Evaluating the Correct Perspective in Case $1$

Determining who is right in Case $1$ requires analyzing the assumptions and methodologies used by Fred, Jeanne, and the consultant. Each perspective offers valuable insights but also has limitations based on their assumptions and the context of the analysis.

$1.$ Fred's Perspective $($VP of Marketing$)$:

Assumptions:

Baseline sales estimate: $15,000$ units

Focuses on the incremental contribution margin minus the fixed costs specific to the promotion.

Strengths:

Simple and straightforward approach.

Highlights the direct financial impact of the promotion in the short term.

Limitations:

Assumes a relatively low baseline sales estimate.

Does not account for the possibility that baseline sales might be higher without the promotion.

Ignores long$-$term fixed costs, which can impact overall profitability.

$2.$ Jeanne's Perspective $($VP of Finance$)$:

Assumptions:

Baseline sales estimate: $25,000$ units

Similar focus on incremental contribution but with a higher baseline sales estimate.

Strengths:

More conservative baseline sales estimate, which could be closer to actual sales without the promotion.

Highlights potential risks of the promotion not covering its costs.

Limitations:

Might be overly cautious, potentially underestimating the promotional impact on sales.

Still does not consider long$-$term fixed costs comprehensively.

$3.$ Consultant's Perspective:

Assumptions:

Baseline sales estimate: $48,960$ units

Considers both variable and fixed costs in a long$-$term context.

Uses historical data and market growth to project baseline sales.

Strengths:

Comprehensive approach, including all relevant costs.

Uses a higher and potentially more realistic baseline sales estimate based on market growth and brand strength.

Highlights the importance of long$-$term financial health and sustainability.

Limitations:

May seem overly complex for short$-$term promotional analysis.

Higher baseline sales estimate might not accurately reflect the immediate pre$-$promotion sales environment.

Who is Right?

Consultant's Perspective is likely the most accurate and comprehensive:

Rationale:

Comprehensive Cost Consideration: The consultant includes both variable and fixed costs, providing a more holistic view of the promotion's impact on profitability.

Market and Brand Analysis: The consultant considers market growth and the brand's strength, which are crucial for long$-$term strategic decisions.

Higher Baseline Sales Estimate: Given the information about the market growth and the historical baseline, the consultant$$s higher baseline estimate is reasonable and aligns with the observed sales trends.

Caveats:

Context$-$Specific: The correct perspective can vary based on the specific context and timeframe of the analysis. In a short$-$term analysis, Fred$$s or Jeanne$$s methods might be more practical.

Alignment and Consensus: A blended approach, incorporating elements from all three perspectives, might be ideal. This would involve using a realistic baseline sales estimate, considering both short$-$term and long$-$term costs, and understanding the broader market context.

Conclusion

The consultant's perspective, with its comprehensive approach to cost consideration and realistic baseline sales estimates, provides the most accurate and sustainable analysis. However, it is essential to balance this with practical insights from Fred and Jeanne, ensuring a thorough and well$-$rounded decision$-$making process.