Case+Anaysis+2

Case Analysis Questions
- Prices should be predetermined according to a market research – how much the costumers are willing to pay, how much does the competency charge, etc.- Prices should also include a small fixed fee for replacing the costumes that have been worn off. Prices should reflect the current market rate. - On the agreement signed by the partners, it was stated that 90% of the profits would be equally shared among them, while 10% would be kept for the use of CR. We suggest that CR keeps a bigger percentage for fixing and replacing damaged costums and for other investments. - Even though there is a growth trend in CR’s market, there was a considerable loss in the FY2003. Cutting expenses seems to be important. Utilities represent big portion of the loss that CR is facing. It is worthy to examine how much money is being spent in keeping the warehouse warm, while it is not necessary for keeping the costumes in good condition. However, it is necessary that costumers are warm while choosing their costumes. Our suggestion is to keep samples in a warm place as well as improve the catalog. - CR should consider reducing the dry cleaning cost on themselves and expense it to the customers. This is especially necessary for the costume that cannot be dry clean by the customers. Instead of paying $21,716 in dry clean cost, CR could transfer that cost to customers - after all the policy is to have customers dry clean the costume before returning.
 * 1. General:**
 * a. CostumeRentals, LLC (CR) is in the process of reviewing its pricing structure and examining its profitability. What changes, if any, would you suggest?**

If no, how should it address the issues raised by its current constraints?** Our suggestions are driven by Wallize’s thoughts about competition: “a smaller piece of a bigger pie might be better than a larger piece of a smaller pie”. - Our main suggestion is that CR becomes an umbrella organization. Some costumer segments like to rent in CR because of its low prices and good quality. However they don’t always find the variety they need for their performances. CR could provides sales services to many other theaters (that respect the two conditions stated above: low prices and good quality) that could make a profit from renting their costumes. CR could charge a membership fee. This money could be use for several things, for instance, for setting a smaller office where samples could be shown, and where the staff could work; for improving their electronic catalog; etc.
 * b. CR faces several expansion possibilities. Should it expand? If yes, what form should the expansion take related to profitability, pricing structure, and so on?

a. What is CR’s current structure—stand-alone, subsidiary, or partner?** CR was created from the partnership between Guthrie Theater Foundations and Children's Theater Company. It is an entity separate from these two theaters, however it is supported by them in many ways. For instance, both theaters provide marketing assistance, and GTF provides free services as human resources and information/techonology support.
 * 2. Business Model:

CR was created to make some profit from assets that were not being used. CR doesn't manufacture or own the costumes; it just uses what already exists. CR can't decide on the different varieties, sizes, colors, etc. of the costumes, that would fit better to their costumers.
 * b. How does ownership of the costumes affect CR’s business model?**

The old costumes became a burden for the theaters because they had to pay storage costs, and it was not possible to foresee how many of them were going to be used again. CR is using these assets to make a profit.
 * c. How are opportunity costs developed in this model? Are they a substantial issue for the success of CR?**

- 90% of the profits are equally split among the two theaters, while 10% is reinvested in CR. GST uses the money to stretch the budget of the costums department; while the main benefit of CTC is to have its costumes stored. - increase the demand for CR costume if theatres are renting from them through the partnership.
 * d. What are the benefits to the theatres of this partnership?**

- Talk to the people within the theatre and determine what are the demands. There is no point for CR to carry too many costumes from a certain time period if theatre production's trend is towards more modern concepts.
 * e. How would you conduct an industry analysis?**


 * 3. Profitability:**


 * a. What trends do the exhibits show?**

There is more demand in the Educational segment. They rent about 46% if the soctumes and generates about 35% of CR's revenue. Considering that there are at least 2 pays per year, the demand would definitely continue to be high from this segment.


 * b) What are the fixed and variable costs?**

Fixed costs - wages for full-time employees, rent, insurance

Variable costs - part time and overtime payment, utilities, drycleaning, advertising, postage and delivery, taxes, miscellaneous


 * c. Is CR profitable?**

From the period from the last fiscal year from April 2002 to March 2003, there is overall a lost in profitability of $20,493.63. Beginning from January 2002 to March 2003, there are no profit.


 * 4. Pricing:**


 * a. What rental fees does CR currently charge? Are these adequate? If not, how should they be changed?**

CR currently charges the the following to the different segments of customers:

Educational/Community - between $15 and $50 Waiver/Showcase - between $20 to $60 Professional - between $50 to $150 Industrial/Film - between $60 to $200 Event/Business - between $40 to $225 Individual - between $40 to $225

- The charges are not adequate. It seems that CR are charging the least to the segment that is their biggest customer - Educational/Community. - Based on the study, the amount charged by CR is 50% less than its competition. So, if CR would increase their pricing by at least 25%, it could keep CR from still being the least expensive rental in the industry, hence keeping its customers. - CR should also increase their rate for Educational/Community segment to $40 to $130. This could still keep them within the competitive advantage. - CR should decrease the amount charged to Waiver/Showcase between $15 and $50, this could attact them from renting from CR.


 * b. What do the various customer segments suggest about a new pricing structure?**

The new pricing structure should reevaluate the pricing for each segment and make better suggestion as to what are the better ranges that CR should charge to the different groups. CR should definitely pay more attention to the segments that are their cash cow.


 * c. In what areas could CR improve its revenues? What improvements should they adopt?**

- CR should improve their revenue in Educational/Community segment and also Professional segment - re-evaluate the charges range and make an increase to the those segments. - CR should charge dry cleaning of costumes that to renters especially those costumes that renters cannot clean themselves and CR needs to do their own cleaning. - Reduce the need of overtime and also hire more part-time than full-time. Consider attaining volunteers to work for them and give reference in return. - Reduce on advertising costs and rely more on reference, word of mouth and reputation. They are spending too much on advertising costs, estimating about $5,586.56.


 * 5. Structure:

a. What are the potential benefits to CR of taking on a partner?**

- An injection of cash will help CR make major changes to its structure, and will facilitate expansion. They will also receive new management support, potentially with new, great ideas.


 * b. What are the potential benefits to another theatre of joining CR?

-** CR will have a larger customer base and more rentals are made. - CR can use their reputation in theatre production instead of advertising to promtoe their costumes. - CR can utilize their costumes to its fullest usage and make frequent changes to keep up with demand.


 * c. What are the benefits of independent, branch office, and franchise structures to a participating theatre?**

Independent: A single location and group to work with. Customer service is generally better when dealing with the same individual for each transaction. Branch Office: A smaller selection, but at a more convenient location. Franchose structure: franchising will allow rapid expansion, so the theater will have access to the same rates at other locations, and will have a choice and therefore greater selection.


 * d. What are the benefits of independent, branch office, and franchise structures to CR?**

Independent: CR can retain complete control over operations. They can also realize increased profits faster if they streamline the operation. Expanding is capital intensive, and will postpone their profit making. Branch office: A branch office will allow CR to have a smaller selection of their costumes in a more convenient location. This will allow them to gain additional customers, without having to give up control of their company. Franchise: Franchising can facilitate rapid expansion. This will bring in revenue, and will allow them to enter new regional markets with a lesser requirement for capital.


 * e. Is a partnership between CR and another theatre(s) likely?**

There is a possibility of a future partnership, but CR would be better off streamlining their business before taking on another partner. That way, if they do accept another partner in the future, they will be in a stronger position to gain more capital from the arrangement.