You are a sales representative for MillerCoors and have a prospective distributor, Vice-President of Product Planning Megan Thomson at Rocky Mountain Inc., who is interested in carrying your Coors Banquet line. Megan has asked for free cases of Coors Banquet for initial distribution and samples for her sales personnel who sell to the restaurants, grocery stores, and bars providing Coors Banquet to your end consumer customers. Megan's specific ask is for five (5) free cases for each of the 1,488 warehousing operations Rocky Mountain Inc. manages across the United States. Your selling price is $12.43 to the distributor, and your gross margin is 24.5%. What size order (quantified in both $US dollars and # of cases) in addition to the initial free goods must you secure from Rocky Mountain Inc. just to break even on this agreement?
When you propose this to your sales manager, Sarah Sayamuri, she suggests that you simply provide Rocky Mountain Inc. a flat $78,250 slotting allowance to cover Rocky Mountain Inc.'s initial distribution cost, and that Megan purchase the stocking amounts right away to stock the warehouses. Is this a better solution? If so, by how much, and why?
Does your assessment of the slotting allowance approach change if Sarah's suggested amount is reduced by $10,000 to $68,250? In this reduced slotting allowance scenario, and assuming Rocky Mountain Inc. still requires five (5) cases for each of the 1,488 warehouses, what is MillerCoors' net cost for the Coors Banquet line introduction?