Absorbent Paper Towels is a producer of paper towels that are sold through three channels: direct to large grocery chains; through wholesalers to small convenience stores; and direct to large warehouse stores where the products are sold in very large bulk packages. The total market for paper towels in the United States is 13 billion pounds of paper towels, which at an average weight of 12 ounces per roll makes the total market in rolls of paper towels roughly 17.4 billion rolls that sell at approximately $0.75 per roll on average for the manufacturer. Absorbent has 20% of this total market.

Absorbent sells 30% of its product to large grocery stores, 30% to the wholesale market, and the remaining 40% to large wholesale warehouse stores. The channel costs in total and as a percent by channel are detailed in the table below.

REQUIRED:

a. Calculate the channel costs by category and channel.

b. What are the total channel costs for large grocery chains? Wholesalers? Warehouse stores?

c. Calculate the revenue by channel.

d. What is the channel cost as a percentage of revenue for large grocery chains? Wholesalers? Warehouse stores?

e. Which channel seems the best for Absorbent? Why?

Transcribed Image Text:

Absorbent Paper Towels Channel Cost Gategory Channel Cost % to large Grocery Chains % to Wholesalers % to Warehouse Stores Channel management $50,000,000 30% 40% 30% Channel maintenance $75,000,000 40% 30% 30% Advertising, promotion, and marketing $100,000,000 50% 30% 20% Product liability $2,500,000 50% 30% 20% Trode show costs $15,000,000 40% 30% 30% Marketing staff costs $25,000,000 40% 35% 25%