Profit and loss

Question 1

What is the Profit and loss-tree?

Answer 1

E(P=R-C)M

Question 2

How can profits be increased?

Answer 2

1. Can we increase the revenue?

2. Can we decrease the costs?

Question 3

How can we increase revenue?

Answer 3

1. Can the sales volume be increased?

2. Can the ex-factory price be raised or lowered?

Question 4

Can the product costs be lowered? (1)

Answer 4

1. Is the design too expensive?

Question 5

Is the design specification too expensive? (2)

Answer 5

Yes: Are the consumers likely to favour a quality product?
No: Are the fixed costs too high?

Question 6

Are the consumers likely to favour a quality product?

Answer 6

No: Redesign and use VA en VE analyses
Yes: Reflect quality in marketing strategy

Question 7

Are the fixed costs too high?

Answer 7

Yes: Cut down on indirect personnel, control accounts receivable and payable, reduce fixed assets.
No: Are the variable costs too high?

Question 8

Are the variable costs too high?

Answer 8

Yes: Is the company making uneconomic purchases?
No: Is the work pace too slow?

Question 9

Is the company making uneconomic purchases?

Answer 9

Yes: Improve purchasing methods, replace suppliers
No: Improve production process control

Question 10

Is the work pace too slow?

Answer 10

Yes: Improve employee education and training, install incentive systems
No: Are there many reworks?

Question 11

Are there many reworks?

Answer 11

Yes: Tighten quality control?
No: Is there too much downtime?

Question 12

Is there too much downtime?

Answer 12

Yes: improve maintenance, replace obsolete machines, analyse work process
No: Reconsider skill level and capabilities of employees

Question 13

Can the sales volume be increased? (4)

Answer 13

1. Can the market share of product A be increased in segment M?
2. Can the market for product A be expanded beyond segment M?
3. Will the market segment M expand?
4. Can we develop a new product?

Question 14

Can the market share of product A be increased in market segment m? (4)

Answer 14

1. Can Product A’s fit with segment m be improved?
2. Can the strength of the sales network be increased?
3. Can consumer awareness of product A be improved?
4. Can share be increased by a change in pricing policy?

Question 15

Can product A’s fit with the segment m be improved? (2)

Answer 15

1. Basic customer needs analysis

2. Analysis of value (real and perceived) offered by competing products

Question 16

Can the strength of the network be increased? (2)

Answer 16

1. Trends in sales channel and geographical coverage

2. Comparison of servicing capability, delivery time

Question 17

Can consumer awareness of product A be improved? (2)

Answer 17

1. Survey of customer awareness in brand and product

2. Analysis of purchasing decision-making process

Question 18

Can share be increased by a change in pricing policy? (2)

Answer 18

1. Price elasticity

2. Influence of payment terms and trade-in conditions

Question 19

Can the market for product A be expanded beyond segment m? (3)

Answer 19

1. Possibility of geographical expansion
2. Possibility of expansion in final customers outside the segment
3. Cost-benefit analysis of expansion

Question 20

Can we develop a new product? (4)

Answer 20

1. Analyse product cannibalisation
2. Analyse possible lay offs
3. Analyse investment into new machinery/training
4. Analyse the advantages and disadvantages

Question 21

Will the market segment m expand? (2)

Answer 21

1. Will the total market M grow?

2. Will the share of segment m in the total market grow?

Question 22

Will the total market M grow? (1)

Answer 22

1. Anticipated demand 3-5 years ahead for product constituting the total market M

Question 23

Will the share of segment m in the total market M grow? (2)

Answer 23

1. Factors determining the size of segment m within the market M
2. Trends and forecasts of the factors

Question 24

Can the ex-factory price be raised? (2)

Answer 24

1. Can the market price be raised?

2. Can distribution margins be reduced?

Question 25

Can the market price be raised? (2)

Answer 25

1. Is a simple increase of the list price possible?
2. Is it possible to raise the price by changing the product model so as to more than cover the increased costs incurred?

Question 26

Is a simple increase of the list price possible? (3)

Answer 26

1. Price elasticity
2. Possibility of price rises differentiated by geographical areas, models, or by distribution channels
3. Results achieved by competitors (Follow the leader)

Question 27

Is it possible to raise the price by changing the product model so as to more than cover the increased costs incurred? (3)

Answer 27

1. Basic consumer needs in each market segment
2. Price elasticity
3. Cost-benefit analysis

Question 28

Can distribution margins be reduced? (3)

Answer 28

1. Would integration or retail outlets enable margins to reduced?
2. Could volume be maintained if only low margin channels were used?
3. Could a switch to direct sales reduces distribution margins?

Question 29

Would integration of retail outlets enable margins to be reduced? (3)

Answer 29

1. Basic economic analysis of distribution system
2. Analysis of economies of scale
3. Correlation between number of sales outlets and market coverage

Question 30

Could volume be maintained if only low-margin channels were used? (2)

Answer 30

1. Flexibility of physical flow of goods by distribution channels
2. Degree of motivation and sales efforts exerted by different channels

Question 31

Could a switch to direct sales reduce distribution margins? (3)

Answer 31

1. Analysis of long-term strategic effect
2. Analysis of short-term cost-benefit
3. Possibility of maintenance of sales skills