Note: Sample below may appear distorted but all corresponding word document files contain proper formattingExcerpt from essay:
The two UPWARD ones = "SALES, PRICE MOVE in SAME DIRECTION, WEAKLY"
= WHAT'S the DEAL? NOT SAME.
Other factors at play besides just price alone.
Likewise next graph, sales to ADVERTISING.
IF more advertising = more sales, then ALL of THEM WOULD BE 100% (1 = 100%).
WE spent 25% more advertising than everyone else but our bar is NOT as HIGH
= THERE IS SUCH THING as "TOO MUCH ADVERTISING YES"
And we found it. = Cut advertising won't hurt sales, but WILL save money.
AND this is borne out by NEXT slide, where GREEN LINE dips far lower than all the rest: =
We're spending too much, not getting competitive performance out of our advertising $$s.
THIS IS a BIG DEAL, it MEANS DON'T SPEND SO MUCH;
WE WOULDN'T KNOW THAT WITHOUT DOING THIS
The same thing basically goes for number of Salespeople as well.
Point is, the consumer SEEMS to want lowest-quality product, at HIGHER PRICES!!
This is totally irrational result.
= There must be a FAMILIARITY effect,
= DON'T CHANGE PRICE, or PRODUCT if CAN AVOID it!!!!!
= that hurts sales.
+ we found this all by running 'correlations,' using LINEAR REGRESSION
STILL on "SF PRODUCTIVITY" SLIDE
FAMILIARITY EFFECT sales just discussed: =
Don't change models so much
Weakens return on advertising + sales force;
Why is this? Probably retailers (our consumers) don't want to change bottles all the time.
This makes more sense the bigger our purchasers are.
More small purchasers = weaker familiarity effect
Fewer large buyers = strong familiarity fx
= don't waste money on too much advertsg ditto sales force number of sales people.
HOW has production been anyway?
NEVER HAD LAYOFF COST from idle lines = GREAT
Carry inventory most times but this also good
Reduces "stockout cost" ie damage from running out.
Storage not that expensive; inventory not too high.
Inventory should clear in high sales seasons, =
Plant is running as smoothly as possibly could given sales.
Will increase lines but need to see increase in sales volume FIRST,
or ends up in LAYOFF COST = BAD.
= Production is exactly where it should be now, until sales increase.
R&D however, has not really produced any major savings:
= Maybe spending too much on that right now too,
= Can still get same value for less perhaps, improve profitability BOTTOM LINE.
WHAT ABOUT SERENO? Go to Sereno slide
Team 3 has major sales in Sereno;
They also have highest number of sales force in Sereno;
This cuts down on their transportation cost, but Just having a factory DOES NOT GUARANTEE SALES
= if we can OUTSELL THEM down there, their factory = a LIABILITY, not an asset.
We could improve profitability cutting transpo cost by building plant down there,
But NEED SALES FIRST
In order to be viable, or else
THAT WOULD BE HUGE LIABILITY having unused plant w / no sales.
Just the fact that they have factory, DOES NOT EXPLAIN why their SALES are too high,
UNLESS there is a "Home Town Loyalty" effect,
Which also may explain higher sales at home for the Merica regions.
= "Made in Sereno" may help them, but if we don't have sales, = DON'T BUILD PLANT THERE NO
and also in GENERAL.
JUST EXPANDING PLANT does NOT = MORE SALES.
Would be BAD MISTAKE until sales picks up.
Hence LOWER PRICE, = trying to take over MARKET SHARE.
But from FAMILIARITY effect / i.e. damaging sales cost of MODEL CHANGE,
= DON'T CHANGE MODEL; until sales pick up.
Stop. Next = Finance.
Pop'n Bottles, Inc.
AGENDA, Quarterly Management Report 1
I. Introductions and thanks: Board of Directors; Shareholders
II. CEO's Introduction, "Notice"
III. VP Sales: Past, Future: Using real information to recapture market share.
IV. VP Production: Performance update; necessary factors for growth
V. VP Finance: Performance indicators Year 1; How to improve, dial those in.
VI. Summary Question & Answer
VII. Thank You for Joining Us for Year 2!
QMR 1 Presentation.
Pop'n Bottles: Well, here we are: As always, THANK the BOARD for their time
I. Situation Audit
("situation audit" required in assig't)
So, What have we learned so far? How have we adapted to a competitive and changing environment? Were doing fine, at first; What happened?
Were doing fine: 2nd place; sales good; indicators good etc.
Someone played a trick on us all..
We responded to that; how?
(DECIS TREE, handout in packet: DO YOU STILL HAVE? I CAN'T FIND!!!)
We realized they couldn't PROVE it was bottles (drink in bottles; other foods, etc.)
BUT, Wanted to be prepared, responsible to our shareholders in case legal battle,
= Diversified risk over larger share pool = less fx on EPS;
We sold 1.4 million new shares, went from 6 mil. To 7.4 mil.
Took out 1 mill bond just in case, "responsibity to shareholders"
The goal was to minimize damage per share. This is what we PLANNED on doing!
This gave us cash for the alleged "trust fund" demanded by (Notice), as a show of good faith on our part, and also to cover legal costs for a challenge, which we planned on doing, but then it disappeared. Nevermind!
But we could also use that cash anyway, for expansion or a sales push, an agressive increase in sales force on the ground, which we did.
BUT: that didn't work: WHY?
-we switched to new product, as demanded by "Notice."
-we chose premium product, = higher cost.
= higher price.
>> we found out that higher price cut into sales, very much.
= customer does not necessarily want higher quality.
-problem is can't go back from that.
The other problem was, no one else responded.
= our sales plummet;
= our stock price plummets; but no one elses'.
= Other teams get the reward of our lost market share, because they ignored threat of lawsuit but we prepared for it.
another team had already upgraded product before "Notice."
their sales fell too but their price was waaay high ($12).
What is the learning outcome from this? Disregard stuff like this? These things are just bluffs? We still think being prepared was responsible thing to do.
And then, the next quarter, we paid out DIVIDEND.
$74,000. = a penny a share.
In real world, investors usually WANT dividends, and issuing a dividend within a year of taking over management, displays the ability to generate enough cash that we can pay some out and thus this is a sign of confidence and performance.
This usually improves share price, in theory.
Did this improve our share price? Perhaps. We can't tell because all of the other noise from accidental bond issue ruining our debt-to-equity ratio;
also model change and sales drop from "Notice" that we responsibly prepared for, mistakenly it turns out.
BUT, overall, we've
-been trying to push the edge, instead of just coast along;
-have been exploring the parameters to see what works and what doesn't;
Notice or no notice, this is evidenced by -we were first to expand plant; shows decisive leadership;
-1st to issue dividend; shows performance for shareholders;
-highest sales force first, although that is eroding;
-- and other factors. Discovered limits to return on advertising etc., although strict measurement of that was confounded by price change; result is, these are all testing to see how dialing in various factors affects bottom line.
this leads to,
Problem / Decision Statement:
THIS IS SALES VP
Fix this capital structure problem: Too much debt, equity now
What have been the costs of this adaptive strategy?
-Never had a bank loan yet;
-Never had layoff cost or idled plant cost or overtime;
-Are surviving ok-ish all these mistakes notwithstanding; = anyway.
-We and 2 other teams now have credit rating of 3
Team 3 has CR of 2 still, even tho they had 2 emergency bank loans!
BUT, they have much higher income; assets etc.
Theirs in fact is the winning strategy so far, sell the lowest-quality product for higher prices than the premium product.
Why is this? Sales force? Advertising? What's the deal with that? Are customers just irrational?
Such comparison with other groups yields valuable insight: How?
-market response to price change; advertising and sales force levels; and other variables.
But, must take into account changes in product.
T1 and PNB both switched to premium model 2;
T2 switched to low-grade model 2;
T3 kept selling the oldest, mid-grade model 1.
T3 has also kept their prices and other variables relatively constant compared to the other teams.
This provides a valuable "control" group against which to compare the others; not necessarily because they're in first, but because they kept many of their variables constant over time.
How we can compare the interplay of the various factors we have control over, is through looking at change in…[continue]
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