Benton Textiles, Inc. (Hbs Case No: 9 341 001)

2874 words - 11 pages

IntroductionBenton Textiles have developed a new process, which can apply a special finish to certain types of textiles. The subsequent analysis will discuss two of the key questions that every company faces when it introduces a new product: Which market should the company target? And how should the new product be priced? The alternatives for Benton is either to enter the higher priced market, to the lower priced market, or to combine the two and first enter the higher priced market and then move to the lower priced market.First the current market situation is analysed in order to get a sense of the market and the challenges the company faces. Second the different alternatives of Benton textiles are assessed in terms of profitability, timing and risk. Lastly a recommendation is made on which market they should target a long with an action plan.The current market situationThe product, which Benton Textiles has developed, has a good interest amongst the buyers, and several fashion magazines have featured it. At present there are no competitors with a similar product, why they are able to price it at what ever level they like (and thereby maximise their own profit).The problem is that it might take a long time before the product gains common acceptance (up to two years), and it is the possibility that it never will. Furthermore their product is not protected by patents, so their only competitive advantage is know-how. If the product becomes a success it is likely that competitors will try to copy it.Benton also has the option to sell to manufacture and distributors of upholstery. Although they assess this more difficult (and expensive to target), it also provides the opportunity to fill up unused capacity (and thereby secure a larger contribution to cover the fixed expenses).In long term revenue from the Benton product will be threatened by a one-step process at the mills. They try to develop this process already, but faces some technical difficulties, hopefully will take two years to resolve. The mill process will provide a wider range of products, but is also more expensive, so when the mills resolve their technical problems Benton will have to compete on price.In order to maximise the profit from their new product Benton should approach the market as soon as possible. That will provide them more time as the only supplier of the product (and consequent an opportunity for higher profit in that period).Assessment of the different alternativesThe new product has a large potential for future earning no matter which of the two markets Benton chooses to target. This is illustrated by the income statements in Exhibit 1. The lower priced market will yield an operating profit of $187.000 per year when operation is done at full capacity. A similar profit can be obtained from the higher priced market at just 63% of full capacity.A number of assumptions have been made to arrive at these numbers. The key assumptions are summarized below, and the remainder are...

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