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Merchandise and Pricing - Selling T-Shirts at the Tampa Farmer's Market Tools required: Financial models provided on Blackboard Scenario: A friend {aka manufacturer/wholesaler} contacts you to say she can provide T-Shirts for you for only $5 each that include printing "Tampa Farmers Market" Bringing the best of the country into the heart of city on the front with the logo. The Tampa Farmers Market is looking for a merchandise retailer to promote the market and would allow you to use the logo and tagline without paying any royalty or licensing fees - IF you are the first to try it. You believe you could easily set-up a booth, staff it with a person for 4 hours for two Saturdays {as a trial} to see if it is a potentially profitable and worthwhile venture. You would also work {for free! during the rst two weekends {staff of 2! given that you would pocket the profitsl You order 100 T-Shirts from your supplier friend and reserve your booth space for two consecutive Saturdays. In terms of pricing, you My decide to try bundle pricing. One T-Shirt is $10, two for $18 {$9/each}, or three for $24 {SS/each). Based upon the information initially presented in the nancial models, answer the following questions. (11. Based upon the financial results on tab one and assuming continued demand as is, is it financially worthwhile to continue to retail the T-Shirts assuming nothing changes? Discuss and explain your decision by referencing the financials provided to support your decision. {20 p_oints/ 10 pains referencing appropriate financiois 10 pointsfor logic/analysis ofanswer) (12. Tab 3 - Pricing (Ch. 14 8e) shows the demand based on data collected by another vendor in another city for T-Shirts projected ranging from $5 to 512 with a starting point of 510 being introduced into the marketplace. A. Excluding fixed and variable costs, which price point yields the highest revenue? B. What price point(s) yields the highest profit? Explain. Provide the specific financial outcomes to support your answer. C. Assuming the data in tab 3 is likely to be similar in Tampa, given the elasticity of demand at a profitable price point, which one price point would you choose to use as a standard, everyday price point? Explain and support your answer based upon pricing principles discussed and/or covered in the book. (30 points/ 10 points each for A, B,C) Q3. Tab 3 - Pricing (Ch. 14) At what price point does consumer price sensitivity change that may suggest shifting pricing strategy? Explain using data points and concepts covered in book to support your answer. (25 points/ 10 points for price point/ 15 points for application of concepts to support answer) Q4. In order to improve the financial performance of your trial retailing operation - how might you alter your merchandise and/or pricing strategies? Input figures into the highlighted subset tab areas to experiment with different scenarios. Provide the financial results (copy/paste) and explain why your projections may be reasonable and effective at creating consumer demand in a financially viable manner. Present (Copy/paste) the spreadsheet results and changes you propose to support your answers with concepts discussed. (50 points/ 20 points - changes proposed are realistic, and applied appropriately, 30 points - 15 points reasonable action seems appropriate for increasing consumer demand (not farfetched) and 15 points - changes produce financially viable outcomes)Purpose: To assess the retailer's market strategy Is it paying off? Is the strategy being executed well? What are areas for improvement? Mgr's Motto: You can't manage what you don't measure OR You need to measure what you manage MODELS Strategic Profit Model Net Profit Margin = Net profit after taxes ( Net profits generated from each dollar of sales) Net sales Timeframe: quarterly and annually Data source: Income Statemen Net Sales (Gross sales - returns/etc) $ 657,00 (-) Cost of goods sold $370,00 Gross Margin 287,00 44% GM% (-) Operating expenses Gross margin percentage e.g. salaries (e.g. store leases, utilities, fixtures Total Operating Expenses $271,60 41% OE% (+/-) Interest $0,00 Operating expenses as % of sales Total Expenses $271,60 Net Profit before taxes $ 15,40 (-) taxes 50,00 Net Profit after taxes $ 15,40 2% Net Profit Margin % Net Profit at taxes/Net Sales Net Operating Income (Gross margin - Operating expenses)/Net sales 2% Asset Management Path Asset turnover = Net sales % net sales generated based upon economic resources used) Total Assets Timeframe: usually : usually one point in time (e.g. end of fiscal year) Data source: Balance Sheet Assets (as counted on a certain date) Merchandise $130,00 Inventory Turnover 1, 17 Accounts receivable (items sold on credit) $0,00 (CGS/Avg inventory level at cost) Cash $0,00 Total current assets $130,00 Fixed assets (tables/tents/displays owned) $0,00 Total Assets $130,00 Asset Turnover (Net Sales/Total Assets) 5,053846154 (Asset management component) ROA (Return on Assets) 11,84615385 % Net profit margin X Asset Turnover (common benchmark to compare performance regardless of financial strategy employed)Prot Management Itemized Data Net Sales SKU 1 SKU 1 SKU 1 Avg price/unit sold Cost of goods sold SKU1 Operating expenses Transportation Booth space rental expense Tent/table display rental Labor (min hourly wage x hours) Total operating expenses Interest expense (loan interest paid) Taxes Price Qty sold Revenue $ 10.00 20 $ 200.00 $ 9.00 25 $ 225.00 $ 8.00 29 $ 232.00 $ 8.88 74 s 651.00 Cost $5.00 74 $310.00 miles expense 56' 0.5' $25.00 $100.00 $75.00 8.95 8 $71.60 $0.00 $0.00 Asset Management Data ITime Inventory Start date End date Periods SKU1 Qty 100 26 SKU1 Cost $5.00 $5.00 Merchandise $500.00 $1 30.00 Inventory AIR $0.00 $0.00 (sold on credit) Cash $0.00 $0.00 Total Current Assets $1 30.00 Fixed Assets Tables $0.00 $0.00 Chairs $0.00 $0.00 Signs/Displays $0.00 $0.00 Tent $0.00 $0.00 Total Fixed Assets $0.00 $0.00 2 2 Avg Inventory 63 $ 5.00 $ 315.00 Average Inventory at cost :1 VALUE Perceived Benefits Price Cost per unit sold Raising Prices starting at $5 and moving up Farmers Mkt (Demand) Price x Qty $5,00 T-Shirts Price Quantity sold Revenue Var. Cost Fixed Cost Profit Elasticity (% change in quantity sold)/(% change in price) $5,00 99 $495,00 $495,00 $271,60 ($271,60) %Demand %Price Elasticity E/I/N Elastic/Inelastic/Neutral $6,00 90 $540,00 $450,00 $271,60 ($181,60) 9% 20% (0,45) 1 Starting point $7,00 85 $595,00 $425,00 $271,60 ($101,60) -6% 17% (0,33) 1 $8,00 77 $616,00 $385,00 $271,60 ($40,60) -9% 14% (0,66) 1 $9,00 63 $567,00 $315,00 $271,60 ($19,60) -18% 13% (1,45) E $10,00 56 $560,00 $280,00 $271,60 $8,40 -11% 11% (1,00) N Approx B/E point w V&F costs $11,00 49 $539,00 $245,00 $271,60 $22,40 -13% 10% (1,25) E holding pattern/assessment $12,00 42 $504,00 $210,00 $271,60 $22,40 -14% 9% (1,57) E Price E >(-)1, % decrease in price may Elasticity Sensitive "elastic" yield greater % inc in demand 120 N =1', % change in price will yield "neutral" equivalent changes in demand 100 Price I