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HillTop Hiking Shoes

o stay fit, more and more people are turning to hiking. Hiking requires special shoes that are resistant, waterproof, offer adequate support, and are comfortable throughout the day. Hiking shoes can vary depending on the difficulty of the trail one wants to complete, and range from reinforced walking shoes to professional hiking boots. HillTop is a leading manufacturer of outdoors apparel, and its latest entry level hiking shoes, the “Raw” model, features an innovative sole that allows the foot to breath, while being completely waterproof. The retail price for a pair of “Raw” is $175.

The market: The USA is home to 300 million people. Market research has shown that outdoor enthusiast account for 50% of the population, 40% of which are hikers. However, HillTop’s management knows that not all hikers will be interested in the “Raw” model, since it is an entry level model. For this reason, they decide to target beginner and amateur hikers who make up 15% of the hikers market. Statistics show that beginner and amateur hikers buy, on average, 0.8 pairs of shoes each year.

Production and Cost Information: To create the “Raw”, an initial investment for the product facility was $1,875,000 and HillTop estimates the general overhead expenses at $200,000. To promote it, HillTop will set aside $500,000 for advertising, such as TV ads and billboards and $400,000 on additional fixed promotions in the first year. Management expects 15% of the retail price to account for labour costs, 10% for raw material expenses, while 10% will be for factory operating costs and 5% for transportation expenses (percentages refer to retail price). HillTop has decided to sell the “Raw” model through distributors rather than directly to retailers. Distributors expect margins of 25% while retailers look for 20% margins before selling to customers.

Test market: Before launching nationwide in the US, the management decided to test market the “Raw” model to evaluate its potential success in the hiking shoes market. The test market size is estimated at 1.5 million people in total. Otherwise it has the same characteristics as the U.S. market described above. The test lasted for a total period of 7 months. In the first four months, the “Raw” model was sold at its original retail price. During the following three months, the management decided to run a promotion, selling the “Raw” modelat 20% off its original retail price. Sales for the first four months reached a total of 1,600 units*. A total of 1,500 units were sold during the following three months*. HillTop’s decision to introduce the “Raw” model in the test market also influenced the sales of two other products (see table below):

(*assume all sales are evenly distributed during the 7 months)

Please answer the following questions based on the above information:

1. [6 points] Complete the following calculations for each step of the distribution channel for the “Raw” before the price discount.