XYZ Ltd is a New Zealand company that distributes pharmaceutical products through multiple channels. It buys a variety of over-the-counter drugs from pharmaceutical companies and resells them through supermarket chains, drug store chains, and independent chemists.
With the recent announcement that the Chemist Warehouse will be entering the marketplace XYZ Ltd is anticipating changes in the profitability of its market segments. Industry observers are anticipating that the opening of the Chemist Warehouse will lead to a bloodbath in the market and competitors will have to adapt or perish. Local pharmaceutical distributors are particularly concerned they will not be able to compete with Chemist Warehouse’s pricing. Accordingly, XYZ Ltd wants to analyse its market segments in order to plan how to respond to the upcoming changes.
Prepare an Excel model to analyse market segment profitability using the following data.
Supermarkets
Department chain stores
Chemists
Average sales per delivery
$92,500
$31,450
$6,000
Number of deliveries
2,470
960
8,570
Average cost of goods sold per
delivery
$83,292
$28,302
$5,355
Rebate to customers: volume based
$205,628
$45,288
$5,142
Total number of orders
2650
1,000
9,500
Average number of cartons shipped
per delivery
260
75
12
Customer order amendments
7,500
10,000
22,000
The following information is also available about the total costs and cost drivers for key activities.
Activity area
Cost driver
Total Cost $
Customer purchase order processing
Purchase order by customers
591,750
Customer store delivery
Number of deliveries
960,000
Cartons dispatched to customer stores
Number of cartons dispatched
to customer stores
792,135
Customer service errors
Number of corrections
150,000
In-store promotions of XYZ brands
?
80,240
In the absence of driver information about in-store promotions, these costs are assigned based on percentage of sales.
Required
Prepare an excel-based model to analyze the profitability of XYZ Ltd.’s customer market segments. XYZ’s management team is particularly interested in identifying the margins earned (both gross and net) and cost to serve of each of its market segments.
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