Rad Case Study

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3. Should RAD pursue option 2? How will it change profitability? RAD should pursue option 2 because it increases their overall profitability. Despite the plan increasing costs by $200, option 2 increased daily profits by reducing the amount of depreciation. By cutting the flow time by 2 days, depreciation decreased by $2,400, which greatly outweighed the $200 increase in costs. At $3,940 in daily profits with option 2, RAD would see a $2,200 increase from their original amount. 10 day rental profit with option 2 Revenue: 100 * ($25 * 10) = $25,000 Cost: $2,700 -Shipping: ($5 * 100) + ($5 * 100) = $1,000 -Inspection: $2 * 200 = $400 -Quick Clean: $5 * (200 * 0.70) = $700 -Max Clean: $10 * 60 = $600 Depreciation: $18,360 Average Flow rate…show more content…
The “membership model” is interesting in the sense that it presents no physical additional costs for RAD; however, there is the possibility, and probability, that there will be some hidden cost to RAD’s books. Whereas RAD wouldn’t have to provide any capital to create the membership system (which would stand on an annual membership rate), there may be some pushback from current customers, as well as some lost revenue. That being said, the membership model would present RAD with instant revenue at the start of every fiscal year-- presenting the company with a positive cash-flow footing, resulting in the flexibility to expand, restructure, or improve where needed. Additionally, being a member of RAD, and already putting up money to be exposed to the resources RAD presents, can result in even greater customer engagement and checkout. Why? Because where customers see RAD today as a once-in-awhile purchase, the membership model can incorporate the RAD lifestyle into the customer's lives. Customers would see RAD as an extension of their own closet. Thus, consumers would be more inclined to utilize RAD as much as possible, and as frequently as possible. It is a essentially a win-win. Consumers do not have to buy dresses for full price, and commit to owning the dress full-time; now, they are able to frequently update and change the makeup of their “personal closet.” RAD, on the other hand, will now have the total membership fees locked in as revenue at the beginning of each year (as stated above), and will benefit from increased user-use as a result of the psychological effects from the membership plan. This will result in a strong top-line and bottom line. For the time being we would be suggesting a simple $19.99/annual membership rate. This rate is satisfactory in that it is affordable enough for consumers to take action on,
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