You have been hired as a consultant by a conglomerate to look at pricing practices in a recently acquired subsidiary and make recommendations to increase sales growth and profitability. The subsidiary produces high quality resins for treating floors. The brand is well known for quality. You have the transcript of your meeting with the CEO of the subsidiary and this paragraph captures the essence of the challenge. "Our customers love our products and they know that we have the best quality on the market. We have captured the household market- people who use our products at home or in their businesses very often don't have to do anything with their floor for 4 or 5 years- even in high traffic areas. My problem in here has been with my marketing team. I have had to change marketing directors 3 times in the last 5 years. I have given them the mandate to leverage our quality to capture the business with construction firms and property developers. We have so many new government and commercial buildings going up all over the place but our sales and marketing people have not put enough emphasis on our quality in their dealings with these customers. All these marketing and sales people want to do is come and bother me to approve lower pricing. I keep telling them that we are not going to give the product away. We have an excellent product that can very easily justify the 60% markup that we put on everything. If they would spend more time with the construction firms and property developers showing them the quality and long term durability of our resin compared to the cheap rubbish that they are putting on the floors of these spanking new buildings we can probably double our sales in one year because right now we don't have any of that business. If they would hand their buildings over to their customers with floors treated using our products, then their customers would not have to do anything with their floors for 4 to 5 years. What I need here is someone to make the marketing team do their job and sell the quality of the product, not someone to come here and tell us about pricing. A 60% markup is easily justified by our superior quality." Required i. What is this firm's gross profit as a percentage of sales? Show your workings. (Hint: Gross Profit/Sales)

ii. Draft an email to the CEO of the subsidiary explaining and illustrating two major shortcomings of the current approach to pricing that he is using. iii. Draft a follow up e-mail that presents your initial recommendations that this firm should consider. Include any preliminary questions or issues that the firm should investigate.