P&G entered the mid-tier paper towel market with Bounty Basic, developed a compelling value proposition designed exclusively for that segment of the market, and today dominates it. In 2011, Bounty Basic outsold all other mid-tier brands with a $300MM business and a 7-8% market share in paper towels. For P&G, it resulted in enormous share and revenue increases.

In the USA and other European nations, P&G's Bounty concept, "The Quicker Picker-Upper," is well-known. Bounty is a high-quality item that represents strength, softness, and absorbency. The idea behind Bounty Basic has now made it possible for P&G to compete in the mid-tier paper towel market as well. P&G Germany is currently considering selling this mid-tier product in Germany in January 2023 after Bounty Basic was introduced successfully in the US (note that these types of investment decisions would normally be made at a Head Quarters level in Cincinnati & Dubai, and not at a country level).

After a preliminary stage of soft launch testing for the German Market, the results seem positive. According to consumer market research, 12,000 cases of high-tier Bounty paper towelseach comprising 24 consumer unitswill make up the category base volume in 2021. Germany's market for premium paper towels is anticipated to expand by 5% in 2022 before declining by 0.1% in 2023.

In total, 25,000 cases of mid-tier paper towels were assessed in Germany, with a somewhat higher predicted category growth of 5.5% for 2022. It is predicted that the mid-tier category will continue to have positive category growth of 0.1% in 2023 due to the expansion of the "smart" consumer segment led by rising inflation in the cost of basic products such as electricity and gas costs.

The market research team predicts that Bounty Basic, a new tier entry with a solid product, can take 40% of the anticipated mid-tier sales in 2023 and then see growth equivalent to that of the category growth in 2024 of 2%.

The lessons from the soft launch also indicated that in the first year after the launch of Bounty Basic, the base volume of the Bounty High-tier category would be cannibalized at a rate of 5%.

Pricing Decisions

The commercial team has suggested that 66% of the cost to retailer of the current Bounty High-tier is the best pricing plan for Bounty Basic. [1] The cost of goods sold (COGS) accounts for 50% of P&G's income. (See following table)

The annual marketing costs to produce these sales are 150,000. Additional annual expenses totaling 80,000 are related to sales and administration. Due to a double taxation agreement between Germany and the USA, the company pays corporate tax in Germany at a rate of 15%, one year in arrears, and profits will not be taxed in the USA. [2]

P&G will invest 100,000 in upfront net working capital as well as 2,500,000 in machinery that can be depreciated straight-line to zero over the course of five years in order to launch this product. All quoted costs are ex-VAT and are based on 2022 prices.

According to the German team's advice, the local VAT rate is 19%[3] and that as of August 2022[4], inflation will be at an all-time high of roughly 7.9%. For 2023 and beyond, inflation is anticipated to steady at 5%.

Bounty High-Tier Pricing in other European markets:

Bounty Pricing in other EU Markets	Cost to the Retailer (ex VAT)	Retailer Mark-Up on Cost	VAT	Shelf Price (incl VAT)*
Austria	4.25	20%	10.00%	5.61
Sweden	4.68	19%	12.00%	6.24
France	4.91	20%	5.50%	6.22
Switzerland	4.50	20%	17.50%	6.35
Germany	?	20%	19.00%	6.20

*Shelf Price assumes items not on promotion.

Year 1 Plan (Brand Equity and Awareness Building)

Since Bounty Basic is launching in the mid-tier paper towel segment, it is important that costs are minimized wherever possible. As such the finance team is recommending a launch without the support of television media. One alternative awareness building strategy that has been suggested is print media.

The marketing team is intent on printing copies that scored well on consumer tests. Based on the copy scores, awareness building and conversion to purchase intent, you have received a model which projects the volume growth per 10,000 investment in magazines and newspapers.

The table below summarizes the projected results:

Print Media Cost	Volume Uplift (units)
10,000.00	37,235.00
20,000.00	86,882.00
30,000.00	153,078.00
40,000.00	235,824.00
50,000.00	335,118.00
60,000.00	455,098.00
70,000.00	537,843.00
80,000.00	570,941.00
90,000.00	612,314.00
100,000.00	637,137.00
110,000.00	661,961.00

Question 1: determine the optimal level of investment in print media, in terms of maximizing your profit, and justify your choice. (Note this strategy is only applicable in Year 1, yet the volume uplift will hold thereafter).