1. Suppose you are the store manager at the Clayton Schnucks store. If Jif, Skippy and Peter Pan are selling their brands to your store at wholesale prices of $0.53, $0.57 and $0.55, respectively, what retail prices must you set for the 3 brands at your store? What would be your resulting retail profits in the peanut butter category? Which brand accounts for the greatest share of this retail profit? (Hint: Assume that your objective is to maximize your retail profit from the peanut butter category)

I’m working on a management report and need support to help me understand better.

 

Get Your Custom Essay Written From Scratch
We have worked on a similar problem. If you need help click order now button and submit your assignment instructions.
Just from $9/Page
Order Now

1. Suppose you are the store manager at the Clayton Schnucks store. If Jif, Skippy and Peter Pan are

selling their brands to your store at wholesale prices of $0.53, $0.57 and $0.55, respectively, what

retail prices must you set for the 3 brands at your store? What would be your resulting retail

profits in the peanut butter category? Which brand accounts for the greatest share of this retail

profit? (Hint: Assume that your objective is to maximize your retail profit from the peanut butter

category)

. [4 POINTS]

2. Suppose, instead, that you are the brand manager for Peter Pan. Your marginal cost of production

for Peter Pan is $0.30. Taking the calculated retail prices in Q1 which the Clayton Schnucks store

sets for your brand and your 2 competing brands, calculate your resulting brand profit as a

manufacturer from the Clayton Schnucks store. Is this larger or smaller than the retail profit that

Clayton Schnucks obtains from your brand? [2 POINTS]

3. Suppose that you are still the brand manager for Peter Pan and that you want to change your

wholesale price of Peter Pan from $0.55 to some other value. Assume that the retailer uses the

same percentage mark

up over your wholesale price, as solved under Question 1, to set the retail price for your brand. Under this assumption, what wholesale price must you charge the retailer?

What is your resulting profit? By what % is this higher than the profit calculated in Q2? (Hint:

Assume that Jif and Skippy

s wholesale prices remain at their current values of $0.53 and $0.57,

and that the Clayton Schnucks store

s retail prices for those 2 brands remain at the calculated

values in Q1; assume further that your objective is to maximize your brand profit)

.

[4 POINTS]

4. Suppose that you are still the brand manager for Peter Pan. You suddenly realize that Jif and

Skippy will not stay put if you changed your wholesale price as calculated in Q3. They will change

their wholesale price in order to optimally respond to your new wholesale price. Given their

changed wholesale prices, you will further change your wholesale price as an optimal response to

their changed wholesale prices, and so on. Where will the 3 wholesale prices finally settle down?

In this calculation, assume that the retailer uses a percentage markup over the wholesale price,

as solved under Q1, to set the retail price for each brand. Also assume that the marginal cost of

production for Jif and Skippy are $0.31 and $0.34, respectively

. (Hint: Assume that the objective

of each brand manager is to maximize their brand profit)

. [5 POINTS]

 

UNFORMATTED ATTACHMENT PREVIEW

INDIVIDUAL ASSIGNMENT 2 Due on Canvas by 1 PM on April 26 (Monday), 2021; No extensions allowed (This assignment must be answered on an individual basis without any consultation with others) The store manager at the Clayton Schnucks store has estimated Scan*Pro demand models for 3 competing peanut butter brands — Jif, Skippy, Peter Pan — using weekly scanner data over the past 2 years. The estimated demand models are as shown below. Ln (QJif) = 2.64 – 5.51 * ln (PJif) + 0.24 * ln (PSkippy) + 0.08 * ln (PPeterPan), Ln (QSkippy) = 3.04 + 0.16 * ln (PJif) – 4.96 * ln (PSkippy) + 0.11 * ln (PPeterPan), Ln (QPeterPan) = 2.36 + 0.12 * ln (PJif) + 0.15 * ln (PSkippy) – 4.49 * ln (PPeterPan), where Q refers to weekly demand (in units sold), and P refers to weekly price (in $). 1. Suppose you are the store manager at the Clayton Schnucks store. If Jif, Skippy and Peter Pan are selling their brands to your store at wholesale prices of $0.53, $0.57 and $0.55, respectively, what retail prices must you set for the 3 brands at your store? What would be your resulting retail profits in the peanut butter category? Which brand accounts for the greatest share of this retail profit? (Hint: Assume that your objective is to maximize your retail profit from the peanut butter category). [4 POINTS] 2. Suppose, instead, that you are the brand manager for Peter Pan. Your marginal cost of production for Peter Pan is $0.30. Taking the calculated retail prices in Q1 which the Clayton Schnucks store sets for your brand and your 2 competing brands, calculate your resulting brand profit as a manufacturer from the Clayton Schnucks store. Is this larger or smaller than the retail profit that Clayton Schnucks obtains from your brand? [2 POINTS] 3. Suppose that you are still the brand manager for Peter Pan and that you want to change your wholesale price of Peter Pan from $0.55 to some other value. Assume that the retailer uses the same percentage mark-up over your wholesale price, as solved under Question 1, to set the retail price for your brand. Under this assumption, what wholesale price must you charge the retailer? What is your resulting profit? By what % is this higher than the profit calculated in Q2? (Hint: Assume that Jif and Skippy’s wholesale prices remain at their current values of $0.53 and $0.57, and that the Clayton Schnucks store’s retail prices for those 2 brands remain at the calculated values in Q1; assume further that your objective is to maximize your brand profit). [4 POINTS] 4. Suppose that you are still the brand manager for Peter Pan. You suddenly realize that Jif and Skippy will not stay put if you changed your wholesale price as calculated in Q3. They will change their wholesale price in order to optimally respond to your new wholesale price. Given their changed wholesale prices, you will further change your wholesale price as an optimal response to their changed wholesale prices, and so on. Where will the 3 wholesale prices finally settle down? In this calculation, assume that the retailer uses a percentage markup over the wholesale price, as solved under Q1, to set the retail price for each brand. Also assume that the marginal cost of production for Jif and Skippy are $0.31 and $0.34, respectively. (Hint: Assume that the objective of each brand manager is to maximize their brand profit). Good Luck! [5 POINTS] Values-Based/Data-Driven Decision Making Manufacturer Pricing Professor Seethu Seetharaman MKT 555: Analytics-Driven Brand Management 1 Distribution Channel 2 Price Optimization – 1 Brand (Dannon) • Scan*Pro Retail Demand Model at Clayton Schnucks: ln (qDannon) = 2.74 – 4.293 * ln (pDannon) • Optimal Retail Price at Clayton Schnucks: æ 4.293 ö * pDannon =ç ÷ * wDannon = 1.304* ( $0.439 ) = $0.573 è 3.293 ø 3 Price Optimization – 1 Brand (Dannon) • Resulting Retail Demand at Clayton Schnucks: ln (qDannon) = 2.74 – 4.293 * ln (0.573) = 5.133 qDannon = exp (5.133) = 169.520 • Resulting Retail Profit at Clayton Schnucks: PR, Dannon = ($0.573 – $0.439) * 169.520 = $22.609 • Resulting Manufacturer Profit for Dannon: PDannon = ($0.439 – $0.337) * 169.520 = $17.344 • Why did the Manufacturer set Wholesale Price at $0.439? 4 Price Optimization – 1 Brand (Dannon) • Optimal Wholesale Price of Dannon: * Dannon w æ 4.293 ö =ç ÷ * cDannon = 1.304* ( $0.337 ) = $0.439 è 3.293 ø • If Dannon sold directly to consumers instead of at Clayton Schnucks: ln (qDannon) = 2.74 – 4.293 * ln (0.439) = 6.269 qDannon = exp (6.269) = 528.402 • Resulting Manufacturer Profit for Dannon: PDannon = ($0.439 – $0.337) * 528.402 = $54.133 5 Price Optimization – 1 Brand (Yoplait) • Scan*Pro Retail Demand Model at Clayton Schnucks: ln (qYoplait) = 2.92 – 5.42 * ln (pYoplait) • Optimal Retail Price at Clayton Schnucks: * Yoplait p 6 æ 5.42 ö =ç ÷ * wYoplait = 1.226* ( $0.560 ) = $0.687 è 4.42 ø Price Optimization – 1 Brand (Yoplait) • Resulting Retail Demand at Clayton Schnucks: ln (qYoplait) = 2.92 – 5.42 * ln (0.687) = 4.953 qYoplait = exp (4.953) = 141.650 • Resulting Retail Profit at Clayton Schnucks: PR,Yoplait = ($0.687 – $0.560) * 141.650 = $17.959 • Resulting Manufacturer Profit for Yoplait: PYoplait = ($0.560 – $0.457) * 141.650 = $14.645 • Why did the Manufacturer set Wholesale Price at $0.560? 7 7 Price Optimization – 1 Brand (Yoplait) • Optimal Wholesale Price of Yoplait: * Yoplait w æ 5.42 ö =ç ÷ * cYoplait = 1.226* ( $0.457 ) = $0.560 è 4.42 ø • If Yoplait sold directly to consumers instead of at Clayton Schnucks: ln (qYoplait) = 2.92 – 5.42 * ln (0.560) = 6.058 qYoplait = exp (6.058) = 427.864 • Resulting Manufacturer Profit for Yoplait: PYoplait = ($0.560 – $0.457) * 427.864 = $44.238 8 Manufacturer Pricing – 2 Brands • Scan*Pro Retail Demand Model at Clayton Schnucks: ln (qDannon) = 2.74 – 4.293 * ln (pDannon) + 0.286 * ln (pYoplait) ln (qYoplait) = 2.92 + 0.64 * ln (pDannon) – 5.42 * ln (pYoplait) • What does this do to optimal manufacturer prices? • What does this do to optimal retail prices? 9 Values-Based/Data-Driven Decision Making Trade Promotions Professor Seethu Seetharaman MKT 555: Analytics-Driven Brand Management 1 What are trade promotions? • Trade promotions are incentives directed toward other members of the distribution channel. • Trade promotions account for over 60% of manufacturer marketing budgets in packaged goods (> $75B). • There is a heated debate between manufacturers and retailers over the effectiveness of these promotions. 2 How do trade promotions work? $ off Manufacturer Wholesaler $ off ? Consumer 3 Retailer $ off ? Maxwell House Prices 4 Folgers Prices $ 2.00 $ 3.00 5 Retail Pass-through of Trade Deal • Suppose Maxwell House offers a “$1 off” trade deal to Schnucks (valid for this week only). • Should Schnucks offer a “$1 off” retail promotion on Maxwell House to its customers (valid for this week only)? 6 Scan*Pro Demand Models QM = e9.1103 * PM -1.1443 * PF 0.3740 QF = e9.1996 * PM 0.5859 * PF -1.2463 The above demand models have been estimated using store-level scanner data on past sales and prices. 7 Maxwell House Demand QMR = e9.1103 * (3.25) -1.1443 * (3) 0.3740 = 3542 units QMD = e9.1103 * (2.25) -1.1443 * (3) 0.3740 = 5395 units Schnucks sells 1852 extra units of Maxwell House when Maxwell House is on promotion at Schnucks. 8 Folgers Demand QFR = e9.1996 * (3.25) 0.5859 * (3) -1.2463 = 5019 units QFD = e9.1996 * (2.25) 0.5859 * (3) -1.2463 = 4046 units Schnucks sells 973 fewer units of Folgers when Maxwell House is on promotion at Schnucks. 9 Retail Profits PR = = 3542 * ($3.25 – $2.25) + $3542 + $5019 = $8561 PD = = 5395 * ($2.25 – $1.25) + 4046 * ($3 – $2) $5395 + $4046 = $9441 5019 * ($3 – $2) Does this imply that Schnucks must offer a “$1 off” retail promotion on Maxwell House? 10 Suppose Schnucks does not offer $1 off PR’ = = 3542 * ($3.25 – $1.25) + 5019 * ($3 – $2) $7084 + $5019 = $12102 Retailer has an incentive not to pass through the trade deal! 11 Data Manufacturer Wholesaler Retailer • A major product category with many sub-categories • 30 states • 1 manufacturer with many brands • 250 products • 100+ wholesalers • 1000+ retail stores 12 Consumer What must pass-through look like? 13 What does pass-through look like? 14 How to estimate pass-through? • Two models describe the full channel: log (PR) = αW + βW * log (PW) + γW X+ εW log (PC) = αR + βR * log (PR) + γR X+ εR 15 • PW is the price charged to the wholesaler by the manufacturer • PR is the price charged to the retailer by the wholesaler • PC is the price charged to the consumer by the retailer • βW is the pass-through elasticity from wholesaler to retailer • βR is the pass-through elasticity from retailer to consumer • From these two models we can calculate the total pass-through elasticity as βW * βR Estimated pass-through elasticities Pass-through from wholesaler to retailer Mean βW = .71 16 Pass-through from retailer to consumer Mean βR = .59 Total channel pass-through to the consumer Mean βC = .41 Incremental profit from trade promotions 17 Dropping the bad deals! (56%) 18 Conclusions • A large proportion of trade promotions does not reach consumers. • On average, a 10 % promotion from the manufacturer results in a 4.1 % promotion for the consumer. • Up to 56 % of trade promotions may be unprofitable. • Recommendation: Offer trade deals when demand is elastic and channel members cooperate (i.e., pass-through). 19 Values-Based/Data-Driven Decision Making Trade Promotional Planning MKT 555: Analytics-Driven Brand Management Professor Seethu Seetharaman Olin Business School 20 Two Types of Trade Promotions 1. Off-Invoice: Retailer gets discount on units bought from manufacturer. • Brand managers suffer since retailers forward-buy. 2. Scan-Back: Retailer gets discount on units sold to end-consumers. • Brand managers prefer this since it eliminates forward-buying. 21 Trade Promotions – 1. Off-Invoice – Factory Shipments Plot 22 Trade Promotions – 2. Scan-Back – “Win Win” 23 • Strategy 1: Increase deal depth • Strategy 2: Increase deal time length • What to do? Trade Promotions • 3. Lump sum payment: Manufacturers pay retailers for store displays and newspaper features • “Local” advertising • 4. Slotting allowance: Manufacturers pay retailers for retail shelf footage • Kroger charges Unilever $100 per linear foot • 5. Quantity discount: Manufacturers give retailers price discounts on large orders • Milk is cheaper at Wal-Mart than at CVS! 24 Distribution Channel Issues • 1. Incentives of Manufacturers and Retailers are not always aligned. • Retailer could offer price promotion unilaterally! • This may hurt brand equity! • 2. Resale Price Maintenance (RPM) was illegal until 2007! • 3. Medical Giveaways raise ethical concerns. 25 Constant (α) ln (Dannon Price) Coefficient, i.e., β1 ln (Yoplait Price) Coefficient, i.e., β2 Dannon Yoplait Scan*Pro Model 2,74 2,92 -4,293 0,64 0,286 -5,42 ln (Demand), i.e., ln (Q) Demand (Q) 4,79 119,9264064 5,36 213,0967913 Scan*Pro Demand Forecast Cost (c) 0,337 0,457 Wholesale Price (w) Retail Price (P) Retail Profit (PR) Manufacturer Profit (PM) 0,55 0,6 5,996320319 25,54432456 0,55 0,6 10,65483956 19,81800159 16,65115988 Retail Markup Ratio for Dannon (PD / wD) 1,090909091 Retail Markup Ratio for Yoplait (PY / wY) 1,090909091 45,36232615 62,01348603 Constant (α) ln (Dannon Price) Coefficient, i.e., β1 Dannon Yoplait Scan*Pro Model Results 2,74 2,92 -4,293 0,64 ln (Yoplait Price) Coefficient, i.e., β2 0,286 -5,42 ln (Demand), i.e., ln (Q) Demand (Q) 4,79 119,9264064 5,36 213,0967913 Scan*Pro Demand Forecast Cost (c) 0,337 0,457 Wholesale Price (w) Retail Price (P) Retail Profit (PR) Manufacturer Profit (PM) 0,55 0,6 5,996320319 25,54432456 0,55 0,6 10,65483956 19,81800159 16,65115988 45,36232615 62,01348603 INSTRUCTOR: Prof. Seetharaman MKT 555: MANUFACTURER PRICING EXERCISE The results of regressions of ln (Q) versus ln (PRICE) for two yogurt brands at a Schnucks store are given below: BRAND Dannon Yoplait INTERCEPT 2.74 2.92 LN(PRICEDannon) LN(PRICEYoplait) -4.293 0.64 0.286 -5.42 In the first row above, which corresponds to the estimated Scan*Pro model for Dannon, the regression uses ln (QDannon) as the dependent variable. The coefficient of ln (PRICEDannon) is called Dannon’s own price elasticity of demand. Dannon’s quantity demanded will increase by 4.293 % as Dannon’s price is decreased by 1%. The coefficient of ln (PRICEYoplait) is called Dannon’s cross price elasticity of demand. Dannon’s quantity demanded will decrease by 0.286 % as Yoplait’s price is decreased by 1%. In the second row above, which corresponds to the estimated Scan*Pro model for Yoplait, the regression uses ln (QYoplait) as the dependent variable. The coefficient of ln (PRICEYoplait) is called Yoplait’s own price elasticity of demand. Yoplait’s quantity demanded will increase by 5.42 % as Yoplait’s price is decreased by 1%. The coefficient of ln (PRICEDannon) is called Yoplait’s cross price elasticity of demand. Yoplait’s quantity demanded will decrease by 0.64 % as Dannon’s price is decreased by 1%. Suppose it costs the Dannon Company $0.337 to make one unit of Dannon yogurt and it sells Dannon yogurt at a wholesale price (WDannon) of $0.40 per unit to the Schnucks store. Suppose it costs General Mills $0.457 to make one unit of Yoplait yogurt and it sells Yoplait yogurt at a wholesale price (WYoplait) of $0.50 to the Schnucks store. QUESTION 1 Figure out the optimal retail prices of the two brands (PDannon and PYoplait) at the Schnucks store. (Hint: Assume that the store’s objective is to maximize the combined profit from the two brands, i.e., yogurt category profit). 1 INSTRUCTOR: Prof. Seetharaman QUESTION 2 Divide the optimal retail prices calculated above by their corresponding wholesale prices, i.e., (PDannon / WDannon) and (PYoplait / WYoplait). These are the retailer’s optimal mark-ups for the two brands, i.e., MDannon and MYoplait, respectively. QUESTION 3 Assuming that you are a new brand manager for Dannon, figure out the optimal wholesale price of Dannon (WDannon) that you must charge to the Schnucks store. (Hint: Assume that your objective is to maximize the brand profit from the Dannon brand; assume that Yoplait will continue charging its existing wholesale price to the store; also assume that the retailer will continue to use the retail mark-ups calculated in question 2 above). QUESTION 4 You realize that General Mills just hired a new brand manager for Yoplait. You realize that she is your classmate from Olin and a very smart manager. Recalculate the optimal wholesale price of Dannon (WDannon) that you must now charge to the Schnucks store. (Hint: You realize that Yoplait is going to change its wholesale price to the store in order to maximize their brand profit; anticipate this price change, and calculate your optimal response to that price; also assume that the retailer will continue to use the retail mark-ups calculated in question 3 above). QUESTION 5 You suddenly realize that Schnucks optimal mark-ups for the two brands will change under the new wholesale prices calculated under question 4 above. Figure out what those new retail mark-ups will be. QUESTION 6 Redo question 3 based on the new retail mark-ups calculated under question 5. QUESTION 7 Redo question 4 based on the new retail mark-ups calculated under question 5. 2 Manufacturer Pricing Exercise – Answers (See Excel spreadsheet titled, “5-ManufacturerPricing.xlsx” for all the calculations) 1. The category-level retail profit for the Clayton Schnucks store is given below. CATEGORY PROFIT = (PDannon – $0.40) * e2.74 * PDannon -4.293 * PYoplait 0.286 + (PYoplait – $0.50) * e2.92 * PDannon 0.640 * PYoplait -5.420 Maximizing CATEGORY PROFIT yields the optimal values of P Dannon and PYoplait. This yields optimal prices of $0.5422 and $0.6238, respectively. 2. The retailer’s optimal mark-ups for the two brands are given below. DANNON MARK-UP = $0.5422 / $0.40 = 1.3556 YOPLAIT MARK-UP = $0.6238 / $0.50 = 1.2476 3. The brand-level profit that accrues to the brand manager of Dannon is given below. DANNON PROFIT = (wDannon – $0.337) * e2.74 * PDannon -4.293 * PYoplait 0.286 (1.3556 * wDannon) -4.293 * (1.2476 * $0.50) 0.286 which can be rewritten as follows: DANNON PROFIT = (wDannon – $0.337) * e2.74 * Maximizing DANNON PROFIT yields the optimal value of wDannon, i.e., $0.4393. 4. The brand-level profit that now accrues to Yoplait is given below. YOPLAIT PROFIT = (wYoplait – $0.457) * e2.92 * PDannon 0.640 * PYoplait -5.420 (1.3556 * $0.4393) 0.640 * (1.2476 * wYoplait) -5.420 which can be rewritten as follows: YOPLAIT PROFIT = (wYoplait – $0.457) * e2.92 * Maximizing YOPLAIT PROFIT yields the optimal value of w Yoplait, i.e., $0.5604. The brand-level profit that then accrues to Dannon is given below. DANNON PROFIT = (wDannon – $0.337) * e2.74 * PDannon -4.293 * PYoplait 0.286 (1.3556 * wDannon) -4.293 * (1.2476 *$0.5604) 0.286 which can be rewritten as follows: DANNON PROFIT = (wDannon – $0.337) * e2.74 * Maximizing DANNON PROFIT yields the optimal value of w Dannon, i.e., $0.4393, which was the original wholesale price calculated for Dannon in Q3. 5. The category-level retail profit for the Clayton Schnucks store is given below. CATEGORY PROFIT = (PDannon – $0.4393) * e2.74 * PDannon -4.293 * PYoplait 0.286 + (PYoplait – $0.5604) * e2.92 * PDannon 0.640 * PYoplait -5.420 Maximizing CATEGORY PROFIT yields the optimal values of P Dannon and PYoplait. This yields optimal prices of $0.5913 and $0.7017, respectively. The new retail mark-ups for Dannon and Yoplait are, therefore, $0.5913 / $0.4393 = 1.3460 and $0.7017 / $0.5604 = 1.2522, respectively. 6. The brand-level profit that accrues to the brand manager of Dannon is given below. DANNON PROFIT = (wDannon – $0.337) * e2.74 * PDannon -4.293 * PYoplait 0.286 (1.3460 * wDannon) -4.293 * (1.2522 * $0.5604) 0.286 which can be rewritten as follows: DANNON PROFIT = (wDannon – $0.337) * e2.74 * Maximizing DANNON PROFIT yields the optimal value of wDannon, i.e., $0.4393. 7. The brand-level profit that now accrues to Yoplait is given below. YOPLAIT PROFIT = (wYoplait – $0.457) * e2.92 * PDannon 0.640 * PYoplait -5.420 (1.3460 * $0.4393) 0.640 * (1.2522 * wYoplait) -5.420 which can be rewritten as follows: YOPLAIT PROFIT = (wYoplait – $0.457) * e2.92 * Maximizing YOPLAIT PROFIT yields the optimal value of w Yoplait, i.e., $0.5604. The brand-level profit that then accrues to Dannon is given below. DANNON PROFIT = (wDannon – $0.337) * e2.74 * PDannon -4.293 * PYoplait 0.286 (1.3460 * wDannon) -4.293 * (1.2522 * $0.5604) 0.286 which can be rewritten as follows: DANNON PROFIT = (wDannon – $0.337) * e2.74 * Maximizing DANNON PROFIT yields the optimal value of wDannon, i.e., $0.4393. Therefore, the 2 wholesale prices settle at $0.4393 and $0.5604 for Dannon and Yoplait, respectively. These prices constitute a Nash equilibrium of a Bertrand pricing game among the 2 brands. One could have figured out the above answer in one step by applying the mark-up rule, as shown below. WDannon = [(-4.293) / (-4.293 + 1)] * $0.337 = $0.4393, WYoplait = [(-5.42) / (-5.42 + 1)] * $0.457 = $0.5604. Note: The above “short cut” for the Nash equilibrium wholesale prices works only if each brand’s demand follows a Scan*Pro demand model. It does not work for a linear demand model, logistic demand model etc. In those cases, the only way to locate the Nash equilibrium is to foll …
Purchase answer to see full attachment
Student has agreed that all tutoring, explanations, and answers provided by the tutor will be used to help in the learning process and in accordance with Studypool’s honor code & terms of service.
Do you need a similar assignment done for you from scratch? We have qualified writers to help you
Use our paper writing service to score better and meet your deadlines.
Order Now