The directors of Early Bird, Inc., were considering whether to begin a sales promotion for their...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
The directors of Early Bird, Inc., were considering whether to begin a sales promotion for their line of specialty coffees earlier than originally planned. "I think we should go ahead with the price cuts," Tracy Brandon said. "After all, it couldn't hurt! At the very worst, we'll sell some coffee cheap for a little longer than we had planned, and on the other side we could beat New Morning to the punch." "That's really the question, isn't it?" replied Jack Santorini. "If New Morning really is planning their own promotion, and we start our promotion now, we would beat them to the punch. On the other hand, we might provoke a price war. And you know what a price war with that company means. We spend a lot of money fighting with each other. There's no real winner. We both just end up with less profit." Janice Wheeler, the finance VP for Early Bird, piped up, "The consumer wins in a price war. They get to buy things cheaper for a while. We ought to be able to make something out of that." Ira Press, CEO for Early Bird, looked at the VP thoughtfully. "You've shown good horse sense in situations like these, Janice. How do you see it?" Janice hesitated. She didn't like being put on the spot like this. "You all know what the projections are for the six-week promotion as planned. The marketing group tells us to expect sales of 10 million dollars. The objective is to gain at least two percentage points of rnarket share, but our actual gain could be anywhere from nothing to three points. Profits during the promotion are expected to be down by 10 percent, but after the promotion ends, our increased market share should result in more sales and more profits." Tracy broke in. "That's assuming New Morning doesn't come back with their own promotion in reaction to ours. And you know. what our report is from Pete. He says that he figures New Morning is up to something." "Yes, Pete did say that. But you have to remember that Pete works for our advertising agent. His incentive is to sell advertising. And if he thinks he can talk us into spending more money, he will. Furthermore, you know, he isn't always right. Last time he told us that New Morning was going to start a major campaign, he had the dates right, but it was for a different product line altogether." Ira wouldn't let Janice off the hook. "But Janice, if New Morning does react to our promotion, would we be better off starting it early?" Janice thought for a bit. If she were working at New Moming and saw an unex-, pected promotion begin, how would she react? Would she want to cut prices to match the competition? Would she try to stick with the original plans? Finally she said, "Look, we have to believe that New Moming also has some horse sense. They would not want to get involved in a price war if they could avoid it. At the same time, they aren't going to let us walk away with the market. I think that if we move early, there's about a 30 percent chance that they will react immediately, and we'll be in a price war before we know it." "We don't have to react to their reaction, you know," replied Ira. "You mean," asked Jack, "we have another meeting like this to decide what to do if they do react?" "Right." "So," Janice said, "I guess our immediate options are to start our promotion early or to start it later as planned. If we start it now, we risk a strong reaction from New Moming. If they do react, then we can decide at that point whether we want to cut our prices further." Jack spoke up. "But if New Morning reacts strongly and we don't, we would probably end up just spending our money for nothing. We would gain no market share at all. We might even lose some market share. If we were to cut prices further, it might hurt profits, but at least we would be able to preserve what market share gains we had made before New Morning's initial reaction." At this point, several people began to argue among themselves. Sensing that no resolution was immediately forthcoming, Ira adjourned the meeting, asking everyone to sleep on the problem and to call him with any suggestions or insights they had. Questions Based on the information in the case, what are Early Bird's objectives in this situation? Are there any other objectives that you think they should consider? 1 2 3 Given your answer to the previous question, what do you think Early Bird's planning horizon should be? Identify the basic elements (values, decisions, uncertain events, consequences) of Early Bird's decision problem.. The directors of Early Bird, Inc., were considering whether to begin a sales promotion for their line of specialty coffees earlier than originally planned. "I think we should go ahead with the price cuts," Tracy Brandon said. "After all, it couldn't hurt! At the very worst, we'll sell some coffee cheap for a little longer than we had planned, and on the other side we could beat New Morning to the punch." "That's really the question, isn't it?" replied Jack Santorini. "If New Morning really is planning their own promotion, and we start our promotion now, we would beat them to the punch. On the other hand, we might provoke a price war. And you know what a price war with that company means. We spend a lot of money fighting with each other. There's no real winner. We both just end up with less profit." Janice Wheeler, the finance VP for Early Bird, piped up, "The consumer wins in a price war. They get to buy things cheaper for a while. We ought to be able to make something out of that." Ira Press, CEO for Early Bird, looked at the VP thoughtfully. "You've shown good horse sense in situations like these, Janice. How do you see it?" Janice hesitated. She didn't like being put on the spot like this. "You all know what the projections are for the six-week promotion as planned. The marketing group tells us to expect sales of 10 million dollars. The objective is to gain at least two percentage points of rnarket share, but our actual gain could be anywhere from nothing to three points. Profits during the promotion are expected to be down by 10 percent, but after the promotion ends, our increased market share should result in more sales and more profits." Tracy broke in. "That's assuming New Morning doesn't come back with their own promotion in reaction to ours. And you know. what our report is from Pete. He says that he figures New Morning is up to something." "Yes, Pete did say that. But you have to remember that Pete works for our advertising agent. His incentive is to sell advertising. And if he thinks he can talk us into spending more money, he will. Furthermore, you know, he isn't always right. Last time he told us that New Morning was going to start a major campaign, he had the dates right, but it was for a different product line altogether." Ira wouldn't let Janice off the hook. "But Janice, if New Morning does react to our promotion, would we be better off starting it early?" Janice thought for a bit. If she were working at New Moming and saw an unex-, pected promotion begin, how would she react? Would she want to cut prices to match the competition? Would she try to stick with the original plans? Finally she said, "Look, we have to believe that New Moming also has some horse sense. They would not want to get involved in a price war if they could avoid it. At the same time, they aren't going to let us walk away with the market. I think that if we move early, there's about a 30 percent chance that they will react immediately, and we'll be in a price war before we know it." "We don't have to react to their reaction, you know," replied Ira. "You mean," asked Jack, "we have another meeting like this to decide what to do if they do react?" "Right." "So," Janice said, "I guess our immediate options are to start our promotion early or to start it later as planned. If we start it now, we risk a strong reaction from New Moming. If they do react, then we can decide at that point whether we want to cut our prices further." Jack spoke up. "But if New Morning reacts strongly and we don't, we would probably end up just spending our money for nothing. We would gain no market share at all. We might even lose some market share. If we were to cut prices further, it might hurt profits, but at least we would be able to preserve what market share gains we had made before New Morning's initial reaction." At this point, several people began to argue among themselves. Sensing that no resolution was immediately forthcoming, Ira adjourned the meeting, asking everyone to sleep on the problem and to call him with any suggestions or insights they had. Questions Based on the information in the case, what are Early Bird's objectives in this situation? Are there any other objectives that you think they should consider? 1 2 3 Given your answer to the previous question, what do you think Early Bird's planning horizon should be? Identify the basic elements (values, decisions, uncertain events, consequences) of Early Bird's decision problem..
Expert Answer:
Answer rating: 100% (QA)
1 Early Birds objectives in this situation are to Gain market share Increase sales Maintain or impro... View the full answer
Related Book For
The Legal Environment of Business A Critical Thinking Approach
ISBN: 978-0132664844
6th Edition
Authors: Nancy K Kubasek, Bartley A Brennan, M Neil Browne
Posted Date:
Students also viewed these finance questions
-
Planning is one of the most important management functions in any business. A front office managers first step in planning should involve determine the departments goals. Planning also includes...
-
The Crazy Eddie fraud may appear smaller and gentler than the massive billion-dollar frauds exposed in recent times, such as Bernie Madoffs Ponzi scheme, frauds in the subprime mortgage market, the...
-
Fill in each blank so that the resulting statement is true. I find (f g)(x) by replacing each occurrence of x in the equation for_______ with________ .
-
Bond prices depend on the market rate of interest, stated rate of interest, and time. Determine whether the following bonds payable will be issued at face value, at a premium, or at a discount: a....
-
1. Lesotho's footwear industry currently consists of two footwear manufacturers, one in Maseru and the other in Maputsoe. In Maseru, the marginal benefit associated with pollution cleanup is MB...
-
Presented here are the amounts of Assets, Liabilities, Stockholders Equity, Revenues, and Expenses of The Better Body, Inc., at December 31, 2010. The items are listed in alphabetical order. The...
-
The General Fund of Dilligan County, Virginia, has total fund balance of $17,000,000 at June 30, 20X0, the end of its fiscal year. Additional information is provided below. 1. The county has...
-
Table 1 shows information for exchange rates and price indexes for different countries and for the U.S. Country Currency Table 1 Currency per U.S. Price U.S. Dollar Index Country Price Index Bolivia...
-
Based on the information below, journalize the entries for the Seller and Buyer. Both use a perpetual inventory system. Seller sells merchandise to buyer on account terms 2/10, n 30 FOB destination:...
-
ABC limited issued to retail investors a fixed rate perpetual preferred stock 4 years ago at par value of $10 per share with a $2.85 dividend. If the company had issued the preferred stock today the...
-
evaluate and report on the most recent (FY2020) annual report of an Australian company listed on ASX, Adairs Limited (ADH), as if you were investment analysts making a recommendation on whether your...
-
a) Calculate the Inverse Laplace Transform of the 2s L- (52+35+2) s+35+2 b) Determine the overall transfer functions (show calculation step) of the following block diagrams. 5K 19 13K 3 s+1 6 s+1 8...
-
How do the NADH and FADH 2 that are produced in the TCA cycle get used during oxidativephosphorylation ?
-
es Adams Corporation incurs the following annual fixed costs: Item Cost Depreciation $68,000 Officers' salaries 190,000 Long-term lease 60,000 Property taxes 12,000 Required Determine the total fixed...
-
Which of these is not a type of letter? Select one: O O a. Application b. Musical c. Friendly d. Business TERSE TOALLASKET
-
Nitrogen monoxide reacts with hydrogen as follows: 2NO(g)+ H2(g) N2O(g) + H2O(g) The rate law is [H2]/ t = k[NO]2[H2], where k is 1.10 107 L2/(mol2s) at 826oC. A vessel contains NO and H2 at...
-
Under the Clean Air Act, the EPA can regulate gasoline additions if they "endanger the public welfare." Scientific evidence showed that lead emissions from gasoline constituted 90 percent of all the...
-
Describe the circumstances under which a partnership would offer greater tax advantages than a corporation.
-
Judy worked the morning shift at Wild Oats. She bought a Pepsi but got too busy to drink it, so she left it on a shelf behind the counter to drink the next day. Cindy was working that afternoon. She...
-
Record the following transactions in the general journal of Dvorak Interiors. Round all amounts to the nearest dollar. Explanations are not required. 2007 Dec. 21 Received a $4,400, 30-day, 9% note...
-
Speedo Paint Company completed the following selected transactions: Requirement Record the transactions in the journal of Speedo Paint Company. Explanations are not required. Using ratio data to...
-
The comparative financial statements of 4th Gear Website Design for 5 2008,2007 , and 2006 include the data shown here: Requirements 1. Compute these ratios for 2008 and 2007 : a. Current ratio b....
Study smarter with the SolutionInn App