Consumer Products Inc Case Study

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Consumer products Inc | To: | CPI Board | From: | Josh Robinson CEO | CC: | [Recipient names] | Date: | 4/21/2013 | Re: | Expansion and the Toothpaste Market | Comments: | See Memo |

Consumer Products Inc. has been a growing consumer products company for many years now and since its founding in 1951, the company has managed to prove successful in all of its endeavors. The starting product line of cleaning products put the CPI business name on the industry map however; there was a desire to grow revenue and expand the product lines. Throughout the years, Consumer Products has managed to host two other major brands to include a youth hair care line and a toothpaste line as well. With this variety of product lines being offered, the markets were broadened and the revenue was increased making Consumer Products Inc. a growing success.
Consumer Products Inc. has managed to create a reputation of being investment friendly and safe as well as being a more conservative business. As the new Chief Executive Officer of Consumer Products, there has been insight as to changes that are needing to be made company wide. Though the company is doing well financially, there is a need to take some risks in order to continue the expansion of the company as they are only recognized throughout the U.S. In order to compete with the big competition, the company needs to be able to expand product lines and grow globally. Change is always a risk and failure is always possible however; to avoid being destroyed by the competition or having to partner with the competition, change is what is needed to move forward.
Expanding is not an easy task and in order to expand, there must be clear and solid research and analysis being done between the competition and the products to make sure that expansion is a probability and that the benefits outweigh the risk. During our recent meeting, it has been brought to my attention that there is question as to how the expansion will affect the toothpaste division. In order to calculate the potential profit of toothpaste, we need to use marginal analysis. According to Business Dictionary, Marginal Analysis is defined as: The process of identifying the benefits and costs of different alternatives by examining the incremental effect on total revenue and total cost caused by a very small (just one unit) change in the output or input of each alternative.” (BusinessDictionary.com)
Consumer Products Inc. has to figure out how many cases of toothpaste must be produced at minimum in order to start making a profit. The toothpaste market is considered perfectly competitive with a current price of a case of toothpaste is $42.00. We at Consumer Products have estimated that the marginal cost function is Marginal Cost = .006Q. The idea in this scenario is to find out if the Marginal Revenue is greater than the Marginal Cost which would indicate profit in further production however; if the Marginal Revenue is not greater, then there are two options; stop production at the asymptote or figure out another pricing point to give the marginal revenue a greater value.
In order to figure out the amount of cases needing to be produced in order to maximize profits, simple algebraic math is done which is dividing the $42.00 dollars per case by the marginal cost function of .006Q. When this is done, we find that Q is equal to 7,000 cases produced in order to maximize profits. After these seven thousand cases are produced, Consumer Products Inc. will start to see a full profit on future production which in turn will create a window of extreme revenue expansion. Though this is a best case scenario, the ability to run production on such a high number of products may not be an option within the production hours and this analysis strictly gives us the ability to understand what needs to be done but not necessarily what should be done or what is being done.
In every business, there are always questions that arise on
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