P&G’s average contribution margin before the price cuts was 20 percent. Refer to Appendix 2 and calculate the new contribution margin if prices are reduced 10 percent.
The recently weak economy caused many consumers to switch to lower-priced products. Although P&G had sales of $77 billion in 2009, many of its relatively expensive brands, such as Tide detergent and Secret deodorant, were stranded on store shelves. So, in 2010, P&G did the unthinkable: It slashed prices on many of its products, such as batteries (13.3 percent), liquid laundry detergents (5.1 percent), shampoos (5.4 percent), and conditioners (6.6 percent). The price cuts come at a cost, however, and sales must increase considerably just to break even or make the price cuts profitable.