Strategic Recommendation Report for Renova's management (Business & Marketing Case Study)

For the Renova case report, you are expected to write a Strategic Recommendation Report for Renova's management. Imagine you are an external consultant, and that you are asked to give your analysis and your recommendation to management.



For your introduction:



What is the problem? (This requires a bit of problem analysis, but it's not as much as in the B&D case. Make sure you explain the root causes for the CEO's problem.)

Describe the toilet paper category. Think of the following aspects:



Consumer behavior

How do people choose what toilet paper to buy? What steps go into the purchasing decision? Is this the same for everybody?

What is the shopping experience like in the store?

Industry

Who are the biggest competitors of Renova?

What is the role of retailers and what processes do they influence?

What is the role of private labels, and why are private labels so successful?

What are trends in this category? In terms of innovation, what has been done already?

Now let’s switch over to Renova. Renova has five strategic directions described in this case.



Positioning

What is Renova’s positioning strategy (at the time of the decision making) (apply Porter/Moon for a suitable classification)?





Decision option analysis:

Using the framework we discussed in class for this type of case in Ellet, like we did in the TOMS and B&D cases. Discuss each of the five decision options by means of decision criteria of your choosing. Your decision criteria should be outcome-related aspects that matter to management for the problem they experience.

Important: in order to analyze option 3: specify what innovation you have in mind. It is not possible to do a proper analysis for this option without specifying what you have in mind. Think of something and describe it in the heading of the table for option 3.





Specifically, for option 1 (price reduction), do a break even calculation for a price reduction of 10%: how much does Renova need to sell more (volume) to make up for the decrease in price of 10%? Note that this part is a 'rules case' component, which you should incorporate in the decision analysis table.

Note that this break-even analysis is a major part of your grade. You need to show your calculations to get full credit. Please add your calculations in an appendix to the paper.

Note: YOU NEED TO DO THE BREAK-EVEN ANALYSIS EVEN IF YOU CHOOSE ANOTHER OPTION as you would not know why you did (not) pick option 1.





Some help for this question:







Before the price decrease, what is the average price per roll for the entry-level, i.e. cheapest, paper? (See Exhibits 3 and - select the right benchmark for this question.) (In MarkStrat terms: this is the 'recommended retail price').





What would the new price per roll be after the 10% price reduction?





How much, in cents per roll, is the retailer margin that the retailer charges based on the original, full price? (note: MarkStrat calls this 'distribution margin'; see the footnote on page 7: "For the purpose of the discussion, assume that the retailer's margin is 20% (of sales price), and that COGS is 70% of wholesale price.")

This is a slotting fee - thus, you can assume that the retailer wants to keep the same absolute level of retailer margin/slotting fee for this particular SKU compared to the situation before the price decrease. After all, the retailer did not decide on lowering the price. As such, they will not accept a decrease of 10% of their retailer margin all of a sudden in the light of the hefty competition out there... (they would just invite a different brand that would be willing to pay the full slotting fee). Thus, the retailer keeps the same cents per roll before and after the price decrease.





Taking into account the retailer margin, what is the wholesale price per roll (i.e., what Renova gets paid by the retailer per sold roll of toilet paper) a) before, and b) after the 10% price decrease?





What is the cost of goods sold (COGS) for one roll in cents (note: MarkStrat calls this transfer cost - how much does it cost to produce ONE roll of toilet paper; see the footnote on page 7)? Assume that the factory requires the same absolute level of production costs to the old situation - as the factory cannot start producing more efficiently just because the marketing department decides to drop the price... Thus, the COGS is stable in number of cents deducted before and after the price decrease.





How much is the profit (unit contribution) margin for one roll of toilet paper in cents a) before, and b) after the 10% price decrease? How much of a percentage change of profit margin is that?





Then calculate how much more volume Renova needs to sell extra in order to compensate for this drop in margin. Use the following break-even equation:

volume1*margin1=volume2*margin2 (plug in cents here)

Rearrange the terms to get at the % growth in volume needed to compensate for the % drop in margin. You can also set 'volume 1' to 1 to solve for volume2 (make sure you interpret correctly).





So, what is the percentage growth of sales (volume) that Renova needs to to compensate for the percentage drop in margin?

Evaluate this number, and use it in your evaluation of the decision option.

Finally, make a recommendation for one of the decision options. What should Renova do?



You can organize your write up any way you want (except for the following requirement: put the table with the decision options analysis in there somewhere - either the core or as an appendix; and put your calculations for the impact of the price decrease in the appendix).



Format: in Word, font size 12, double spaced.

Length: Around 4 pages (so 2 pages is probably too short, and 6 is probably too long), but I won't be counting as I care about the content of your paper.