PLZ HELP ME HERE CASE STUDY: ECOSNEAK - ‘Sustainable sneakers for all’ Ecosneak is a sneaker merchandising company that
Posted: Thu May 05, 2022 9:38 am
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.
nvestment Options
Jenny has begun to wonder whether the company can fight off this
competitive threat or whether it is time to rethink its entire
business strategy. One option that John would like the others to
consider is whether the company should expand into the Kid’s market
(targeting both quality and customer intimacy segments). However,
this option has so not far seemed particularly attractive to Jenny,
who feels that the company has little knowledge of the sorts of
sneakers that kids might like and that Ecosneak has insufficient
resources to expand without increasing borrowing.
In order to decide on the company’s strategy over the next six
years, John commissioned some background research a few months ago
from a consultancy company. On the basis of this he has attempted
to define and quantify the possible outcomes from the following two
(mutually-exclusive) options:
1. FocusonR&Dtoimproveproductquality
This is Jenny’s preferred option. It would require a €300,000
up-front initial expenditure in 2023. John has estimated (based
largely on past experience, one would have to say) that this is
expected capture increased market share in men’s and women’s
market and will result in additional annual net profits for
Ecosneak over the six-year period (from 2024) as follows:
ExpansionintotheKid’smarket
This option is favoured by John, but appears more risky, because
as far as Ecosneak is concerned, the market is untested and there
are a number of rival firms already operating in the segment.
Nevertheless, there is potential growth in the market and it offers
a route to expansion for the company. It would require investing
€170,000 in 2023 in additional warehouse capacity and other fixed
assets. John believes that the company could capture 10% of the
kid’s market each year from 2024 (total market size currently
amounts to 50,000 pairs of sneakers annually). Each pair of kid’s
sneakers is estimated to generate a net profit of €10. (Assume that
this will have no impact on company sales in the men’s and women’s
markets which will remain at current levels, as will all other
costs). The overall kid’s market will grow by 5% per year over the
six-year planning period.
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%
Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 €50,000 €100,000 €100,000 €125,000 €125,000 €50,000
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.
nvestment Options
Jenny has begun to wonder whether the company can fight off this
competitive threat or whether it is time to rethink its entire
business strategy. One option that John would like the others to
consider is whether the company should expand into the Kid’s market
(targeting both quality and customer intimacy segments). However,
this option has so not far seemed particularly attractive to Jenny,
who feels that the company has little knowledge of the sorts of
sneakers that kids might like and that Ecosneak has insufficient
resources to expand without increasing borrowing.
In order to decide on the company’s strategy over the next six
years, John commissioned some background research a few months ago
from a consultancy company. On the basis of this he has attempted
to define and quantify the possible outcomes from the following two
(mutually-exclusive) options:
1. FocusonR&Dtoimproveproductquality
This is Jenny’s preferred option. It would require a €300,000
up-front initial expenditure in 2023. John has estimated (based
largely on past experience, one would have to say) that this is
expected capture increased market share in men’s and women’s
market and will result in additional annual net profits for
Ecosneak over the six-year period (from 2024) as follows:
- Plz Help Me Here Case Study Ecosneak Sustainable Sneakers For All Ecosneak Is A Sneaker Merchandising Company That 4 (12.94 KiB) Viewed 42 times
This option is favoured by John, but appears more risky, because
as far as Ecosneak is concerned, the market is untested and there
are a number of rival firms already operating in the segment.
Nevertheless, there is potential growth in the market and it offers
a route to expansion for the company. It would require investing
€170,000 in 2023 in additional warehouse capacity and other fixed
assets. John believes that the company could capture 10% of the
kid’s market each year from 2024 (total market size currently
amounts to 50,000 pairs of sneakers annually). Each pair of kid’s
sneakers is estimated to generate a net profit of €10. (Assume that
this will have no impact on company sales in the men’s and women’s
markets which will remain at current levels, as will all other
costs). The overall kid’s market will grow by 5% per year over the
six-year planning period.
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%
Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 €50,000 €100,000 €100,000 €125,000 €125,000 €50,000