Question: For a consumer product, the manufacturer's suggested retail price (MSRP) is $49. The manufacture's price to the retailer is $25.The manufacturer faces a marginal cost of $15 per unit to produce.
a. What is the current contribution margin for this product at the retail level if priced at the MSRP? What is the current contribution margin for this product at the manufacturer level? What is the current contribution margin for this product for the value chain if priced at the MSRP?
b. What is the volume hurdle associated with a 15-percent-off sale at the retail level to leave the overall value chain more profitable?
c. Assume that the retailer seeks to share the burden of a price discount with the manufacturer such that its promotional price is reduced by 15 percent while the price its pays for the product also decreases by 7.5 percent. What is the volume hurdle faced by both the retailer and manufacturer under this scenario?
d. What decrease in manufacturer price to the retailer would deliver the same volume hurdle to both the retailer and manufacturer as a 15-percent-off sale at the retail level?