PLZ HELP ME HERE CASE STUDY: ECOSNEAK - ‘Sustainable sneakers for all’ Ecosneak is a sneaker merchandising company that
Posted: Wed May 04, 2022 4:24 pm
PLZ HELP ME HERE
CASE STUDY: ECOSNEAK - ‘Sustainable sneakers for all’
Ecosneak is a sneaker merchandising company that prides itself
on its environmental credentials; it considers sustainability
(alongside high quality) to be central to its business model. The
company started operating three years ago in the Edinburgh market;
from the start its strategy was to target the higher end of the
market – the ‘quality’ and ‘customer intimacy’ segments - in both
the men’s and women’s markets. Ecosneak was set up two sisters –
Jenny and Jess Wilson; Jenny is responsible for purchasing and
inventory management, while Jess looks after marketing; a year ago
they recruited a former university friend of theirs, John Moto, to
focus on financial matters and he is now a key part of the
business, particularly as Stride has been facing more intense
competition over the last year or so. John has consequently been
asked to review the company’s financial position in 2021 and 2022
(presented in Tables 1, 2 & 3) prior to analysing the impact of
a range of possible decisions on revenues and profits.
Table 1: Sales, Revenue and Cost Data for Ecosneak (2021 and
2022)
Table 2: Selling Prices and Variable Costs
Table 3: Ecosneak’s Share of Total Market (Quality + Customer
Intimacy)
Q3: Constrained Optimisation and Scenario Analysis
Constrained Optimisation: John Moto believes that Ecosneak’s
decision making might benefit from more rigorous analysis. One
potential technique that he recalls from his Business Management
studies at university is Linear Programming. He thinks
that the technique could be used in the analysis of the company’s
promotional campaign, but he has only a hazy recollection of what
Linear Programming involves and how it could help Ecosneak.
Until now, Ecosneak’s promotional campaign has been
based largely on TV advertising, targeting both men’s and women’s
markets, but this has not proved particularly effective. Jess, as
marketing manager, has suggested that a combination of Billboards
and Magazine advertising (in the World of Sports) may be a better
approach in 2023.
Scenario Analysis: The management team of Ecosneak would
like to separately model the first-year (2024) profit from entering
the kid’s market segment (Option 2, above), using scenario
analysis. Assume a notional fixed cost for the first year of
€20,000 (€120,000/6) and a selling price of €60 per pair. Assume
the variable costs for the bicycle (Purchase and Distribution) can
vary between €20 and €40, with a most likely value of €32 per pair.
First- year demand for the bicycle is expected to range from 8,000
to 18,000 pairs, with 13,000 units the most likely level of demand
for the sneakers.
Q3. Constrained Optimisation and Scenario Analysis
3.1 Explain to John what linear
programming involves and the types of problems it can
help solve.
3.2 You are given the following data by Ecosneak:
Their annual promotional budget (of €300,000);
The cost of each Billboard advert (€2,000) and the cost of
each Magazine advert (€5,000);
The estimated ‘reach’ of each Billboard advert (20% of the men’s
and women’s total market in 2022) and each Magazine advert
(45% of the men’s and women’s market in 2022);
There is a signed contract with World of Sports that Ecosneak
will place at least 30 adverts per year in the Magazine
There is a limit of 100 on the number of dedicated Billboard
spaces available in Edinburgh for Ecosneak to use. Use
this information to formulate Ecosneak’s promotional
campaign as a linear programming problem, but do not
solve.
3.3 Use the information given in the case study
to undertake a scenario analysis of first-year profits in the
kid’s market. Set up the profit ‘model’ and use this to calculate
‘base-case’, ‘worst-case’ and ‘best-case’ scenarios for first year
profit.
3.4 Explain to Ecosneak management the value and
limitations of using scenario analysis as a decision-making
technique.
2021 Years Sales volume 29,832 Men* Women* 29,000 Total revenues (Men) €2,684,880 Total revenues (Women) €2,320,000 Total revenues €5,004,880 Cost of sales (Men) €1,193,280 Cost of Sales (Women) €1,102,000 Distribution Cost €294,160 Total Cost of sales €2,589,440 Gross margin €2,415,440 Marketing and Sales €400,000 General administration cost €1,400,000 Net profit €615,440 *Total Sales Quality and Customer Intimacy Segments 2022 25,500 30,000 €2,550,000 €2,100,000 €4,650,000 €1,020,000 €1,140,000 €277,500 €2,437,500 €2,212,500 €400,000 €1,500,000 €312,500
Price per pair Purchase Cost Distribution Cost 2021 Men's Sneakers €90 €40 €5 2022 Women's Men's Sneakers Sneakers €80 €100 €38 €40 €5 €5 Women's Sneakers €70 €38 €5
Men's Women's 2021 23% 20% 2022 18% 19%
CASE STUDY: ECOSNEAK - ‘Sustainable sneakers for all’
Ecosneak is a sneaker merchandising company that prides itself
on its environmental credentials; it considers sustainability
(alongside high quality) to be central to its business model. The
company started operating three years ago in the Edinburgh market;
from the start its strategy was to target the higher end of the
market – the ‘quality’ and ‘customer intimacy’ segments - in both
the men’s and women’s markets. Ecosneak was set up two sisters –
Jenny and Jess Wilson; Jenny is responsible for purchasing and
inventory management, while Jess looks after marketing; a year ago
they recruited a former university friend of theirs, John Moto, to
focus on financial matters and he is now a key part of the
business, particularly as Stride has been facing more intense
competition over the last year or so. John has consequently been
asked to review the company’s financial position in 2021 and 2022
(presented in Tables 1, 2 & 3) prior to analysing the impact of
a range of possible decisions on revenues and profits.
Table 1: Sales, Revenue and Cost Data for Ecosneak (2021 and
2022)
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Intimacy)
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Constrained Optimisation: John Moto believes that Ecosneak’s
decision making might benefit from more rigorous analysis. One
potential technique that he recalls from his Business Management
studies at university is Linear Programming. He thinks
that the technique could be used in the analysis of the company’s
promotional campaign, but he has only a hazy recollection of what
Linear Programming involves and how it could help Ecosneak.
Until now, Ecosneak’s promotional campaign has been
based largely on TV advertising, targeting both men’s and women’s
markets, but this has not proved particularly effective. Jess, as
marketing manager, has suggested that a combination of Billboards
and Magazine advertising (in the World of Sports) may be a better
approach in 2023.
Scenario Analysis: The management team of Ecosneak would
like to separately model the first-year (2024) profit from entering
the kid’s market segment (Option 2, above), using scenario
analysis. Assume a notional fixed cost for the first year of
€20,000 (€120,000/6) and a selling price of €60 per pair. Assume
the variable costs for the bicycle (Purchase and Distribution) can
vary between €20 and €40, with a most likely value of €32 per pair.
First- year demand for the bicycle is expected to range from 8,000
to 18,000 pairs, with 13,000 units the most likely level of demand
for the sneakers.
Q3. Constrained Optimisation and Scenario Analysis
3.1 Explain to John what linear
programming involves and the types of problems it can
help solve.
3.2 You are given the following data by Ecosneak:
Their annual promotional budget (of €300,000);
The cost of each Billboard advert (€2,000) and the cost of
each Magazine advert (€5,000);
The estimated ‘reach’ of each Billboard advert (20% of the men’s
and women’s total market in 2022) and each Magazine advert
(45% of the men’s and women’s market in 2022);
There is a signed contract with World of Sports that Ecosneak
will place at least 30 adverts per year in the Magazine
There is a limit of 100 on the number of dedicated Billboard
spaces available in Edinburgh for Ecosneak to use. Use
this information to formulate Ecosneak’s promotional
campaign as a linear programming problem, but do not
solve.
3.3 Use the information given in the case study
to undertake a scenario analysis of first-year profits in the
kid’s market. Set up the profit ‘model’ and use this to calculate
‘base-case’, ‘worst-case’ and ‘best-case’ scenarios for first year
profit.
3.4 Explain to Ecosneak management the value and
limitations of using scenario analysis as a decision-making
technique.
2021 Years Sales volume 29,832 Men* Women* 29,000 Total revenues (Men) €2,684,880 Total revenues (Women) €2,320,000 Total revenues €5,004,880 Cost of sales (Men) €1,193,280 Cost of Sales (Women) €1,102,000 Distribution Cost €294,160 Total Cost of sales €2,589,440 Gross margin €2,415,440 Marketing and Sales €400,000 General administration cost €1,400,000 Net profit €615,440 *Total Sales Quality and Customer Intimacy Segments 2022 25,500 30,000 €2,550,000 €2,100,000 €4,650,000 €1,020,000 €1,140,000 €277,500 €2,437,500 €2,212,500 €400,000 €1,500,000 €312,500
Price per pair Purchase Cost Distribution Cost 2021 Men's Sneakers €90 €40 €5 2022 Women's Men's Sneakers Sneakers €80 €100 €38 €40 €5 €5 Women's Sneakers €70 €38 €5
Men's Women's 2021 23% 20% 2022 18% 19%