1. Gavin has created a novelty consumer product that he thinks has a lot of potential. He has to decide how to take this new product to market. He is sure that he wants to have the consumer price be $1.99. His variable manufacturing costs are $.50. If he sells the novelty direct to consumers using various online sites like Amazon he will pay a fee of $.65 per unit for website placement, shipping, delivery, and handling and insurance. Based on his research, Gavin believes that he could sell 50,000 of his novelty products per year using this channel. Assuming his forecast of annual sales is accurate, what is the annual total contribution for Gavins new novelty using direct distribution?
2. Liung Yi, a close friend and classmate of Gavin, has discussed an alternative to the idea of selling direct to consumers. Liung argues that the novelty will need upfront advertising and promotion in order to stimulate awareness of the novelty and that Gavin will miss out on that promotion if he sells direct to consumers. Liung thinks Gavin should sell the novelty through a specialty chain like Party City, which has 850 stores in the US. Liung found that Party City would buy Gavins product and sell it through all 850 stores at a retail price of $1.99/unit. Party City would want a margin of 50% and a cooperative advertising allowance of an additional $.20/unit. Party City estimates that, under these terms, the retailer would sell 2 units of Gavins novelty per week per store. Under this distribution what would Gavins annual contribution total?