Case_In_Point_7th_Edition_Page001_183_2

based. Harley can raise the prices of their garb and replacement parts because we know people will buy
them anyway. We can increase international distribution channels.
AnaIysis: Ouch. The interviewer got right in her face even though she gave a well thought out answer.
Interviewer: Where?
Student: In Asia, where the dollar is still weak.
Interviewer: Okay, what else?
Student: Because interest rates are so low, we can offer low financing packages and give high trade-in
values to encourage customers to buy a new bike.
Interviewer: What else?
Student: On the cost side, because interest rates are so low, we can refinance our corporate debt.
Interviewer: Okay, good.
Student: And we can look at laying people off. You said the volume dropped from 350,000 bikes to
330,000. That’s a about a 5% drop.
Interviewer: We are thinking about changing the price. I have some data. I want you to run the numbers
and then tell me what you want to do, and more importantly why you want to do it.
If we leave the price the same, Harley will sell 330,000 motorcycles and make a net profit of $10,000
each. If we discount the price, Harley will sell 440,000 motorcycles and net $7,000 each. And if they
raise the price, they will sell only 275,000 motorcycles and net $12,000 each.
AnaIysis: The student should take some time to run the numbers. You are better off taking a little extra
time and getting the right answer than rushing through and getting the wrong answer. Before you give
your answer, ask yourself if the number makes sense. If it doesn’t, go back and figure it out. You can’t unring
the bell. I’d hate to see you lose a great opportunity over a silly math mistake.
Remember, silence is okay as long as you are doing calculations, writing notes or drawing a chart.
Student: If we keep the price the same, then our net profit will be $3.3 billion. If we lower the price, our
net profits will be $3.08 billion, and if we raise the price, our net profit will also be $3.3 billion.
Interviewer: So if we raise the price or leave it alone, we’ll make the same net profit. What do you want
to do, and why?
Student: I’d like to keep the price the same. You said market share was a key objective, and if we raise
the price, we are going to sell 55,000 fewer bikes. That’s about a 5% drop, which will probably lower our
market share. If we sell more bikes, we’ll sell more garb and evidentially more replacement parts. And
even if we cut production, we will still probably have a lot of Year 2 inventory left over. What do we do with
it when the Year 3 models come out? If we sell it at a discount, we’ll probably cannibalize our Year 3
sales.
Interviewer: That’s all very interesting, but let me tell you why you’re wrong. If we raise the price, we’ll
have lower labor costs because we’ll be able to lay more people off. In addition, the higher price will
enhance the brand. As far as your other concerns go, you told me that you plan to increase international
distribution channels where the dollar is still weak. If we do that, any extra inventory can be shipped
overseas and sold at the new higher price. Garb sales tend to be higher when you enter a new territory.
So market share shouldn’t be an issue. Besides, how do you measure market share? Is it number of
units sold or total revenues?