Franklin Industries

Recommendation

It is recommended that Franklin Industries reduce their price back to 2004 levels, or $40.50 per square. In both favorable and unfavorable market changes, reducing the price is expected to increase Franklin Industries share of the market. However, having an increased market share is only beneficial if it is providing Franklin Industries with increased profits. From studies that were conducted, valuable information was discovered on the impact of reducing prices or keeping prices at the current level. Table 1 shows the impact the different price levels have on market share, net contribution, and net profit in both favorable and unfavorable conditions. Favorable conditions are defined as there being a 60 percent chance of 2 percent growth in the total market, and unfavorable as a 40 percent chance of 5 percent decline in the total market. When making a decision, it ultimately comes down to how much risk Franklin Industries is willing to take. If next year’s sales improve, than Franklin Industries will see the greatest return at the current price of $44.50. If next year’s market declines, than the best option is to reduce the price back to $40.50. Saying the market will increase or decrease at a certain percentage is not perfect information. It may increase more, or it may decrease more than the estimates portray. Taking a weighted average will help in making a better decision as it brings both price points onto similar ground and help reduce the associated risk. The weighted average for net contribution and net profit are shown in table 2. Taking all the information into consideration, and choosing the path with least risk, the best option is to reduce the price. At a price of $40.50, the weighted average for net profit is $196,364 greater than the weighted average of the $44.50 price. When considering a change in price, careful consideration needs to be taken on the impact it will have on all