Answer:
This question is incomplete and incorrect in some parts, here is the full one:
Under what circumstances should a company's management team give serious consideration to making price offers to supply private-label footwear to chain retailers in one or more regions?
a) When the benchmarking data at the bottom of p. 7 of the latest FIR indicates that all sellers of private label footwear in that geographic region had a margin over direct costs of more than $2.50 per pair of private-label footwear sold to chain retailers
b) When chain retailers want to purchase private-label footwear with an S/Q rating that is 2- stars or more below last year's industry average for branded footwear
c) When the data in the latest Competitive Intelligence Report indicates that all of the winning bidders for P-L contracts sold more than 500,000 pairs of P-L shoes
d) When company managers conclude that the company has more than enough production capacity to produce the needed pairs of branded footwear and, based on their projections, determine that the company's profitability can be enhanced by making price offers to chain retailers and winning contracts to supply them with private-label footwear
e) When the company's market share for branded footwear in a geographic region is below the industry average and all the sellers of private-label footwear in the prior year made money on their private-label contracts
<u>The answer is d)</u>
Explanation:
A common misconception when it comes to manufacturing private-label goods is related to the lack of lucrativeness. Some may ask: Why should I manufacture goods for a retailer when I can sell them under my own brand?
The truth is - most companies (given their production management is efficient) have<u> excess production capacity</u>. That means that for a particular period, they are able to manufacture goods with a low, competitive cost per unit. Only when the production capacity is fully used, the production is optimal.
However, since most companies have a precisely defined budget for marketing, branding, packaging, distribution and logistics, sometimes it is very profitable to allocate some production capacity aimed just for products for a private-label.
This way, the costs related to marketing, branding, etc. will be transferred on to the retailer, while we reach our full production capacity in a particular geographical area of operating.
