Jane Dane Case

CHOCOBAN LTD.

Chocoban is a well-established producer and marketer of the finest boxed chocolate and was started ten years ago by two partners, Henry Sampson and John Jonas. Prior to their partnership, Sampson was marketing vice-president while Jonas served as comptroller in a candy company with national distribution. The two men agreed at the outset that Sampson would handle distribution and marketing and Jonas would look after production, accounting and company finances; overall planning and major decisions would be agreed upon by both.

The partners has decided to position the company product in the medium-high price range. They were successful in developing and selling a quality chocolate and enjoyed an edge over competition. Their single manufacturing plant served a densely populated market. With increasing customer acceptance, 20 retail outlets were opened. Until recently, growth seemed limited only by financial resources. In the past months, however, each partner unearthed information that raised concern to both. Reviewing costs, Jonas discovered that production costs per lb of candy were rising with each new retail outlet opened. He realized that the company has outgrown the production expertise of the present management staff.

Sampson's revelation was even more disturbing. He noted that sales has begun to drop off in several of the stores. He found that in each instance, an aggressive competitor with a lower-priced line has moved into their territory. Meeting Jonas, he observed, "People can't taste quality any more. I feel strongly that we should develop a cheaper line as quickly as possible, to sell for around half our present price. We should cut our production of the premium line to half its present rate and use the extra cocoa beans for our new line." Jonas agreed to look into recipes, costs and schedule.

A week later, Jonas met with Sampson again, this time to report his findings. "Our kitchen has developed two recipes that we can make at a lower price. We think each recipe will satisfy the public, but neither comes near our premium line in quality. We have names to suggest for each formulation: Chocodant and Chocomer. The only new equipment we will need is a mixer and a molder, and I have located both, available on a lease arrangement with immediate delivery. I have put some costs together, that include the leasing arrangement, new boxes, and all other expected production expenses. I have put this information, schedule, etc., on this memo, which you can look over, then we can decide. However, I think it fair to tell you that I have done some pencil pushing, and I don't think this lower-priced line makes for good business. You will see that every 100 pounds of the premium line now yields $86 in contribution, while Chocodant will yield only $63 and Chocomer $54. We are strapped financially,

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