(2) Launch of furtime brand d (Altia) $1.96 Funtime.co ta) Refer to Eastman Kodak Co.: Fun time Film Case shown below to answer the following questions: a. Quantitatively evaluate the following two pricing alternatives (strategies) for Kodak and calculate the percentage increase in demand required for a price cut of 10% to result in the same profit as status quo, i.e., find out by how much should the demand increase as a percentage for a 10% price cut so that alternative 2 results in same profit as alternative 1 (10 points). Alternative 1: Status quo (current price). Alternative 2: Price cut of 10%. b. Provide at least three distinct disadvantages of price drop for Kodak. Quantitative Analysis Alternative la: Fun Time + Gold Plus: Since retail price is 20% below Gold Plus, MSP-2.24. Assuming the Fun Alternative la: Launch Fun Time Brand Time has the same cost as the Gold plus Kodak's gross margin on Fun Time will be - $ 2.24 - 0.84 -51.4 Profit (Alternative la) - Profit (Gold Plus) + Profit (Fun Time) Profit (Gold Plus) - (current sales - cannibalized sales) X (S1.96) Gold Plus Cannibalized Fun Time Sales Profit (Fun Time) - (Incremental sales + Cannibalized sales) (1.4) Hence, Profit (alternative la) Gold plus $0.84 - current sales x (5 1.96) + Ineremental sales x (514) - cannibalized sales x (50.56) kodak. Since current profits (status quo alternative 1b) - current sales x (1.4) =$2.24-$0.84 Profit (alternative la) is better than status quo alternative lb) if Incremental sales x (51.4) - cannibalized sales (50.56) > = $2.24 As Incremental sales will come from the rest 30% of market that Kodak does not sell to while cannibalized sales will come from 70% of Kodak's own market, situation does not look very rosy for the Fun time brand. $ R 207. IR 209.0.56 Kodak's S gross margins for Gold Plus and Fun Time are calculated below: RSP 1=0.8x$3.5 Alternative Ib: Status Que - Gold Plus Only: slahes Quo (4416) 1 Corum? Grono profit margin /writa 0.7 x 2.8 0701 = 1 Alternative 2: Price Decrease (Suppose Kodak reduces Gold plus prices by 15%) L0.24 IT Profit (alternative 1b: maintain status quo) = current sales x ($1.96) MSP82.8 Profit (alternative 2: 15% price cut) = new sales (with 15% price drop) x $ 1.536 3.5-MER MSP-28 | Tesp. 49.5 Kodak's $ gross margins for Gold Plus and 15% price drop is calculated in the adjacent calculation (note that while Kodak's MSP i.e. manufacturer selling price is decreasing its cost is going to stay at $0.84 which causes the drop in margin to $ 1.536). Koblak . l Msp /= 28 MSP t 3.5 = Rsp Margus. RAMSE Prre cut (442) Status quo (4426) gere med cossunta #26-696-09-26 Geen mugin weid=62376 - 4 IR MSP-. -$2.376 2012 RSPROSES (2) Launch of furtime brand d (Altia) $1.96 Funtime.co ta) Refer to Eastman Kodak Co.: Fun time Film Case shown below to answer the following questions: a. Quantitatively evaluate the following two pricing alternatives (strategies) for Kodak and calculate the percentage increase in demand required for a price cut of 10% to result in the same profit as status quo, i.e., find out by how much should the demand increase as a percentage for a 10% price cut so that alternative 2 results in same profit as alternative 1 (10 points). Alternative 1: Status quo (current price). Alternative 2: Price cut of 10%. b. Provide at least three distinct disadvantages of price drop for Kodak. Quantitative Analysis Alternative la: Fun Time + Gold Plus: Since retail price is 20% below Gold Plus, MSP-2.24. Assuming the Fun Alternative la: Launch Fun Time Brand Time has the same cost as the Gold plus Kodak's gross margin on Fun Time will be - $ 2.24 - 0.84 -51.4 Profit (Alternative la) - Profit (Gold Plus) + Profit (Fun Time) Profit (Gold Plus) - (current sales - cannibalized sales) X (S1.96) Gold Plus Cannibalized Fun Time Sales Profit (Fun Time) - (Incremental sales + Cannibalized sales) (1.4) Hence, Profit (alternative la) Gold plus $0.84 - current sales x (5 1.96) + Ineremental sales x (514) - cannibalized sales x (50.56) kodak. Since current profits (status quo alternative 1b) - current sales x (1.4) =$2.24-$0.84 Profit (alternative la) is better than status quo alternative lb) if Incremental sales x (51.4) - cannibalized sales (50.56) > = $2.24 As Incremental sales will come from the rest 30% of market that Kodak does not sell to while cannibalized sales will come from 70% of Kodak's own market, situation does not look very rosy for the Fun time brand. $ R 207. IR 209.0.56 Kodak's S gross margins for Gold Plus and Fun Time are calculated below: RSP 1=0.8x$3.5 Alternative Ib: Status Que - Gold Plus Only: slahes Quo (4416) 1 Corum? Grono profit margin /writa 0.7 x 2.8 0701 = 1 Alternative 2: Price Decrease (Suppose Kodak reduces Gold plus prices by 15%) L0.24 IT Profit (alternative 1b: maintain status quo) = current sales x ($1.96) MSP82.8 Profit (alternative 2: 15% price cut) = new sales (with 15% price drop) x $ 1.536 3.5-MER MSP-28 | Tesp. 49.5 Kodak's $ gross margins for Gold Plus and 15% price drop is calculated in the adjacent calculation (note that while Kodak's MSP i.e. manufacturer selling price is decreasing its cost is going to stay at $0.84 which causes the drop in margin to $ 1.536). Koblak . l Msp /= 28 MSP t 3.5 = Rsp Margus. RAMSE Prre cut (442) Status quo (4426) gere med cossunta #26-696-09-26 Geen mugin weid=62376 - 4 IR MSP-. -$2.376 2012 RSPROSES