Background Wise Wool, Inc. manufactures a Merino wool sock that is comfortable and very durable, for use in camping, hiking and other outdoor activities. The company maintains a "product differentiation" strategy, with an image of high quality products that are worth higher prices. Wise Wool normally sells the socks to specialty stores for $14 per pair, and the stores sell the socks to customers for $29 per pair. The price is justified by the quality of the socks and customer loyalty. The strategy has been successful, and Wise Wool's customers are very loyal. Also, Wise Wool maintains a large social media presence and holds exclusive gatherings and events for its customers, and the customers say they feel appreciated. The knitting pattern of the socks is unique, and customers recognize the socks easily, both in the stores and out on the trails. Customers also enjoy their image as the most elite and serious campers and hikers. In addition to its close relationship with customers, Wise Wool treats its employees well. Wise Wool employees are highly trained and very skilled, and so they are difficult to replace. Wise Wool tries to maintain a "family atmosphere" for employees. The variable cost to make a pair of socks is $5. Employees are paid fixed salaries, and all the factory overhead is considered fixed. Buyco offer Due to economic conditions, Wise Wool expects sales to be low for the next 6 months. Wise Wool's sales manager has been talking to Buyco, a large retailer. Buyco frequently buys large orders of product from manufacturers and puts their own Buyco Best store brand on them. Buyco's customers are mostly suburban families looking for acceptable quality products at a low price. Wise Wool has the opportunity to sell 10,000 pairs of socks to Buyco. Buyco would pay Wise Wool $11 per pair, and would re-sell them as Buyco Best Wool socks for $18 per pair. Wise Wool will have extra capacity in its factory to make these pairs, and it will have enough wool and labor available to make the socks. If Wise Wool does not take this offer, it might have to either lay off employees, or reduce their hours and pay and have them do maintenance and other work around the factor until the economy recovers. Without the Buyco sales. Wise Wool expects to have a loss of $15,000 for the next 6 months. The Decision Wise Wool's management team is considering three options: A. Accept Buyco's offer, and sell 10,000 pairs of regular Wise Wool socks to Buyco for $11 per pair. B. Accept Buyco's offer, but modify the machines to create a different knitting pattern and make the Buyco Best socks look different from the regular Wise Wool socks. Buyco would still pay $11 per pair for 10,000 pairs regardless of the knitting pattern. The work to modify the machines for the Buyco order and then return them to normal after the Buyco order would cost about $25,000. C. Reject Buyco's offer. Your Task Briefly describe the pros and cons of each of the 3 options listed above. Consider the various stakeholders that Wise Wool's managers need to satisfy, including: (a) Wise Wool's shareholders, who require a profit; (b) Wise Wool's current customers; and (c) Wise Wool's employees. You should include estimations of the profitability of the various options. If there is additional information you want but do not have, describe that information
