Should pepsi agree to the exclusivity agreement

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Reference no: EM133126515

Pepsi Case - Exclusivity Agreement

A large university with a total enrollment of about 50,000 students has offered Pepsi-Cola an exclusivity agreement that would give Pepsi exclusive rights to sell its products at all university facilities for the next year with an option for future years.

In return, the university would receive 35% of the on-campus revenues and an additional lump sum of $200,000 per year.
Pepsi has been given 2 weeks to respond.

The market for soft drinks is measured in terms of 12-ounce cans. Pepsi currently sells an average of 22,000 cans per week (over the 40 weeks of the year that the university operates).

The cans sell for an average of $1 each. The costs including labor amount to 30 cents per can.

Pepsi is unsure of its market share but suspects it is considerably less than 50%.

A quick analysis reveals that if its current market share were 25%, then, with an exclusivity agreement, Pepsi would sell 88,000 (22,000 is 25% of 88,000) cans per week or 3,520,000 cans per year.

The only problem is that we do not know how many soft drinks are sold weekly at the university. Coke is not likely to supply Pepsi with information about its sales, which together with Pepsi's line of products constitute virtually the entire market.

Pepsi assigned a recent university graduate to survey the university's students to supply the missing information. Accordingly, she organizes a survey that asks 500 students to keep track of the number of soft drinks they purchase in the next 7 days

The information we would like to acquire is an estimate of annual profits from the exclusivity agreement. The data are the numbers of cans of soft drinks consumed in 7 days by the 500 students in the sample.

We want to know the mean number of soft drinks consumed by all 50,000 students on campus.

Assume that Coke and Pepsi drinkers would be willing to buy either product in the absence of their first choice.

a. On the basis of maximizing profits from sales of soft drinks at the university, should Pepsi agree to the exclusivity agreement?

b. Write a report to the company's executives describing your analysis.

Attachment:- Pepsi Case.rar

Reference no: EM133126515

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