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Shoes For MOOs

Jim Wells created Shoes for Moos to protect cows' hooves from infections. He must decide whether to invest $25,000 to promote the product. Two alternatives were considered: direct mail or selling through dealers. Based on a break-even analysis, direct mail requiring 466 units to break even at a $50 price point was recommended over dealers requiring 2,446 units at the same price. Selling at $50 allows Shoes for Moos to build reputation while still breaking even. Given market opportunity and competitive pricing, it was advised for Jim to move forward with direct mail distribution.

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Shelby Trafford
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197 views4 pages

Shoes For MOOs

Jim Wells created Shoes for Moos to protect cows' hooves from infections. He must decide whether to invest $25,000 to promote the product. Two alternatives were considered: direct mail or selling through dealers. Based on a break-even analysis, direct mail requiring 466 units to break even at a $50 price point was recommended over dealers requiring 2,446 units at the same price. Selling at $50 allows Shoes for Moos to build reputation while still breaking even. Given market opportunity and competitive pricing, it was advised for Jim to move forward with direct mail distribution.

Uploaded by

Shelby Trafford
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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Case analysis: Shoes for Moos

BUSI 4434 01

Professor Donald Shiner

Shelby Trafford – 0686457


Mount Saint Vincent University
01-22-20
Problem statement

Jim Wells, owner of Jim Wells’ Work and Casual Wear, came up with a product idea to help prevent and
treat hoof infections specifically in calve and cattle. Shoes for Moos is a specially designed shoe aimed at
providing comfort while protecting vulnerable areas of the hoof. Jim currently has $25,000 to invest in the
company and must decide how to promote his new product. With little experience in the farming industry,
he must evaluate his alternatives and decide whether to move forward with the investment.

Situation analysis

Jim created Shoes for Moos when he discovered a need for foot protection in calves and cattle. Research
shows that cows are prone to hoof infections which, in dairy cows, greatly impacts the production of
milk. The antibiotics for hoof infections average $50 and require rest for a period of 72-96 hours bringing
milk production to a halt. Jim crafted a top-quality shoe molded specifically for a cow’s foot. The shoe is
bright in color and includes a textured sole for additional traction. There were two current competitors on
the market. One competitor created a shoe specifically for cows with structural foot problems. The shoes
retailed for US$21.80 and sold primarily through direct mail. The off-the-shelf product allowed for dirt
and moisture to get in, causing or worsening infection. The second product on the market was a
hydrotherapy boot. The boot came with a hose, compressor and suspenders to aid in the relaxation of
muscles. The cost averaged $400 per pair and were intended for medical use only.

The market for specially crafted cow shoes in Canada is growing. Though the number of farms has
decreased in past years, the size of farms is steadily increasing. Ontario and Quebec dominate the cow
farming industry and have approximately 700,000 dairy cows in the provinces combined. Early Winter
and Spring bring most exposure to infection due to wet weather. Jim invited his brother-in-law, Tom
Buyers, to join his venture. Mr. Buyers had a connection with Kaufman Footwear who showed an interest
in the shoe. In a final meeting, Kaufman Footwear offered to manufacture the product at a cost of $19 per
shoe. Jim and his brother-in-law must evaluate the benefits and implications of starting the business.
There are two alternative selling prices and distribution methods for Shoes for Moos: The selling prices
being explored are $50 and $70.

Alternative 1 – Direct mail

Fixed costs Variable costs


Telephone $1,740 Postage $2
Rent $4,800 Shipping, labels, tape $0.55
Automobile $9,100 Bags and staples $0.03
Postage $ 200 Instruction sheet $0.01
Legal/audit fees $1,200 Labor $0.08
Manufacturing (patents) $5,000 Total VC $2.67
Total FC $22,040

Breakeven analysis
At $50:
Contribution margin: $50 – $2.67 = 95%
$50

Unit break-even volume: $22,040 = 466 units


$47.33
Dollar break-even point: $22,040 = $23,200
0.95

At $70:
Contribution margin: $70 - $2.67 = 96%
$70

Unit break-even volume: $22,040 = 327 units


$67.33

Dollar break-even point: $22,040 = $22,958.33


0.96

Alternative 2 – Dealers

The second alternative was to sell Shoes for Moos at established dealers. Dealers could include cattle
farms, animal hospitals and veterinary clinics.

Variable costs Fixed costs


Mailing list $0.10/name Salesperson $100,000
Telephone $1,740
Rent $4,800
Automobile $9,100
Postage $200
Legal/audit fees $1,200
Manufacturing (patents) $5,000
Total FC $122,040

Shoes $19
40% markup required by dealers - $19 x 0.40 = $26.60 (minimum price)

At $50
Unit break-even volume: $122,040 = 2,446 units
$49.90

Dollar break-even point: $122,040 = $123,272.73


0.99

At $70
Unit break-even volume: $122,040 = $1,746 units
$69.90

Dollar break-even point: $122,040 = $123,272.73


0.99

Based on the break-even analysis, Jim and his brother-in-law should choose direct mail and a selling price
of $50. The difference in break-even numbers for price points of $50 and $70 is small enough that Jim
can afford to sell Shoes for Moos at the lower price compared to competitors.
The decision to move forward with direct mail as a primary method of distribution is based on the
following criteria:
1) Direct mail has significantly lower fixed costs than dealers – no salesperson required
2) Dollar break-even amount is approximately the same for selling prices of $50 and $70. The
decision to sell at the lower price point will build a reputation with consumers
3) Low volume of units required to reach break-even

Shoes for Moos comes with its strengths, weakness, opportunities and threats. Strengths include:

- Shoes for Moos is a family-owned business


- No debt; $25,000 to invest
- Jim already has established customers

Weakness include:

- Both Jim and his brother-in-law still have full-time jobs


- No brand recognition
- Low capital

Opportunities include:

- Geographical expansion
- Partnerships

Threats include:

- Threats of new entrants


- Substitute products
- Price wars

The analysis shows that there is a market for cow shoes. Jim and his brother-in-law should move forward
with the venture at a selling price of $50. The low price point compared to competitors is a competitive
advantage for Shoes for Moos. Fixed costs associated with direct mail are much lower when compared to
alternatives and profit maximization will be achieved.

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