Perry's Ice Cream is a manufacturer and distributor of ice cream. They also offer distribution services to other frozen food products (such as pizza), including national brands. They offer the benefit of direct store delivery (DSD), a valuable perk for frozen consumer goods. They are approached by a national brand of ice cream that is a direct competitor. They must decide whether or not to distribute a competitor's product, and if so, what method of strategic alliance is optimal.

• Assuming that Perry's leadership decides to carry the competitors' products, evaluate the two proposals. Would you recommend they use on margin or drayage, and why?

Proposal 1: Working On Margin

Perry's, as distributor, will purchase the product from the national brand for $3.00 per family size (48-56 ounce package). Perry's would mark up the product by $1 (approximately 33%) on their cost and sell it to local retailers for $4.00. The retailer will set a retail price of $5.99 giving them a retail markup of roughly 33% when the product is not on promotion.

In this arrangement, however, the national brand and Perry's would both be asked to adjust their prices when the retailer wants to put the product on sale. The national brand is proposing that, when the retailer puts the product on sale, the national brand and Perry's both lower their price.

For example, throughout the year, the retailer plans to put the product on sale at $3.99, lowering their retail price by $2.00. When the product is on sale, they will demand a price from Perry's as their distributor of $2.80, or $1.20 reduction in price per unit. The national brand will lower their price to Perry's by $.84 per unit and Perry's will lower their price to the retailer by $.36.

Specifically, when the product is on sale for $3.99:

• National brand will sell to Perry's for $2.16 per unit
• Perry's will sell to the Retailer for $2.80 per unit
• The retailer will sell to consumers for $3.99
• When the product is on sale, Perry's will be making $.64 per unit.

Proposal 2: Working On Drayage

Perry's as distributor is paid a guaranteed fee to handle warehousing and distribution. The national brand is offering Perry's .80 cents for every unit delivered, every day. In this arrangement, the national brand would work directly with the retailers in setting selling price to retailers, and negotiating adjusted prices and reduced margins when the retailer puts the product on promotion and would not ask Perry's to adjust their prices or margins. Perry's would make $.80 on every unit they deliver, every day.