lost of $37.55 per hundred rings, Hans may want to consider increasing the price of labor for service calls. Once the plastic rings are introduced to a majority of the market, the price will become more competitive. The markup of nearly 500% ($1350/279.65 = 483%) for the plastic ring will not last as manufacturers possess the technology to produce the unit. Assuming steel rings are currently the most common and widespread part for these machines, the average markup is approximately 18% ($1350 - $1107.90 = $242.10 / $1350 = 17.93%). Once the market for the plastic rings begins to normalize at 18%, the average profit generated will be $50.37 ($279.65 * .18) per hundred rings as opposed to $242.1 for the steel rings. Instead of looking at short term solution, Hans should really...
Please join StudyMode to read the full document