Lee and Man have a good assortment of handbags and luggage that cover all market areas for all those totally normal people who love to buy handbags! A few samples are below:
Product
1:
Handbag
“Chloe”
Cost:
AUD59. Contribution cost: AUD22. Contribution margin: AUD37
Product 2:
Handbag “Tara”
Cost: AUD99. Contribution cost: AUD36.
Contribution margin: AUD63
Product 3:
Handbag “Lucia”
Cost: AUD149. Contribution cost: AUD52.
Contribution margin: AUD97
Discuss why the contribution margins for
each of your firm’s three products/services might differ or be similar. Why might your firm produce a range of
products/services with different contribution margins? Why not only produce the
product/service with the highest contribution margin?
Unless a company
was in a niche market, it wouldn’t be good business to only sell or make items
in one price range. It means that a
company would only appeal to only 1 section of a potential market rather than a
large portion, or all of a market. Considering that Lee and Man specialise in
handbags, to make only expensive handbags means that the opportunity cost of
missing out on selling more handbags for a cheaper price is potentially quite
high. This would also work vice versa, to only sell the cheapest means that you
are producing cheap and excluding higher end buyers from your products as
people generally associate higher cost with higher quality. A company that did
not have variable contribution margins would not be as competitive with other
firms that do sell a variety of quality products.
Identify (or guess) one or more resource
constraints your firm may face, and also perhaps any market constraints you
feel may impinge on your firm.
The possibility
of the market being saturated with these products. The pressure to provide a
unique product would be high due to the sheer amount of companies that buy,
sell and stock handbags. I think the biggest constraint would be the
competitiveness of the market which would indicate that prices are likely to be
kept at a minimum as the perceived product value must appear to be higher than
what a consumer is willing to pay for it to be able to sell.
Selling in bulk
as a wholesaler could be seen as a constraint in some aspects regarding low
sale prices. In such a saturated market,
Lee and Man would have to be very negotiable on price to ensure they can move a
lot of their stock.
In what ways might these constraints be
relevant when deciding whether or not (and how much) of the three products or
services of your firm that you have identified, your firm should produce and
sell?
Possibly a major
factor would be the market in which these items are sold and it is likely that
Lee and Man sell as a wholesaler and their buyers would be looking to buy in bulk
at the right price to be able to sell all of their purchased merchandise. The
constraint would be relevant in majority of cases.
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