Question
SuperSound Stereos sells high-end stereo equipment to specialty audio and video shops. The company serves three different types of customers: small, medium, and large. Customers
SuperSound Stereos sells high-end stereo equipment to specialty audio and video shops.
The company serves three different types of customers: small, medium, and large. Customers are placed into these categories based on the average revenue generated per visitsmall customers yield average revenue of less than $20,000 per visit, medium customers yield an average revenue of $20,000 to $40,000 per visit, and large customers yield an average revenue of over $40,000 per visit. To retain a customer, a salesperson must visit the customer once each month. The average monthly sales information by customer type is provided below:
Small customers | Medium customers | Large customers | |
Number of available customers | 50 | 25 | 10 |
Average sales revenue per visit | $15,000 | $30,000 | $45,000 |
Average time per customer visit | 1.0 hour | 2.0 hours | 5.0 hours |
Trey Parker, the company's salesperson, can realistically spend 125 hours per month visiting customers and generating orders. His remaining time is spent in the head office filling out paperwork, learning about the companys products, and attending sales meetings. With only 125 hours available per month to visit customers and generate sales revenue, Trey unfortunately cannot visit all of the available customers in the company's territory.
Management has instructed Trey to focus on the large and medium customers, then to use whatever time he has left to visit the small customers. However, Trey argues that he should focus first on the small and medium customers and then, if time permits, visit the large customers. He tells anyone who will listen that large customers are not worth the bother: You can win a game with singles, is the mantra that Trey preaches.
By how much will SuperSounds' monthly sales increase if management listens to Trey and allows him to follow his strategy of focusing on the small and medium customers? In other words, calculate: Sales under Trey's strategy - Sales under management's strategy.
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