Business Case Study : Tupelo’s Dilemma

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PART I

1. ElectronicCity is in a high competitive environment. Numerous electronic retail shops deal with the same products as ElectronicCity. Also, ElectronicCity is competitive in their products, especially HDTVs which among their most profitable products. The extended warranties that they provide to their customers have made the product more profitable adding to the fact that HDTVs are among the most expensive items in most of the customers’ homes.

2. The VP of marketing applies an effective management style where the division knows the expected failures in the appliances and the cost of these failures. The style is appropriate because the organization gets to plan for failures and project its sales and losses early enough.

3. The most unethical aspect of the sale of HDTVs is the purchase of warranties that customers do not really need at a costly price since there is a low probability of the product failing. The approach that the business uses banks on ignorance from the customers when pitching the importance of warranties. Customers who do not have knowledge of the expense and unnecessary nature of the warranties are gullible to the salespersons while those who are knowledgeable avoid the purchase of the warranties.

4. An increase in his prediction abilities will increase his incentive pay as it allows him to choose how much time to spend with each customer due to categorization of customers. He can choose to reduce the time he spends with a customer who will not buy the warranties and instead serve more customers who will buy the warranties. Therefore, his incentive pay will increase since he will be getting to the right buyers due to the increase in his accuracy.

5. a. The reaction of Maria is an encouragement to Phil to continue succeeding in what he is doing. She is the president of the marketing club and works in a similar setting as Phil. Having such success is often a glorious thing and individuals tend to encourage each other to go for more success. Maria was amazed and wished she could get the chance to share her story since she was working in a similar setting.

b. Dr. Smith’s comments and reactions seemed to be an encouragement for Phil to find why of convincing the younger and professional customers to buy the warranties. According to the questioning, Dr. Smith is trying to distinguish Phil’s success and his failures and in doing so, he makes Phil want to reduce his failures and increase his success.

c. The comment by Fr. George is meant to make Phil think from an unethical perspective. The sale of the warranties banks on ignorance from the customers and is, therefore, taking advantage of some of the customers.

6. The question posed by Fr. George hits a nerve in Phil. This may affect his working ability when he gets back to work because he is already uncomfortable with the way they are selling the warranties. He start questioning the marketing and sale of the warranties based how strong his conviction is.

PART II

Please more details in this section as it is the most important to show if I am eligible of GMAT waver.

1. Commission= 10%

Incentive pay= $ 360.40=10% commission

Dollar amount of warranty extensions= 100/10*360.40 = $3,604

2. Dollar amount of HDTVs sold

Warranty extension is a flat rate of 8% of selling price

$ 3,604= 8% selling price of all HDTVs sold

Price of all HDTVs sold= 100/8 * 3604 = $ 45,050

Assuming only 55% of eligible transactions

0.55* 45,050 = $ 24,777.5

3. 4% increase in HDTV sales= 4% increase in revenue at the same average selling price

Therefore 4% revenue increase= 710.7*1.04= $ 739.13 million

8% warranty cost= 8/100*739.13= $ 59.13 million ( How do we know all customers bought the warranty ? )

10% commission on warranties= 0.1*59.13= $ 5.91 million ( Commissions based on the number of warranty they sold )

Revenue- commissions= 739.13- 5.91= $ 733.22 million

Cost of repairs

Increase in HDTVs sold= 1.04*320,000= 332,800 HDTVs

4% failure in TVs= 0.04*332,800= 12,912 HDTV with errors

95% Minor errors= 0.95*12,912= 12,266 HDTVs with minor errors

Cost of repairing minor errors is 1.5 hrs@ $100/hr= 1.5*100= $ 150 per HDTV

Total average cost of minor repairs= 12,266*150= $ 1.84 million

Major errors= 12,912-12,266= 646 HDTVs with major errors

Cost of repairing major errors is $ 800 per incident

Total average cost of major repairs= 800*646= $ 0.52 million

Total cost of repairs= 1.84+0.52= $ 2.36 million

Profit= 733.22-2.36= $ 730.86 million

Profit per store= 730.86/160= $ 4.57million