Case: Whiskey and Cheddar: Ingredient Branding at the Caesan Cheese Cooperative This is a calculations based question Exhibit 1 Caesan Product Lines by Percentage of Retail Revenue (2018) Classic Cheddars Medium Sharp Extra sharp White Reduced-fat medium (%) Flavored Cheddars 18.5% Garlic and herb 13.7% Spicy 10.5% Smoked 10.3% 7.0% (%) Non-Cheddars (%) 10.8% Brick 9.7% Monterey Jack 5.5% 8.4% 5.6% Exhibit 2 Caesan Consolidated Income Statement (Annual 2018) Revenue Retail Direct to consumer Variable costs Cost of goods-raw materials Cost of goods-production Cost of goods-distribution Gross profit Fixed costs Selling expenses General and administrative expenses Operating profit U.S.$ $50,584,000 $49,560,000 $1,024,000 $9,124,800 $14,227,200 $9,910,400 $17,321,600 $5,482,000 $3,630,000 $8,209,600 % of Revenue 100.0% 98.0% 2.0% 18.0% 28.1% 19.6% 34.2% 10.8% 7.2% 16.2% Exhibit 3 Caesan Cheese Gross Margins per Unit (Annual 2018 and Proposed) Revenue per unit Variable costs Cost of goods-raw materials Cost of goods-production Cost of goods-distribution Gross profit per unit Exhibit 4 Results of A/B Test 2018 Retail (S) Caesan $3.00 0.548 0.853 0.6 0.999 2018 Consumer (S) $8.00 Brand Cheese Product Competitor Natural cheddar ($4.59) Artisan cheddar ($6.99) Irish whiskey artisan cheddar ($7.49) 0.561 1.06 6.379 Natural cheddar ($4.59) Artisan cheddar ($6.99) Irish whiskey artisan cheddar ($7.49) Jameson Irish whiskey artisan cheddar ($7.49) Proposed Natural (S) $2.50 11 0.548 0.853 0.5 0.599 1,000 1,000 1,000 1,000 1,000 500 500 Proposed Artisan (S) $4.45 0.561 1.06 0.89 1.939 Cart (%) 64% 18% 12% 61% 15% 10% 17% Exhibit 6 Two-Year Budget for New Product Launch (U.S.S) Investment Staff ($75,000/year) Factory equipment Packaging materials Branding and testing Traditional paid advertising Digital and social media advertising In-store sampling and trade shows TOTAL Irish Whiskey Artisan Cheddar $150,000 $200,000 $150,000 $50,000 $750,000 $200,000 $300,000 $1,800,000 Jameson Irish Whiskey Artisan Ad Revenue - Ad Cost = Ad Profit Cheddar Digital Marketing Search and display ad ROI (see interactive exhibit 1.1 and 1.2) Ad Return on Investment (ROI) = Ad Profit / Ad Cost $150,000 $200,000 $150,000 $50,000 $500,000 $100,000 $250,000 $1,400,000 Pricing Know how to calculate Total Economic Value (TEV) TEV = price of the next-best alternative + expected system savings - added operating costs Know how to calculate break even volume and price: Breakeven volume = (fixed costs) / (contribution per unit). Contribution per unit = sale price per unit - variable cost per unit. Case: Whiskey and Cheddar: Ingredient Branding at the Caesan Cheese Cooperative This is a calculations based question Exhibit 1 Caesan Product Lines by Percentage of Retail Revenue (2018) Classic Cheddars Medium Sharp Extra sharp White Reduced-fat medium (%) Flavored Cheddars 18.5% Garlic and herb 13.7% Spicy 10.5% Smoked 10.3% 7.0% (%) Non-Cheddars (%) 10.8% Brick 9.7% Monterey Jack 5.5% 8.4% 5.6% Exhibit 2 Caesan Consolidated Income Statement (Annual 2018) Revenue Retail Direct to consumer Variable costs Cost of goods-raw materials Cost of goods-production Cost of goods-distribution Gross profit Fixed costs Selling expenses General and administrative expenses Operating profit U.S.$ $50,584,000 $49,560,000 $1,024,000 $9,124,800 $14,227,200 $9,910,400 $17,321,600 $5,482,000 $3,630,000 $8,209,600 % of Revenue 100.0% 98.0% 2.0% 18.0% 28.1% 19.6% 34.2% 10.8% 7.2% 16.2% Exhibit 3 Caesan Cheese Gross Margins per Unit (Annual 2018 and Proposed) Revenue per unit Variable costs Cost of goods-raw materials Cost of goods-production Cost of goods-distribution Gross profit per unit Exhibit 4 Results of A/B Test 2018 Retail (S) Caesan $3.00 0.548 0.853 0.6 0.999 2018 Consumer (S) $8.00 Brand Cheese Product Competitor Natural cheddar ($4.59) Artisan cheddar ($6.99) Irish whiskey artisan cheddar ($7.49) 0.561 1.06 6.379 Natural cheddar ($4.59) Artisan cheddar ($6.99) Irish whiskey artisan cheddar ($7.49) Jameson Irish whiskey artisan cheddar ($7.49) Proposed Natural (S) $2.50 11 0.548 0.853 0.5 0.599 1,000 1,000 1,000 1,000 1,000 500 500 Proposed Artisan (S) $4.45 0.561 1.06 0.89 1.939 Cart (%) 64% 18% 12% 61% 15% 10% 17% Exhibit 6 Two-Year Budget for New Product Launch (U.S.S) Investment Staff ($75,000/year) Factory equipment Packaging materials Branding and testing Traditional paid advertising Digital and social media advertising In-store sampling and trade shows TOTAL Irish Whiskey Artisan Cheddar $150,000 $200,000 $150,000 $50,000 $750,000 $200,000 $300,000 $1,800,000 Jameson Irish Whiskey Artisan Ad Revenue - Ad Cost = Ad Profit Cheddar Digital Marketing Search and display ad ROI (see interactive exhibit 1.1 and 1.2) Ad Return on Investment (ROI) = Ad Profit / Ad Cost $150,000 $200,000 $150,000 $50,000 $500,000 $100,000 $250,000 $1,400,000 Pricing Know how to calculate Total Economic Value (TEV) TEV = price of the next-best alternative + expected system savings - added operating costs Know how to calculate break even volume and price: Breakeven volume = (fixed costs) / (contribution per unit). Contribution per unit = sale price per unit - variable cost per unit