Basically, net marketing contribution and net profit may produce a profound impact on the process of the decision making since on the basis of data retrieved in the result of the analysis of both net marketing contribution and net profit, a company can take decisions concerning the further development of production and the progress of the company at large. In the contemporary business environment, it is extremely important to react rapidly on the changes in the market and in the performance of a company, but the effective analysis of the current situation is practically impossible if the level of net profit of a company or the net marketing contribution is ignored.
At the same time, it is important to underline that the impact of net marketing contribution and net profit may vary consistently, depending on the strategy selected by a company and on the specificities of the production or, to put it more precisely, products and services of a company. In this respect, it should be said that primarily it is necessary to briefly dwell upon both notions.
Speaking about net marketing contribution it should be said that it includes all product line marketing profitability, without taking into consideration expenses on the production and operating services. In this respect, net profit is consistently different from net marketing contribution since it may be figured out from net marketing contribution minus operating expenses. In fact, such a difference between these two concepts makes their application different depending on the strategy of a company.
In this respect, it should be said that traditionally net profit plays a considerably more important role in the process of decision making when the production process and the performance of a company is analyzed as a whole and, what is more important, when the company focuses on the production of one particular product and service. In such a case, net income gives ample information not only about the profitability and effectiveness of the only production line, but it also provides an opportunity to take into consideration the expenses of the company. In such a way, the company may assess the extent to which the production is effective and analyze the current costs and expenses. As a result it will be possible to focus on the further development of the production line or attempt to minimize costs, i.e. to take decision on the basis of information on net income of the company.
However, in the case of Santa Fe Sportswear, the evaluation of net marketing contribution seems to be considerably more important than the evaluation of net profit. In fact, the reason is quite obvious since the company focuses on the multiple product line production. Consequently, the company needs to evaluate the profitability and effectiveness of each product line and, in this regard, net marketing contribution is particularly helpful since it reveals the extent to which each product line can contribute to the general performance of the company.
a. On analyzing the situation in the Steel Door Technologies, it should be said that the company will face significant difficulties in achieving the level of account sales equal to 30% in-store market share of the average second brand because it should invest consistently in the development of its non-exclusive stores. As the company needs to spend about $80,000 to add a new sales representative per year than it will also need substantial investments into the existing non-exclusive stores. In actuality, this means that the company will spends substantial funds on the development of new non-exclusive stores since it plans to open 100 new stores. Consequently, the company will invest about $8,000,000 in the development of new non-exclusive stores to gain a larger share of the market and take the position of the second brand. At the same time, this means that the company would need to sell about 1000 doors, since the size of the market constitutes 3,002 doors per year that will need not only increasing the number of stores but also the promotion of products to attract a larger amount of customers
b. Speaking about main reasons for the poor performance of SDT in non-exclusive stores, it should be pointed out that traditionally customers are oriented on the consumption of products of the high quality, especially if these products are doors, which are extremely important for their households. At the same time, the position of the company and its policy also contributes to the poor performance of non-exclusive stores because, along with their lower status, their number does not exceed the number of exclusive stores consistently. As a result, the company faces a problem that customers will more readily go to an exclusive store than to a non-exclusive one because the accessibility of the latter do not consistently overtake the accessibility of the former. In such a situation, the enlargement of the network of non-exclusive stores could be a good solution because it will enlarge the number of customers and make these stores more accessible to the mass consumer than exclusive stores.