West Lake Home Furnishings Ltd.
Written Analysis and Communication - II
Date: May 30, 2007
CEO, West Lake Home Furnishings Ltd., Ontario, Toronto.
Subject: Advice on whether to accept the offer of reducing the price of signature product to $29.99 for a year.
This report is a summary and analysis of current situation on West Lake Home Furnishings Ltd. (WLHFL) The analysis is based upon the basic objective of economics that is profit maximization. Based upon the present trend of consumer income and preference it is recommended that WLHFL should accept the offer to reduce the unit retail price to $29.99.
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2. Effect on Large chain Retailer’s relationship
By accepting the offer, the Retailer who has proposed the offer will continue to do business with us. Consumers generally prefer large retail chains to purchase Home furnishing products, this move will ensure that we remain in the business with good size of market share.
The reduced price information to other retailers as well as the consumer will reach in no time. And hence WLHFL will be forced to reduce the retail price not only for the wholesalers but also for consumers, who purchase at retail store and/or via internet.
This in turn will have strong positive impact on Cash flow.
3. Effect on Cash flow of WLHFL for the year 2007
Looking at exhibit 4, the cash flow of the company with accepting the offer can result in two scenarios. One, in which the business grows as anticipated and second business grows at reduced anticipated rate. These are shown as Scenario I and Scenario II respectively.
It has been observed that Scenario II leads to loss. But, there is an incentive to consider the Scenario I. The high disposable income