Cookie and Privacy Settings

This website uses cookies to enable essential functions like the user login and sessions. We also use cookies and third-party tools to improve your surfing experience on preplounge.com. You can choose to activate only essential cookies or all cookies. You can always change your preference in the cookie and privacy settings. This link can also be found in the footer of the site. If you need more information, please visit our privacy policy.

Data processing in the USA: By clicking on "I accept", you also consent, in accordance with article 49 paragraph 1 sentence 1 lit. GDPR, to your data being processed in the USA (by Google LLC, Facebook Inc., LinkedIn Inc., Stripe, Paypal).

Manage settings individually I accept
expert
Expert with best answer

Ian

100% Recommendation Rate

184 Meetings

14,939 Q&A Upvotes

USD 289 / Coaching

1

Price differentiations & brand development

I think it is quite risky to cut all the products which gross profit margin is lower than 10%, since low prices have attracted a lot of customers. Why don't we use a price differentiation strategy on "free shipping costs"? For example, if the total consumption is higher than 30 euros, we offer a free shipping, thus this will make people try to buy more, otherwise an additional shipping cost could be charged in order to compensate us. I know this may lose some customers as well since there is a huge competition outside, but i think since the bottom line could really be set around 30 euros (to at least prevent the loss), it will not reduce a lot of competitiveness of Onlinestar.

Another problem is, if it is possible to develop the brand up to aim for semi-premium? Because Online star is gaining the most profits from the products(>70 euros), i think the company should focus more on expensive buyers.

I think it is quite risky to cut all the products which gross profit margin is lower than 10%, since low prices have attracted a lot of customers. Why don't we use a price differentiation strategy on "free shipping costs"? For example, if the total consumption is higher than 30 euros, we offer a free shipping, thus this will make people try to buy more, otherwise an additional shipping cost could be charged in order to compensate us. I know this may lose some customers as well since there is a huge competition outside, but i think since the bottom line could really be set around 30 euros (to at least prevent the loss), it will not reduce a lot of competitiveness of Onlinestar.

Another problem is, if it is possible to develop the brand up to aim for semi-premium? Because Online star is gaining the most profits from the products(>70 euros), i think the company should focus more on expensive buyers.

1 answer

  • Upvotes
  • Date ascending
  • Date descending
Best Answer
Book a coaching with Ian

100% Recommendation Rate

184 Meetings

14,939 Q&A Upvotes

USD 289 / Coaching

Hi there,

You're not wrong. But you're also not right ;)

Never forget the OBJECTIVE.

While you are right about the risk to cutting low margin products, in this case you can only include it as a risk. It's a good risk to include, but you can't let it detract from the case.

Why?

---------------------------------------------------------

The case prompt states:

"The financial ratios have deteriorated in recent years. In particular, gross profit margin decreased significantly. Combined with a significant increase in shipping costs, this led to a negative result for the first time in the recently ended fiscal year and a resulting strained financial situation. Against the background of expected stagnating sales for the current financial year, short-term action is required.

The board of Onlinestar asks you for an analysis of the reasons for the negative result as well as a derived recommendation for action"

------------------------------------------------------------------

Your recommendation to offer free shipping cuts into margins. Your resistance to cut low-margin products means you will continue to have the same short-term issues with financial ratios. Your resistance to semi-premium is incorrect because we need that attractive margin.

So, you're right, but you're wrong because you forgot what the objective was

Hi there,

You're not wrong. But you're also not right ;)

Never forget the OBJECTIVE.

While you are right about the risk to cutting low margin products, in this case you can only include it as a risk. It's a good risk to include, but you can't let it detract from the case.

Why?

---------------------------------------------------------

The case prompt states:

"The financial ratios have deteriorated in recent years. In particular, gross profit margin decreased significantly. Combined with a significant increase in shipping costs, this led to a negative result for the first time in the recently ended fiscal year and a resulting strained financial situation. Against the background of expected stagnating sales for the current financial year, short-term action is required.

The board of Onlinestar asks you for an analysis of the reasons for the negative result as well as a derived recommendation for action"

------------------------------------------------------------------

Your recommendation to offer free shipping cuts into margins. Your resistance to cut low-margin products means you will continue to have the same short-term issues with financial ratios. Your resistance to semi-premium is incorrect because we need that attractive margin.

So, you're right, but you're wrong because you forgot what the objective was