Reference no: EM13936708

Electronic Components Inc. manufactures a new radio system suitable for a variety of business and personal uses. The distribution channels for the new radio are:

1.- Marine equipment distributors.
2.- Business equipment distributors.
3.- National chain of retail stores.
4.- Mail order.

Because of differing distribution and promotional costs, the profitability of the product will vary depending on the distribution channels chosen, because of a difference in the promotional costs. In addition, the advertising cost and the personal sales effort required will also vary. The following table summarizes the contribution to profit, advertising cost, and personal sales effort for each channel (the profit per unit sold includes all the cost, including the advertising cost per unit sold):

The firm has set the advertising budget at $5.000, and a maximum of 1.800 hours of sales force time is available for allocation to the sales effort. The General Manager has also decided to produce 600 units for the current production period. Finally, an ongoing contract with the business distributors requires that at least 150 units have to be distributed through this distribution channel. The problem is to establish the
distribution strategy for the radios that will maximize overall profitability of the new radio production.
1.- Write down the objective function and all the restrictions.
2.- In the next page you have three sensibility analysis.

a) Identify the real one and why is it that one.
b) Which is the best combination in terms of distribution channel to maximize the total profit and which is that maximum profit?
c) If a change in the marine distributors channel took place and the profit per unit fell to $80, would the optimal solution change?. Why?
d) Having the possibility of increasing the advertising budget, which would be the perfect increase in %?
e) Which would be the impact of producing two units for the mail order distribution channel?

f) The marketing director is thinking about changing the Business distributors restriction and increase it from 150 units to 300 units. How is this going to affect the optimal solution? Why?
g) There is a possibility about a new distribution channel. If it has the same personal sales effort and advertising cost of the Mail order, but a profit per unit of $110, would you recommend it? Would the optimal solution change? Why?