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ASSIGNMENT SUBMISSION FORM
Course Name: Marketing Management

Assignment Title: Homework 1
Submitted by: Section F Group 5
Student Name PG ID
Ankit Bansal 62210808
Amit Mishra 62210088
Pratyush Singla 62210498
Shashank Singh Tomar 62210016
Shubham Patni 62210332
ISB Honour Code
• I will represent myself in a truthful manner.

• I will not fabricate or plagiarise any information with regard to the curriculum.
• I will not seek, receive or obtain an unfair advantage over other students.
• I will not be a party to any violation of the ISB Honour Code.
• I will personally uphold and abide, in theory and practice, the values, purpose and rules of the ISB
Honour Code.
• I will report all violations of the ISB Honour Code by members of the ISB community.
• I will respect the rights and property of all in the ISB community.
• I will abide by all the rules and regulations that are prescribed by ISB.
(Please start writing your assignment below)
The Evergreen Leaf Company manufactures a chemical that helps prevent Spotted Leaf Rot, a disease that
afflicts indoor house plants. They sell 1-inch stakes impregnated with the active chemical that retail
nurseries (i.e., the firms that sell the plants) stick into the pot containing the plant. Each stake costs $.15 to
make and is sold to nurseries for $.30. It costs the nursery an additional $.50 per item in labor costs to insert
the stake into each plant container. The average nursery sells 20,000 tropical plants each year but loses 3,000
plants each year due to Spotted Leaf Rot. The use of Spotted Leaf Rot stakes reduces incidence of the
disease by 80%. The average retail price of a tropical plant is $40; the average wholesale price is $15 (i.e.,
cost to the nursery).
Retail nurseries that use the stakes are highly satisfied; however, 15% of them go out of business each year.
An Evergreen Leaf salesperson must call on an average of 9 potential retail nurseries to get one new
customer. Typically, 3 calls per year are made on existing customers (for account maintenance). The average
cost of a sales call is $300.
A. Compute the annual revenue savings and annual cost saving of the Spotted Leaf Rot stake for
the average retail nursery as currently priced. Assume that all lost plants are not replaced.
Based on Revenue Saving Based on Cost Saving
Plants saved using
Plants Lost to Spotted Lead Rot 3000 2400 nos.
stakes
Cost of a plant to the
Efficiency of leaf stakes 80% $ 15
nursery w/o stake
3000*80%
Plants saved using stakes Cost of stake to nursery $ 0.80
=2400 nos.
Selling Price of each plant $40 Plants sold each year 20000 nos.
=2400*15-
2000*40 Cost Saved
Revenue Saved 0.8*20000 =
= $96,000 (refer note)
$20,000
 Note: In cost savings, we have subtracted the cost of stakes from the cost of the plant
saved, as to save those 2400 plants cost, we had to put stalks in all 20000 plants.
B. What is the maximum/indifference price that a nursery would pay for each stake based on
revenue savings per plant and cost savings per plant? Assume that all lost plants are not
replaced.
b. Based on Revenue Savings:

• Annual revenue saved = $ 96,000
• Total plants bought by nursery = 20,000
• Revenue saving per plant = $ 96,000 / 20,000 = $ 4.8
• Indifference price nursey would be willing to pay for each stake will be the cost to
nursery where total additional cost of putting stakes (including the labor) is equal to
revenue benefits derived from stakes, i.e. $ 4.8 = price of stake + $ 0.5
• Hence, Price nursery would be willing to pay = $ 4.3
c. Based on Cost Savings:

• Annual plant cost saved by using stake = Number of Plants saved*Cost of each plant =
2400 * $15 => $ 36,000
• Total Plants bought by nursery = 20,000
• Cost saving per plant - $ 36,000 / 20,000 = $ 1.8
• Indifference price nursey would be willing to pay for each stake will be the cost to
nursery where total additional cost of putting stakes (including the labor) is equal to cost
benefits derived from stakes, i.e. $ 1.8 = price of stake + $ 0.5
• Hence, Price nursery would be willing to pay = $ 1.3
 Note: Cost saving considered in part a of the question is different from part b as here the
maximum price nursery will pay will be equal to the purchase cost saved by selling the
plants which would have otherwise rotten due to leaf rot disease
C. List three factors that would influence Evergreen Leaf to charge a lower price than the
maximum they could obtain.
1. Competition in the market: Evergreen may not be the only firm in the market selling stakes.
To compete with other firms in the market, they would have reduced their prices to the
prevailing market prices.
2. Customer incentivization & building relationships: Evergreen can’t sell stakes at the
indifferent price as customers won’t be willing to pay then. To provide customers an
incentive to buy stakes and also build a long-lasting relationship with the customers,
Evergreen would be offering a reduced price to the nurseries.
3. Price sensitive nurseries: Nurseries shall be very price sensitive and shall be operating on
thing profit margins. It can be identified by the fact that 15% of Evergreen’s customers are
shutting down every year. Thus, to support the nurseries and retain their customer base,
Evergreen would be providing the nurseries a discounted price.
D. Compute the breakeven percentage change in unit volume that would be necessary if
Evergreen were to decrease their wholesale price of a stake from $.30 to $.25?
Particulars Old Price New Price

Units Sold 100 150
Percentage Change (%) 50
Revenue per unit 0.30 0.25
Variable Cost per unit 0.15 0.15
Profit per unit 0.15 0.10
Total profit 15 15
Let us assume that Evergreen sells 100 units of the stake at a wholesale price per unit of $0.30
and a corresponding cost of $0.15. This would result in a $15 profit for Evergreen.
If the wholesale price of the stakes reduces from $0.30 to $0.25, the margin per unit of
Evergreen will reduce from $0.15 to $.10. To maintain the profit of $15, the Company will have
to sell 150 units (15/0.10). This is a 50% increase in the number of units sold. Hence, the
breakeven percentage change in unit volume for Evergreen will be 50%.
E. Evergreen Leaf is considering spending $2 million on advertising to supplement their sales

force efforts. How many additional stakes at a wholesale price of $.30 would they need to sell to
recover that investment considering a 1-year time horizon?
Additional Estimated spending on advertising for the year = $ 2,000,000
Leaf Rot Stake selling price=$0.30
Leaf Rot Stake production cost=$0.15
Profit before marketing expenses= $0.30-$0.15 = $0.15
Additional Leaf Rot stakes to be sold= $2,000,000/$0.15 = 13,333,333 = 13.34 Million

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ASSIGNMENT SUBMISSION FORM

Course Name: Marketing Management

ISB Honour Code

• I will represent myself in a truthful manner.

(Please start writing your assignment below)

b. Based on Revenue Savings:

c. Based on Cost Savings:

Particulars Old Price New Price

E. Evergreen Leaf is considering spending $2 million on advertising to supplement their sales

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