Millie Hardy lives in the Clare Valley and is looking for a way to make as much profit as possible by working part time whilst she is studying at university. Rather than work in a regular part time job she would like to start her own small business. Given that she lives in a very popular wine region, she has the idea of selling bottles of wine with customized wine labels to visitors as a memento of their visit
She has negotiated with a local winery to purchase unlabelled bottles of wine for $12.20 each, and has discovered that she can purchase various types of bottle labeling systems. After some investigation she has narrowed her search down to two different models: the Plonk-o-Matic and the VinLabel Pro. Each would cost a similar amount of money to purchase and are estimated to have a comparable working life.
All that is required to produce a customized label is a photograph of the visitor. The picture is then printed onto a ‘blank’ label together with the date of their visit in order to produce the personalized product.
Millie has done some market research and has made the following estimates regarding the costs associated with producing labels using each system:
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Plonk-o-Matic
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VinLabel Pro
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Component
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Cost Per Label ($'s)
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Blank Labels
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75c
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$1.90
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Label adhesive
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10c
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10c
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Packaging
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70c
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70c
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Printing
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$1.00
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$1.50
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It is estimated that if Millie buys the Plonk-o-Matic system she has a 40% chance of selling 60 bottles per month and a 60% chance of selling 40 bottles per month. If she purchases the VinLabel Pro she has a 65% chance of selling 30 bottles per month and a 35% chance of selling 15 bottles per month.
She would sell the Plonk-o-Maticbottles for $19.50 each or the VinLabel Probottles for $28 each.
REQUIRED:
Use the 5 steps Decision Making Model , explain which system Millie should purchase. Show any supporting calculations: