IPD Trade Show | Ross Colloquium | Nov 28

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Wed, 11/28/2012 - 6:00pm to 8:00pm

Retail Products for Focus:HOPE

Focus:HOPE is a Detroit-based civil and human rights organization dedicated to intelligent and practical action to overcome racism, poverty and injustice.

Focus:HOPE trains metal working machinists but has little retail presence. This year student teams were asked to design a retail brand/product line for Focus:HOPE, and to design and manufacture ONE product from the line. This one product must use the installed machining assets and machinist trainees in Focus:HOPE’s Machinist Training Institute.

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The instructors received extremely enthusiastic feedback on the trade show this year. Even people who had already voted on the web were not fully expecting the well designed products and professional presentations by all teams. Congratulations on completing a very difficult design challenge in great style! Following are the quantitative results of the trade show competitions. As noted previously, this is just one input into team grading this year.

I. Final unit sales from the web and physical trade shows

The web show market shares based on 678 valid votes were as follows:

  First place votes Market share Unit sales
Go-Wagon 45 6.6% 664
Pentominoes 66 9.7% 973
Grill'ON 167 24.6% 2463
Creative Desk Org 55 8.1% 811
Make it Stick 84 12.4% 1239
SideSaddle 102 15.0% 1504
tilt 74 10.9% 1091
clink! 46 6.8% 678
Streets D Chainring 39 5.8% 575

307 valid votes were cast in the physical trade show, with the following market share and (potential) unit sales results:

  First place votes Market share Unit sales
Go-Wagon 21 6.8% 684
Pentominoes 13 4.2% 423
Grill'ON 73 23.8% 2378
Creative Desk Org 28 9.1% 912
Make it Stick 32 10.4% 1042
SideSaddle 33 10.7% 1075
tilt 34 11.1% 1107
clink! 31 10.1% 1010
Streets D Chainring 42 13.7% 1368

These potential sales were not fully realized due to some teams stocking out, as described below.

We also had 39 guests from Focus:HOPE reviewing the products and voting, and their preferences tracked the general audience preferences very closely (correlation coefficient .93).

The web and trade show market shares were positively correlated (correlation coefficient .75), but there were some products that experienced surprises. For example, Streets of the D Chainring did much better in the physical trade show than on the web. This surprise did, in fact, have consequences: Chainring stocked out, as did Grill’ON.

Grill’ON had 278 units of excess demand(demand that they could not fill due to stocking out of inventory) and Chainring had 343 units of excess demand that had to be distributed among the other products. To complicate things further, Chainring was a very highly rated second choice among all Grill’On customers, and vice versa! So, we had to go to third place choices among customers who chose Grill’On first and Chainring second, or vice versa, to distribute the 621 units of excess demand. The big winner in that redistribution was Make it Stick, however most teams picked up some demand.

After all redistributions were complete, final sales figures in the physical trade show were as follows:

Team Total trade show unit sales Market share
Go-Wagon 768 7.7%
Pentominoes 504 5.0%
Grill'ON 2100 21.0%
Creative Desk Org 984 9.8%
Make it Stick 1196 12.0%
SideSaddle 1152 11.5%
tilt 1206 12.1%
clink! 1066 10.7%
Streets D Chainring 1025 10.2%

II. Economics

The fixed and variable costs for the products this year were as follows:

  Fixed cost Variable cost Web price Trade show price Web margin Trade show margin
Go-Wagon 6699 72.96 99.95 99.95 26.99 26.99
Pentominoes 0 22.1 85 85 62.90 62.90
Grill'ON 0 37.32 69.99 79.99 32.67 42.67
Creative Desk Org 0 12.1 39 49.99 26.90 37.89
Make it Stick 0 30.47 59.99 59.99 29.52 29.52
SideSaddle 2500 49.18 85 95 35.82 45.82
tilt 548.18 15.29 49 49 33.71 33.71
clink! 2913 41.62 55 55 13.38 13.38
Streets D Chainring 3188.45 14.84 49 59 34.16 44.16

The thin margins for clink! and Go-Wagon will have profitability consequences.

To compute final team profits, first all teams were charged their fixed costs (just once), and then they paid their variable cost for each unit of inventory built. Revenues were computed from the unit sales in a show (web or trade show) multiplied by the price in that show. As announced in class, we weight the physical and web trade shows 2/3 and 1/3, respectively when computing final profits. The teams are listed from most to least profitable, along with the web and trade show market shares, in the following table:

Team Web show market share Trade show market share Final profits ($)
Grill'ON 24.6% 23.8% 168 616
SideSaddle 15.0% 10.7% 93 194
tilt 10.9% 11.1% 72 762
Streets D Chainring 5.8% 13.7% 72 474
Make it Stick 12.4% 10.4% 69 005
Creative Desk Org 8.1% 9.1% 62 359
Pentominoes 9.7% 4.2% 57 012
clink! 6.8% 10.1% (3 940)
Go-Wagon 6.6% 6.8% (24 309)

Charging the cost of capital (as established in the second design review) for all expenditures does not change anything substantially, however Streets of the D is able to move ahead of tilt because of the lower level of total expenditures on which they have to pay interest. After making this adjustment, the final profits are:

Team Profits adjusted for cost of capital
Grill'ON 160,737.93
SideSaddle 86,185.19
tilt 71,251.31
Streets D Chainring 70,885.08
Make it Stick 64,434.67
Creative Desk Org 61,607,07
Pentominoes 54,332.62
clink! (8,753.68)
Go-Wagon (32,596.10)

Despite their low margins, both clink! and Go-Wagon would have been substantially profitable but for the expense of unsold inventory. Specifically, here are the overstocking numbers:

Team How much did teams overstock? Variable cost Loss ($)
Go-Wagon 818 72.96 59,716
Pentominoes 102 322.12 2,602
Grill'ON 0 37.32 -
Creative Desk Org 216 12.1 2,611
Make it Stick 65 30.47 1,995
SideSaddle 98 49.18 4,825
tilt 39 415.29 6,020
clink! 75 641.62 31,461
Streets D Chainring 0 14.84 -

A combination of high variable costs and high overstocking is very costly. But this is not the whole story this year. A regression of profits as a function of intuitive drivers such as market share, variable cost, margin, and stockouts shows no significant variables. That is, these issues do not separate out in any easy way. It is the interactions among all of these variables that explains the results this year.

For more information about the IPD trade shows or course, please contact Tauber at (734) 647-0308 or email tauber.info@umich.edu.

 

Colloquium, Ross School of Business