2024 02 18 Gross and Channel Margins Learning Exercise V3

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Seneca College *

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Marketing

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Apr 3, 2024

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Gross And Channel Margins Learning Exercise Gross Margins – The Figgis Agency [ 13 marks ] Pam Poovey and Cheryl Tunt run the sales function for the Figgis Agency. Part of their responsibility is to determine how products should be priced in order to meet the firm’s sales and profitability targets. Unfortunately, they know nothing about marketing, strategy, pricing or margin calculations which is why they have begged you to do their work for them. 1. Ants-B-Gone is their flagship product. If they wanted to have the product sell to consumers for $19.99 with the retailers getting a 40% gross margin, what would the retailer’s cost of goods need to be. [ 2 marks ] _____________ 2. If Ants-B-Gone is sold to retailers for $10.79 and retailers require a 40% gross margin on this product, what would the selling price to the consumer be? [ 2 marks ] _____________ 3. If they wanted to have the product sell to consumers for $19.99 with the retailers making the same margin dollars per unit as they did in the second scenario ($10.79 cost of goods and a 40% gross margin), what would the retailer’s cost of goods need to be and what would their gross margin % NOW be? [ 3 marks ] Retailer’s Cost of Goods _____________ Retailer’s Gross Margin % _____________ 4. Ants-B-Gone Plus is their upgraded product and it gets rid of ants 50% faster than the basic product. The product sells to retailers for $16.97 and retailers sell it to consumers for $24.99. What is the retailers’ gross margin $ and %? DR Page 1 March 27, 2024
Gross And Channel Margins Learning Exercise [ 2 marks ] Retailer’s Gross Margin $ _____________ Retailer’s Gross Margin % _____________ 5. Would retailers rather sell the regular Ants-B-Gone product with the selling price and cost of goods from Question 3 or the Ants-B-Gone Plus product with the selling price and cost of goods from Question 4 and why? [ 4 marks ] _________________________________________ _________________________________________ _________________________________________ Channel Gross Margins – The Figgis Agency [ 37 marks ] Cyril Figgis, the managing director of the Figgis Agency is considering marketing a new product that the company developed called “Ants No More” that works better than Ants-B- Gone and is far more environmentally friendly. This product was developed as a result of the repeated complaints of one of their top executives, Sterling Archer, who repeatedly found himself with a serious ant problem in his luxurious penthouse suite despite the ongoing vigilance of his long-suffering valet, Woodhouse, who has used copious quantities of Ants-B- Gone to no effect. Cyril now wants to understand the economics of the product before making the decision on whether or not to launch. Cyril has established the following marketing channel to the ultimate consumer including the gross margin requirements of each of the channel members: The Figgis Agency (manufacturer) 33.00% gross margin Kane & Associates Brokers (broker) 3.00% gross margin Trexlor Sales Agency (distributor) 6.00% gross margin Dillon Wholesalers (wholesaler) 5.00% gross margin National Retailers 37.00% gross margin Consumer Cyril has determined that The Figgis Agency’s cost of goods sold for “Ants No More” is $14.26 . DR Page 2 March 27, 2024
Gross And Channel Margins Learning Exercise 1. In the spreadsheet that you have been given, please complete the first (top) channel margin table for this version of the exam to determine the minimum Retail Selling Price Per Unit (to the consumer) that provides each of the channel members with their required gross margin rate given the initial cost of goods sold per unit for The Figgis Agency. This is Scenario I. [ 4 marks ] Note that you are only to fill in the cells highlighted in blue with the appropriate numbers or formulas and please ensure that you are using the appropriate worksheet tab for this version of the exam. Once the table is completed, please provide the following information: 2. What is the lowest possible retail selling price per unit given the initial cost of goods sold per unit and the gross margin requirements of each channel member? [ 1 mark ] _____________ 3. What is the total channel margin? [ 2 marks ] Total Channel Margin - $ per unit _____________ Total Channel Margin - % of retail selling price _____________ 4. The Figgis Agency has an opportunity to sell directly to Odin-azon Online Behemoth and bypass all of the various intermediaries in their traditional marketing channels. Odin- azon, however, requires a gross margin of 46.00%. You should assume that The Figgis Agency’s cost of goods remains at $15.00 and the selling price to the consumer is the same as you already determined for the traditional marketing channel. [ 4 marks ] Please fill out the table for the alternative channel structure in the spreadsheet you have been given and answer the following questions. What is the Figgis Agency’s gross margin %? _____________ What is the Figgis Agency’s gross margin $/unit? _____________ DR Page 3 March 27, 2024
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