1122422 Maximizing profitability in Sales

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Kruse Plastic & Plywood operates in a mature industry in a well-established but fairly small metropolitan market. The market has been competitive for years and combined with a regressing customer base, the challenge is significant to generate above-average margin on sales. There are fewer customers, just as many competitors, and a declining economy resulting in price erosion. Overhead costs continue to rise, driven primarily by increases in employee benefits and transportation/delivery costs. Given the above, KPP must find innovative ways to maximize profitability.
The injection of purchasing product more effectively invalidates assumption number 1 in the A-C branch. Two examples of how Kruse can do this are by entering into a co-op buying group (that effectively negotiates better pricing in aggregate than individual entities) and buying in different volumes for discounts.
Using the injection of establishing different pricing models invalidates assumption number 4. This is a departure from the simplified model Kruse has traditionally used and both employees and customers have understood. The new models will allow Kruse to have the sharpest pricing when necessary to win sales but also to find opportunities to optimize pricing for products and situations when service and availability are more important than price.
Implementing both injections evaporates the cloud because they identify two ways for the company to gain higher levels of profitability from sales.

D: grow business by investing in marketing and promotional efforts
D': cut costs and expenses
B: expand KPP's customer base
C: make sales more profitable
A: meet revenue and profit objectives
Click on the icons on the arrows to see assumptions and injections
In order to meet revenue and profit objectives I must expand KPP's customer base and in order to expand KPP's customer base I must grow business by investing in marketing and promotional efforts. But, in order to meet revenue and profit objectives I must also make sales more profitable and in order to make sales more profitable I must cut costs and expenses. I can't both grow business by investing in marketing and promotional efforts and cut costs and expenses.
RelationAssumption(s)Injection(s)
A-C1. Average profit margin on sales is below objective.
2. Pricing must be sharp to win sales from competition.
3. Sales growth through pricing reduction reduces profitability.
4. Customers are constantly striving for lower prices.
5. Overhead costs are rising.
1. Increase gross profit margin on sales.
2. Purchase product more effectively to reduce cost basis and generate higher gross profit margin.
3. Create different pricing models to leverage higher profit opportunities.