【正文】 ting excess capacity216。 Two and onehalf years ago they made up 10% of the overall cookie market (brand being the other 90%)216。 What impact will this have on the required workforce levels?216。 What are the expected growth rates of each segment?216。 Children’s bikes: Smaller, simpler versions of their mainstream bikes for childrenq Profits at your client have decreased over the past five yearsQuestion:q What is driving the decline in overall profits?q What remendations might correct the situation?Suggested solutions:The first question is to determine what has caused overall profits to decrease. To acplish this the candidate must first understand what has transpired in each of the three product categories over the past five years during which profitability has slipped. The following are questions and answers that would be provided in an interview scenario.q What are the client’s margins for a bicycle in each of the three segments?Racing: Cost = $600/unit, Profit=$300/unitMainstream: Cost = $250/unit, Profit = $75/unitChildren’s: Cost = $ 200/unit, Profit = $50/unitq What has happened to the market size of each of the three segments over the past five years?Racing: Has remained constant at its present size of $300MMMainstream: Has increased at 2% growth rate per year to its present size of $Children’s: Has increased at 3% growth rate per year to its present size of $400MMq What has happened to our client’s market share in each of these segments?Racing: Market share has decreased from 60% to 30%Mainstream: Market share has increased from 0% to 5%Children’s: Market share has increased from 0% to 3% q Who are the client’s major petitor’s in each market segment? What has happened to their market share in each segment over the past five years?Racing: There is one main petitor and a host of small firms. Your main petitor has increased market share from 30% to 50%Mainstream: There exist many, large petitors, none of which holds more than 10% of the marketChildren’s: As in the mainstream segment, there are many petitors, none with more than 10% of the marketThe above information provides enough information to put together a picture of why profits have decreased over the past five years : Your client, with a manding position in a flat market segment (racing), expanded into new segments (mainstream and children’s). As this occurred, market share decreased dramatically in the most lucrative segment (racing), creating an unfavorable mix. The extent to which profits have decreased can be deduced from some quick math : profits have slipped from $60MM five years ago (=60% x $300MM x 33% racing margin) to $44MM today ( = (30% x $300MM x 33% racing margin) + (5% x $1B x 23% mainstream margin) + (3% x $400MM x 20% children’s margin)).The dramatic decrease in market share in the racing segment is at this point still unexplained. Questions that would help formulate an explanation include:q Have there been any major changes in product quality in your client’s racing product? Or in its main petitor’s racing product?Noq Have there been any major price changes in your client’s racing product? Or in its main petitor’s racing product?Noq Have there been any major changes in distribution outlets for your client’s racing product? Or for its main petitor’s racing product?Yes. Previously your client and its main petitor in the racing segment sold exclusively through small, specialty dealers. This remains unchanged for the petition. Your client, however, began to sell its racing bikes through mass distributors and discount stores (the distribution outlets for mainstream and children’s bikes) as it entered the mainstream and children’s segment.q How do the mass distributors and discount stores price the racing bikes relative to the specialty stores?Prices at these stores tend to be 15 to 20% less.q What percent of your client’s racing sales occur in mass distributors and discount stores?Effectively none. This attempt to sell through these distributors has failedq How has the decision to sell through mass distributor’s and discount stores affected the image of the client’s racing product?No studies have been done. q How has the decision to sell through mass distributor’s and discount stores affected your client’s relationship with the specialty outlets?Again, no formal analysis has been performed.Although some analysis and/or survey should be performed to answer more conclusively the last two questions, a possible story can be put together. There has been no appreciable change in either quality or price (or any other tangible factor) of your client’s racing product relative to its petition. It is not the product that is the problem, but rather its image. As your client came out with lower end, mainstream and children’s products and began to push their racing segment through mass distributors and discount outlets, their reputation was promised. Additionally, the presence of the racing products in the discount outlets has put your historic racing distributor (the specialty shops) in a precarious position. The specialty shops must now lower price to pete, thereby cutting their own profits. Instead, they are likely to push the petition’s product. Remember, your client has no direct salesforce at the retail outlets. The specialty shops essentially serve as your client’s sales force.The above analysis offers an explanation of what has affected the top side of the profitability problem. Still to be examined is the cost, or bottom side, of the profitability issue. Questions to uncover cost issues would include:q How does the client account for its costs?The client has a single manufacturing and assembly plant. They have separate lines in this facility to produce racing, mainstream and children’s products. They divide their costs into the following categories: labor, material and overhead. Overall costs have been increasing at