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Difficulty: HardEvaluating Plans, Strategies, and Useful Information

To increase net profit from its flagship consumer electronics line, a device manufacturer plans to eliminate bundled accessories from standard product packaging and sell them as standalone items. Executive leadership reasons that smaller packaging will significantly decrease global freight expenses, while individual accessory sales will create a lucrative secondary revenue stream without increasing baseline production costs.

Which of the following would be most useful to know in evaluating whether the manufacturer’s plan will achieve its goal?

  1. A
    Whether the shipping cost per unit for standalone accessories is lower than the shipping cost per unit for the unbundled flagship device.
  2. B
    Whether competing electronics manufacturers also intend to remove bundled accessories from their future product lines.
  3. Whether a substantial proportion of consumers who would have bought the flagship device will instead purchase rival products that include all necessary accessories at no extra cost.Answer
  4. D
    Whether the cost of redesigning the product packaging to a smaller form factor will be fully offset by the first month of shipping savings.
  5. E
    Whether consumers who purchase premium smartphones replace their devices more frequently than consumers who purchase budget devices.

Answer

Whether a substantial proportion of consumers who would have bought the flagship device will instead purchase rival products that include all necessary accessories at no extra cost.
The option assessing consumer switching behavior passes the variance test. If a substantial proportion of customers switch to competitors that include accessories, the lost revenue from flagship device sales will outweigh freight savings and accessory profits, causing the plan to fail. If very few customers switch, demand for the main device will hold steady, allowing freight savings and accessory sales to increase net profit.

Step-by-Step Solution

1
Identify the goal and the proposed plan.
Goal: Increase net profit from the flagship line. Plan: Unbundle accessories, selling them separately while reducing package size to cut freight costs.
Evaluating a plan requires understanding the intended outcome relative to its mechanisms.
2
Identify key assumptions and potential vulnerabilities of the plan.
The plan assumes that consumer demand for the flagship device will remain constant despite the reduced included value.
If core product demand drops significantly due to unbundling, loss of primary sales revenue could outweigh freight savings and accessory profits.
3
Apply the Variance Test to the answer choices.
Evaluating whether consumers switch to competitors who bundle accessories yields opposite outcomes: a 'yes' answer invalidates the plan by destroying primary revenue, while a 'no' answer confirms the plan's efficacy.
The correct useful-information option must produce opposite logical impacts on plan success depending on which way the evaluation falls.

Key Concept

Evaluating Plan Viability via the Variance Test
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Topics

Evaluating Plans, Strategies, and Useful Information

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