Regal Elektrogas
Essay by ttchakar • October 20, 2016 • Case Study • 1,400 Words (6 Pages) • 1,431 Views
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Contents
1 Problem analysis using ProACT+Next
1.1 Problem
1.2 Objectives
1.3 Alternatives
1.4 Consequences
1.5 Uncertainties
1.6 Trade-offs
1.7 Linked decisions
1.8 What’s next - Implementation plan
1.9 Pre-Mortem
Problem analysis using ProACT+Next
The problem Asad Ali, the proprietor of Regal Electrogas faces, will be analysed using ProACT+Next methodology.
Problem
Asad Ali has to decide whether to decrease the desert cooler prices after the government withdrew its plan to increase taxes on the desert coolers by 5%. Keeping the higher prices will bring higher margins to Regal Elektrogas but on the other hand keeping prices higher has a risk of losing sales and cash flow. Asad Ali is concerned about the short term and long term reaction of retailers and consumers if he keeps the prices high. Asad Ali is also concerned about how to increase its sales over the years as the market is getting very dense for the products his company is offering.
For this case, we focus on the problem of whether the prices should be reduced immediately or keep it higher for the remainder of the year.
Objectives
The objectives of Asad Ali are:
- To increase the margin per unit of the desert coolers: Rs 65 increase in the margin.
- To maintain the sales revenue: Rs 1,450 per unit * 1,000 = Rs1,450,000
- Increase the market share of the desert cooler: Increase sales and production by 1500 unit/year (long term goal)
Alternatives
- Reduce the price immediately to the prices before tax reduction: The price is reduced back to the levels before the tax increase, i.e. wholesale sell price cash Rs 1400.
- Keep the price for the current year: keep the price for as it is for the current year and consider the price for the next year after the season is over.
- Reduce the price to even lower price than it was before: The customers are price sensitive. Reducing the price to even lower levels than earlier might boost sales. This could be done under the alternative brand. The product is the same, but only the label is different so that the company can keep higher margins for the next year.
- Increase the price: The inflation in Pakistan is approximately 10%. To keep the margins at the same level, Asad Ali can increase the price of the desert coolers by the inflation rate.
Consequences
A. To increase the margin per unit of the desert coolers | B. To maintain the sales revenue | C. Increase the market share of the desert cooler | |
1. Reduce the price immediately to the prices before tax reduction | [pic 5] The inflation is app. 10% which means real margins are getting even lower. | [pic 6] If the competitors reduce prices to lower levels before the tax increase, the sales might decline. | [pic 7] There is a question mark about this option as it depends on how the market evolves and Regal doesn’t have a concrete plan. |
2. Keep the price for the current year | [pic 8] Keeping the prices will mean the margins are higher. Although due to high inflation, real margins will decrease. | [pic 9] If the competitors reduce prices, the sales for the year might decline. | [pic 10] Improves cash position without changing FTEs in operations. |
3. Reduce the price by to lower price than it was before,( 5% less than the price before raising the price) | [pic 11] This alternative will even reduce the margin per unit. | [pic 12] On the short term, the consumers respond to price reduction. | [pic 13] Acting as two separate brands will give the chance to grow sales. |
4. Increase the price | [pic 14] Increasing prices will increase per unit margin. | [pic 15] Depending on the sales volume change it can increase or decrease. | [pic 16] On the long run, the price increase without increasing the quality will likely result in lower market share. |
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