By selling with a contribution margin of 25%, where their total profit is highest for the product, they would make $82,880 (assuming that all the mothers with infants that said that would buy infant products at a certain price buys our product at that price).
This is a 100% increase in profits for the infant toy category.
If we introduce the teether, Big Tiger might increase the level of contribution margin to 40%, where they make the most profit, but we make the least.
Currently, they are making $41,250 (1,500,000*.05 units at a contribution margin of 20% of 2.75) in profits from the unbranded and unpackaged toys.
Ecton imaging system will have the advantage of having the needed networks to introduce and market its product.
An important point to know is how favorable the echocardiography market is by analyzing the five competitive forces (see exhibit 1).Moreover, the absence of marking, sales, and production departments adds a burden on Ecton when it comes to negotiate its acquisition.All of these concerns and more will be discussed in the next few pages.Furthermore, Ecton will be having an ultimate chance to overcome barriers to entry in Echocardiography.In other word, after acquisition, Ecton’s product is expected to be presented in conferences and seminars hold by prestigious cardiac institutes and organizations, such as American Heart Association.The bottom line of this proposal is positioning Ecton to be acquired by the end of the 1998.One of the crucial concerns of this acquisition is the possible effects on “Ecton’s product development process”.It is important to analyze the pros and cons of spending the marketing budget on trade promotion or advertising.It is important to note that the success of Innovative toys and a future launch of a second product next year rely on the success of the product we will launch first in Big Tiger supermarkets.I have carefully analyzed the various matters that affect the decision of which toy to introduce first, the Even though by using advertising we only get 80% of the Big Tiger’s stores to distribute our product, after the first year when they see that it is profitable and worth being in their stores they will most likely want to carry it in 100% of their stores for their own benefit.I strongly suggest that the Super Soft Ball be introduced first, because since we cannot control the retailer’s price, we should look at a product that will give Innovative Toys and Big Tiger the highest profit at the same level of % contribution margin.