trim or not to trim Case Study Help
In addition to this, if the company would decide to drop all of its 50 brand products then the NPV loss would amount to 1654.6 million dollars. For that reason, it can be determined that it should not drop all of its 50 brand products and instead it should increase its marketing expenditure on those products that have the sales revenues lesser then their variable cost.
I will not recommend Novartis to drop all of the 50 products as it is not feasible for the company interms of probability and the value it has created over the years. It is advisable that the company should hold all the products as dropping them would increase the idle capacity of its production plant indicating that the plant is unable to utilize its maximum capacity of production, resulting in low profits.
Moreover, the discount ratecontemplates the value of time in which today’s 1 dollar would be relatively greater then tomorrow's1 dollar. This could be caused by inflation, various political reasons and factors, environment and the volatility of the market. For that reason, the management of the company uses discount factor to generate present value of an investment return that might be generated in the future in order to make an appropriate decision regarding the acceptance or rejection of the potential investment that the company is going to invest in the current financial period for its future in the form of marketing expenditure or anything else. As a result, it can be determined that it should not drop all of its 50 brand products and instead it should increase its marketing expenditure on those products with sales revenues lesser then their variable cost.
Question 4:
In case if the company finds a buyer for all of its 50 brands products then the price it should be a charge to them must be equals to 264.8 million dollars. This price is determined by incorporating the variable cost and the savings of fixed cost that the company is expecting over the years by dropping all of the 50 brand products that are describing the case Exhibit 1. The selling of the business for 264.8 million dollars will allow the company to cover the amount it is trying to save by discontinuing all of its 50 brand products that are no longer profitable for the company (described in the case Exhibit 1) and in return will provide the company with an amount covering its fixed as well as variable cost.
Question 5:
The incentive issue facing by the company that has been described in the last paragraph of the case, the management’s incentive system, in which, country sector’s heads and their sales organizations have evaluated on the basis of sales minus local country costs. However, it has been assessed that these items have been most influenced by the manager on the income statements. It has further evaluated that the manufacturing cost of each country has different from one another, this can be attributed to the external factors acting upon them with respect to that country. For example, a confident country manager could be faced with higher labor costs, as per the labor laws imposed by that country, increasing their cost of manufacturing in that country, as compared to other countries.
Hereafter, the increased manufacturing cost could have significant adverse impacts on the performance evaluation of that country’s manager, which would also adversely affect their incentives or bonuses. For that reason, it has beenrecommended to the company that it should use cost to sales ratio of each country’s revenues to effectively evaluate the performance of that country’s manager. This would motivate them to increase their sales revenues in their countries to enhance their respective performances, with respect to the external factors faced by them, which would either inflate or deflate their cost of manufacturing.
Question 6:
It has been assessed that the 15 other products that amount to 2.4 million dollars sales in Novartis’s revenues providesome very important medical needs to the patients in the pharmacy market which cannot be easily replaceable with other such types of brands. For that reason, it can be determined that, if the company decided to drop these products from its products mix then, it would create significant adverse effects on the market imageof the company as well as an adverse impact on customer’s brand perception which will also go against its mission, vision and strategic objectives.
For that reason, after evaluation of the cost and revenues of the company’s products, it has been recommended to Thomas that he should focus on those products that have sales lesser than their variable costs and increase its marketing expenditure on those products. This would enhance their appeal among the customers and increase the amount of sales revenues generated from these products. Doing this, would increase the overall revenues generated from its diversified product portfolio.............................
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