Five years ago, Norton Valves, Inc., introduced and publicized a program in which 56 items in its

Question:

Five years ago, Norton Valves, Inc., introduced and publicized a program in which 56 items in its hydraulic valve line would be made available on a 24-hour-delivery basis, instead of the normal 1- to 12-week delivery period. Quick order processing, stocking to anticipated demand, and using premium transportation services when necessary were elements of the 24-hour delivery program. Sales history was recorded for the five years before the service change as well as for a five-year period after the change. Because only a portion of the product family was subject to the service improvement, the remaining products (102 items) served as a control group. Statistics for one of the test product groups showing the before and after annual unit sales levels are given as follows:

The average value of products in this family was $95 per unit. The incremental cost for the improved service was $2 per unit, but the company did not intend to pass along the costs as a price increase. Instead, it hoped that additional sales volume would more than offset the added costs. The profit margin on sales at the time was 40 percent.
a. Should the company continue the premium service policy?
b. Appraise the methodology as a way of accurately determining the sales-service effect.