It is great to have all the thoughts together. Here are my summaries from our discussion.
Current Situation
Phoenician Phoods of America (PPA) is facing great difficulty in keeping their 10% market shares. The product price range is $2 to $4 per box. PPA’s major competitors reduced the package size to maintain their prices in that range when material costs got increased. Since the customers tend to shop specific price points rather than price-per-ounce, the “Right Size, Right Price” strategy seems to work well for the competitors to increase the net sales and operating profits. In the past two years, PPA has raised prices several times due to the costs increase, which hurt their sales. The problem is whether PPA adopt the side reduction strategy to save their market shares.…show more content… Reduce Box Size and SKU, Benefits vs Costs
PPA has to figure out the questions as below in regards to using the size reduction strategy:
What are the extra costs of reduction box size and SKU numbers?
What is the “right size”?
How does this size reduction strategy influence business in short-term and long-term?
According to Josh Bandy’s calculation, if we reduced the box size from to contain 18.00 oz to 14.69 oz, the regular costs for each brand are as below. These costs are only based on size reduction.
Corn Bombs
Sugar Bombs
Cherry Bombs
Bombs Away $2.40 $3.39 $3.99 $3.67
Several extra saving and costs for Corn Bombs per box, as Miguel and Josh Cox mentioned, have to be included as well:
Cost of grain and raw materials, $0.75
Cost packaging and liner, $0.35
Labor and depreciation, $0.35
Inventory cost, $0.05
Waste & damage freight, $0.30
Cost of wastewater treatment, $0.15
Transportation, $0.45
The total cost is $2.4 per box.
Extra saving and cost for reducing the box size and SKU numbers:
Transportation
SKU Change
Reducing Swell $0.045 $(0.053) $0.048 Total savings = $0.04 per box of Corn