Question: Mass-Merchandising Patrick Burns, the manager of Play Tune Toy Store, is sure a new type of toy will be a big seller in his area. But two brands of the toy are available, so he must decide which to sell - he doesn't have enough shelf space to stock both. In fact, he wants to use as little shelf space as possible for the toy-to save space for other good sellers. Burns asked his wholesaler how many of these toys he should expect to sell in a year. The wholesaler reported that different stores were adding different dollar F^#: markups to the cost-and that lower markups usually sold larger quantities. Based on the experience from other stores, the wholesaler was able to provide Bums with more detailed information:
The wholesaler also advised Play Time to have a "facing" of at least five of the toys on a shelf-that is, at least five toys should show in the front of the shelf to get enough attention to spark sales. Either toy's package uses the full depth of a standard shelf, but one package is wider than the other. Play Time's manager must decide which brand to carry and what markup to use. The spreadsheet gives relevant information, including the wholesaler's quantity estimates based on different markups.
a. Based on the different markup and "quantity sold" combinations provided by the wholesaler, what markup on Brand A would result in the largest contribution to profit? What markup on Brand B would result in the largest contribution? Based on profit contribution, which brand would you recommend?
b. Given the "best" margin and quantity estimates from
(a) above, which brand will earn the highest "contribution" per inch of shelf (assuming a five-package facing as suggested by the wholesaler)?
c. Which brand and markup would you recommend? Why? For additional questions related to this problem, in the Learning Aid for use with Basic Marketing, 11th edition.