Blair Water Purifiers India, страница 5

When these or similar numbers have been placed on the board, the instructor can ask for a summary interpretation. A good activity at this point is to stop discussion and give the class three to five minutes to jot down their interpretations. When time is up, class members can be polled. These sorts of ideas should arise.

  1.    The penetrating price and direct salesforce combination should be rejected out of hand.

  2.    Breakeven quantities for the skimming price and direct salesforce combination are about the same as the penetrating price and dealer channel combination.

  3.    Breakeven quantities for the skimming price and dealer channel are the smallest.

  4.    Contribution margins for all combinations using penetration pricing make licensing a preferred alternative.

  5.    Licensing is a preferred alternative if actual sales quantities stay small.

On this last point, one or two students may see a way to compare the economic aspects of licensing with a joint venture. Students can calculate critical values for quantities such that sales below these levels make licensing look more attractive than a joint venture and that sales above which make the reverse true. The calculations actually are quite simple. From the two region, dealer channel, skimming price data from case Exhibit 5, we can write an equation where the left side represents total contribution for licensing and the right the total contribution for a joint venture. We have [(Rs.300)(Q) – (Rs.15,000)] = [(Rs.650)(Q) – (Rs.4,500,000)], and Q = 12,814 units. For the four region, dealer channel, skimming price data, we have [(Rs.300)(Q) – Rs.15,000)] = [(Rs.650)(Q) – (Rs.8,000,000)], and Q = 22,814 units. For the entire national market, dealer channel, skimming price data, we have [(Rs.300)(Q) – Rs.15,000)] = [(Rs.650)(Q) – (Rs.42,000,000)], and Q = 119,957 units. All three calculations assume that Blair Company would receive 100 percent of the contribution and such is the case only for licensing. If Blair Company were to receive just half of the contribution (as might be stipulated in the joint venture agreement), then the three critical quantities above would double.

Finally, one or two students may comment on the idea that a lot of time is being spent on “crunching numbers” and that many other considerations need to be discussed. Besides, they might argue, Blair Company seems a bit old fashioned here—shouldn’t a target segment and market demand drive cost such that the final product meets market expectations rather than existing price levels? This is an excellent point that the instructor should be prepared to stress before moving on.

Discussion now might shift to qualitative concerns: What else can be said regarding Blair Company’s choice between skimming and penetrating price strategies? Skimming is an excellent way to “feel out” demand and to learn about the market as events take place. In addition, some Indian consumers probably associate price with quality and others exhibit inelastic demand. Skimming permits Blair Company to field a large salesforce and to control customer contact. Skimming encourages competitors to enter or to stay in the market. On the other hand, a penetrating strategy would permit Blair Company to realize economies of scale and experience curve effects more quickly. These efficiencies will enlarge the market and may pave the way for the joint venture to enter India’s rural market. Finally, a penetrating strategy will discourage competitors from entering or staying in the market.

What else might be said regarding Blair Company’s choice between using dealers or using a direct salesforce? Dealers are attractive because they take title and possession of goods, thereby reducing economic risk to the joint venture. Dealers may provide service for damaged or old units; they will stock and sell related products. Both activities offer convenience to consumers. Dealers already are in place and can begin sales of Delight Purifiers almost immediately. Dealers offer instant credibility and image, if they are chosen and trained properly. Dealers know their customers and trading areas. very well. Dealers are independent businesses, not under the thumb of the joint venture’s managers. In contrast, the direct salesforce can be more easily trained, motivated, and controlled. Moreover, many consumers will need an education about the product category that a salesforce can best supply. Like life insurance, the product may be such that it needs to be pushed. However, a direct salesforce represents a huge investment and large fixed costs—should the market contract for any reason, the joint venture may not produce a profit. A large salesforce would be difficult to manage and control. A disgruntled salesman would reflect poorly on the joint venture, not the independent dealer.