Question
What are the consumption-adjusted margins, both for Heinz and for retailers, of the items currently offered? Consider both regular and promotional prices. (Consumption-adjusted margins are
What are the consumption-adjusted margins, both for Heinz and for retailers, of the items currently offered? Consider both regular and promotional prices. (Consumption-adjusted margins are dollar margins that reflect the fact that different package sizes of the same product may influence the rate at which customers consume the product. A natural question that arises from this phenomenon is how product managers should adjust their understanding of product profitability to reflect this possibility. Here is one simple way: Suppose a manufacturer makes $0.20 on a 10-oz. can of soup and $0.40 on a 20-oz. can of soup. In either case, the manufacturer makes $0.02 per ounce. But in this case, the larger size causes consumers to increase their consumption of soup by 30%, so the consumption-adjusted margins per ounce of the 20-oz. size can be calculated as ($0.40x1.3) 20 = $0.026, where the term in parentheses adjusts the dollar margin up to reflect the consumption expansion, and then that adjusted margin is divided by the 4 number of ounces in the package size. This per-ounce margin is now directly comparable to the per-ounce margin of the 10-oz. size: $0.02. In this case, Heinz is making more money on the larger package size.)
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