West Lake Home Furnishings Ltd.

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West Lake Home Furnishings Ltd. Written Analysis and Communication - II Instructor Submitted by Section- D 2/08/2008 Date: May 30, 2007 To: Charles Bowman, CEO, West Lake Home Furnishings Ltd., Ontario, Toronto. From Subject: Advice on whether to accept the offer of reducing the price of signature product to $29.99 for a year. This report is a summary and analysis of current situation on West Lake Home Furnishings Ltd. (WLHFL) The analysis is based upon the basic objective of economics that is profit maximization. Based upon the present trend of consumer income and preference it is recommended that WLHFL should accept the offer to reduce the unit retail price to $29.99. As a student of WIMWI, I thank you for providing opportunity…show more content…
2. Reject the offer to reduce the retail price t $29.99. 1. Profit maximization of WLHFL By rejecting the offer, at present production level of WLHFL is not at the profit maximisation level. That is still there is a possibility of selling more products and maximising profit. There are two new entrants in 2006 which are specifically focusing on this opportunity. Rather than, they grab the opportunity, WLHFL should grab the opportunity. 1. Effect on Large chain Retailer’s relationship Retailer who made the proposal will be reluctant to provide better shelf space and so do the other retailers, as the volumes provided by WLHFL are not high. Due to this, there is less possibility of reaching to the consumer’s mind. Hence, there is not anticipation of growth in sale in long term. Even there is a possibility that the retailer can purchase directly from Chinese manufacturer which can be availed at cheaper price. Opportunity cost is high, and hence rejection to offer is not recommended. 3. Effect on cash flow of WLHFL for the year 2007 If the WLHFL grows at average 10%, then there is positive cash flow. As retailers will not offer the better shelf space, it is difficult to attain. Also, due to new entrants and/or retailers themselves purchases directly from Chinese manufacturer will force to reduce the price. At this production level, reduction in price means negative cash flow. Recommendation Evaluating the options suggests accepting the proposal of

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