Flying Brands is a company which delivers goods to customers. The business began some years ago by flying flowers from the Channel Islands to the UK mainland.
Flying Flowers’ contribution declined from £3.0m in 2007 to £1.5m in 2008 and its contribution margin declined from 24% to 13%, mainly as a result of higher product and distribution costs and higher marketing costs. Some of our newly introduced direct marketing techniques also resulted in higher promotional costs and in customers choosing lower margin products and we are currently reviewing and refining our marketing activities to ensure that we do not chase increased sales at the expense of prudent contribution margins.
Note to financial information: the Directors manage each division at a contribution level and believe this is a more meaningful measurement than gross profit.

Discussion points 

1 What factors caused a decline in the division’s contribution to fixed overheads and profit?
2 What is the strategy for reviewing marketing activities?