A Retail Store Sells a Popular Cosmetic Called Anya, and the Store

question 33

Essay

A retail store sells a popular cosmetic called Anya, and the store manager is given $100,000 by the corporate office to improve store performance any way she thinks best. The "base case" information is a price of $50 per bottle, a contribution margin of 0.50, a customer defection rate of 25%, and a repurchase frequency of 3 times a year. If these improvement funds could be used to either increase the contribution margin to 0.58 or reduce the customer defection rate to 15% or increase the repurchase frequency to 4 times per year, what is the best way to spend these funds? (Assume all other variables remain at the base case level for each improvement option.)
You may want to use the table below to help organize your computations and answer. $\begin{array}{|c|c|c|c|c|c|}\hline&&\text { Contribution }&\text { Repurchase }\\\text { Option } & \underline{\text { Price }}&\text { Margin }&\text { Frequency }& \text { Defection Rate } &\underline{\text { VLC in } \$}\\\hline \begin{array}{l}\text { Base } \\\text { case }\end{array} & \$ 50 & 0.50 & 3 & 25 \% \\\hline \text { (a) } & \$ 50 & 0.58 & 3 & 25 \% & \\\hline \text { (b) } & \$ 50 & 0.50 & 3 & 15 \% & \\\hline \text { (c) } & \$ 50 & 0.50 & 4 & 25 \% & \\\hline\end{array}$ Note: BLC is 1/0.25 = 4 years and 1/0.15 = 6.67 years.

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Definitions:

Capacity Allocation

The process of distributing available production or service capacity among various products, services, or customers.

Supply Chain Performance

An assessment of how well a supply chain meets its goals of efficiency, speed, cost-effectiveness, and customer satisfaction.

Capacity Decisions

Decisions concerning the amount of resources, such as space, equipment, and labor, that an organization allocates to its operations or processes.

Capacity Allocation

The process of distributing resources and production capacity among various products, services, or activities to efficiently meet demand and optimize output.