Case 1
1. Using the Simple Sheet, what happens when Allegro cuts advertising and selling effort to 0$ and raises price to $500/unit? Comment. When we change those three variables, the excel gives us the net profit result in $20,387,345, which is already over 20 million dollars. The market is not changed. However, in the real world, the market share is definitely affected by any decision you made to the market, such as advertising expense and price. This unrealistic net profit is made underlying the assumption that we can keep the market share at the same level, and then if we change the price, advertising and selling effort, we will make a big net profit.
2. Repeat exercise 1 using the Smart Sheet. Using the smart sheet, if we change price into $500 per unit, both advertising and selling are 0, we will get the net loss of 4 million loss. Under this assumption, the market share decreased to 0, which makes sense. In the real world, if we charge a price twice as high as the original one, but we did not allocate any effort in advertising and selling, no one would make the purchasing of a unreasonable product with a high price but low awareness. Comparing with the simple sheet, we can easily find that smart sheet would be more reasonable for the real world because of its internal relationship among the variables and objects. 3. Using the Smart Sheet, what is the profit maximizing level of advertising, selling effort and price? (Hint: Requires Solver) Would you recommend the firm implement this policy? Why or why not? Using the Smart Sheet, if we want to achieve the profit maximizing level of $1,324,061, we need lower our price to $275 per unit, but we have to increase the advertising and selling distribution to $1,589,271 and $1,033,026 respectively. I would not recommend the firm to implement this policy. Because our profit only increase by $224,061 but we have to spend $722,297 more on advertising and selling. This increase on net profit is not efficient
2. Repeat exercise 1 using the Smart Sheet. Using the smart sheet, if we change price into $500 per unit, both advertising and selling are 0, we will get the net loss of 4 million loss. Under this assumption, the market share decreased to 0, which makes sense. In the real world, if we charge a price twice as high as the original one, but we did not allocate any effort in advertising and selling, no one would make the purchasing of a unreasonable product with a high price but low awareness. Comparing with the simple sheet, we can easily find that smart sheet would be more reasonable for the real world because of its internal relationship among the variables and objects. 3. Using the Smart Sheet, what is the profit maximizing level of advertising, selling effort and price? (Hint: Requires Solver) Would you recommend the firm implement this policy? Why or why not? Using the Smart Sheet, if we want to achieve the profit maximizing level of $1,324,061, we need lower our price to $275 per unit, but we have to increase the advertising and selling distribution to $1,589,271 and $1,033,026 respectively. I would not recommend the firm to implement this policy. Because our profit only increase by $224,061 but we have to spend $722,297 more on advertising and selling. This increase on net profit is not efficient