BUS 7223
Managerial Economics
NOTE: You will receive your data for the Gotalot Company via email. Although the entire class will
have the same project, datasets will vary from person to person – so each of you will end up with
unique results and differing conclusions.
Introduction to the Gotalot Company
You’ve been hired to manage the Gotalot Company. Your company produces and sells high-quality,
fashion-forward raincoats, with a certain novel and quirky appeal that sets them apart from the
competition. Here’s some background: it’s January, 2022, and you are replacing the firm’s last
management team, which was fired recently after poor financial performance during the last several
quarters. The original managers met with significant success early, generating substantial profits and
high profit margins right away during the early years. With more intense competition, Gotalot’s
initial advantage faded and the company’s profits shrank and recently turned to losses, leading to
the dismissal of the management team. Company owners are agreed on the need for new
management and are enthusiastic about your leadership. However, they are of mixed minds on the
nature of the problem: one group thinks that profit potential is as high as ever, but believes the firm
has not handled its pricing and advertising strategies well. Another group believes that the product,
which has not been updated in ten years, is nearing the end of its life-cycle, and that no combination
of pricing and advertising will restore sustainable profits. Both groups want to give you a chance to
thoroughly analyze the firm’s market potential with its current product, since a product re-design
would be expensive and might not leave the firm any better off. Everyone hopes your strategic
recommendations will at the very least enable the company to restore and sustain profitability for
the foreseeable future.
You have 10 years of quarterly data at your disposal. The data show the quantity of raincoats Gotalot
produced and sold each quarter, along the price the company charged for its product (“own price”).
Also provided are the
prices
charged by three other companies in the industry:
Acme, which also produces raincoats, although theirs are more traditional and may appeal
to a somewhat different type customer.
Bezo, which produces umbrellas. Although Bezo produces a different product, they use a
similar style and quality level, and appeal to a similar customer type.
Consolidated, which produces galoshes. The company’s stylish, high quality overshoes have
revived an interest in what was once seen as a dying market niche.
The owners believe that Gotalot faces significant competition, but focus groups have provided
limited mixed results in helping them identify rivals. You are also provided with the
quantity
of
advertising Gotalot has done (these are
units
of advertising purchases, not a dollar figure; for
simplicity we will assume that you cannot control the quality or type of advertising you can do). The
firm is contractually committed to (and limited to) purchasing 400 units of advertising in each of the
first two quarters of 2022; after that, advertising is flexible. Finally, you have the firm’s revenue, cost,
and profit figures for each quarter.
Your initial task for Case 3.1: without using any statistical methods or significant computation, look
over the data carefully and summarize the company’s financial history; then use your intuition to
recommend a pricing and advertising strategy for Gotalot for 2022 (and beyond, if you think you
can). Explain and discuss your plan with reference to the company’s history. Be specific in your
recommendations for pricing and advertising.
