Template for solving the IPCSL case study

SUGGESTED ASSIGNMENT QUESTIONS

Following are the major issues IPCSL needs to address in 2002 in its efforts to turn the company
around. They focus on what measures the company needs to take to stay in business and to
increase its revenues and customer base.
1. A reduction in the price of cold storage services may give IPCSL an increase in volume.
Should IPCSL consider reducing its price by, say, 25 per cent? Prepare following table:

Demand
Scenario

Current
case: Current
demand and
price

NA

607.5=52.5
0

20

NA

Imported
Fruits

78000

Indian
Vegetables
& Fruits

155000

Imported
Fruits
Indian
Vegetables
& Fruits
Total

Per Box
Imported
Fruits
Indian
Vegetables
& Fruits
Total
Per Box

60

Descriptio
n

Pric
e per
Box

Per Box

Aggarwalss
expectations
: Demand
increases to
9480 MT for
Indian
frutits

Margin
Per box
(Total
Price
VC)

No. of
Month
s

Total

Worse case:
No demand
increase
despite 25%
price
reduction

25%
Discounte
d Price

Quantit
y (kg)
Total

Contributio
n after
Discount

Cost of upgraded facility: Rs 60 million INR= 6 crore

Principle payment per annum 9 years
6crore/9= 66.67 lakhs per annum.
Interest payment period 18% = 6 crore*18%= 1.08 cr pa
Total repayment amount of principle and interest amount=
2. What non-price strategies should IPCSL consider for its long-term growth?
IPCSL should engage in vertical integration by stretching its operations backward to procure
fruits directly from the growers to store in its cold storage in addition to serving the traders who
store fruits on behalf of the growers they represent. Provide Pros & Cons of this strategy
Calculations for assessing this strategy:
Consider a case where 40% of the 5,000 MT facilities i.e. 2,000 MT is used to store IPCSL
owned produce and the remaining 60% is rented out.
Now calculate following things:

Total revenues from the 2,000 MT capacity that IPCSL uses for its own fruit

For 20 kg of apples transported by ordinary truck

Cost of apples obtained from the growers (E5)

Rs. 280

Marketing charges E6 with hidden costs

Rs. 99

Cold storage costs to store the apples for 3 months

Rs. 60(20 Rs per month * 3)

Total cost

Rs. 439 per box

IPCSL margin in in-season

Retailers purchase price in E%/ avg retail selling price in-season * avg retail selling price offseason = 651/ 940*1260= 873
Actual monetary benefit = Rs 873-439= Rs 434*100000=Rs 4.34 crores
In-season margin IPCSL= 651-(439-60) = 651-379= 272 * 100000= 2.72 crores

Total earning from off season and in season for 2000 MT capacity would be 4.34+2.72= Rs
7.06 crores

Rental revenue from utilizing the remaining capacity of 3,000 M= 150000 boxes

Imported boxes= 78000/12= 6500=

6500*60*12= 4680000

Dem
and
Scen
ario

Stori
ng In
Adva
nced
Tech
nolog
y
Stora
ge

Total annual revenues

Descr
iptio
n

GC
(for 4
mont
hs,
hence
assu
ming
offseaso
n)
CA
(for 6
mont
hs,
hence
assu
ming
offseaso
n
Total

Per
box

Tota
l
Stor
age
Cos
t

Total
Cost
Of
Appl
e in
boxe
s

Sel
lin
g
pri
ce
pe
r
bo
x

Total
reve
nue

Mar
gin
Per
box
(Tot
al
reve
nue

VCCPstor
age
cost
)

60%
Ren
ted

Qua
ntit
y
(Bo
xes)

No.
of
Mo
nth
s

No.
of
Box
Mo
nth
s

VC

Sto
rag
e
Cos
t
per
box

390
000
0

234
000
0

117
000

468
000

351
000
0

20

936
000
0

5393
7000

68
0

7956
0000

1275
3000

100
000

600
00

300
0

180
00

135
000

20

360
000

1383
000

68
0

2040
000

1620
00

400
000
0

240
000
0

120
000

972
000
0

5896
5000

8160
0000

1291
5000

81

491.
375

680

107.
625

Tota
l
Qua
ntit
y
(kg)

364
500
0
30.
375

Dem
and
Scen
ario

Stori
ng In
Adva
nced
Tech
nolog
y
Stora
ge

Descr
iptio
n

GC
(for 4
mont
hs,
hence
assu
ming
offseaso
n)
CA
(for 6
mont
hs,
hence
assu
ming
offseaso
n
Total

Tota
l
Stor
age
Cos
t

Total
Cost
Of
Appl
e in
boxe
s

Sel
lin
g
pri
ce
pe
r
bo
x

Total
reve
nue

Mar
gin
Per
box
(Tot
al
reve
nue

VCCPstor
age
cost
)

40%
Self
Use

Qua
ntit
y
(Bo
xes)

No.
of
Mo
nth
s

No.
of
Box
Mo
nth
s

VC

Sto
rag
e
Cos
t
per
box

390
000
0

156
000
0

780
00

312
000

234
000
0

3595
8000

68
0

5304
0000

1474
2000

100
000

400
00

200
0

120
00

900
00

9220
00

68
0

1360
000

3480
00

400
000
0

160
000
0

800
00

3931
0000

5440
0000

1509
0000

491.
375

680

188.
625

Tota
l
Qua
ntit
y
(kg)

Per
box

243
000
0
30.
375

3. Are the improved services provided by IPCSL worth the premium that the company charges?
What is the economic value to the customer (EVC)?

Calculate the advantages of storing in GC / CA storage. Net profit earned by selling in

offseason (after deducting the cost of GC / CA

Additional benefit in off-season for wholesaler is rs 680-550= Rs 130 Per boxes

Hence the EVC for imported kiwi=33-6=Rs 27 per kg
In case of Indian apples wholesaler sells at Rs550

Also calculate the cost of produce transported by refrigerated truck (both 3MT & 10 MT)
and suggest the benefit of using the same in both off-season and in-season

Produce transported by refrigerated truck

Truck

MT

Cost

Amount

Refrigerated

4000+4
pkm*560*2

8480

Refrigerated

10

6000+(8*560*2)

14960

Ordinary

150 boxes*20 pb 3000

Ordinary

10

500 boxes*20 pb 10000

Truck

MT

Amount

ADDITIONAL
COST

Additional
benefit
INSEASON 5%
AND 10%
OFFSEASON

Gain Vs
Loss

Refrigerated

8480

8480-3000=5480

Rs 550 *
150boxes=
82500+4125(5
% premium)

-1355
and -9.03
per box

10

14960

1496010000=4960

Rs 550*500
boxes=
275000+13750

+8790
AND
+17.58
per box

3000

5480

Rs 680 * 150
=102000 +
10200

-4720
+31.47
per box

10

10000

4960

Rs 680*500
=340000+34000

+29040
+58.08
per box

Ordinary

Also suggest how many 3MT & 10 MT refrigerated trucks should IPCSL invest for its
long term business

4. How should IPCSL communicate the value to customers?

As we could see that in the organization there are only 3 managers. One for overseeing the
technical operations, another for finance and last for human resource and administration. The
direct employees held clerical, supervisory and business function responsibilities and involved in
transportation and security aspects. Indirect were contract laborers deployed by labor supply
contractors who worked on the floor and were mainly involved in loading and unloading fruits.
The organization doesnt have a marketing team or an employee who could market their product
after the modernization and expansion drive. As we know that all the farmers are not literate
enough to understand their modernization. Even their sales transactions are conducted by artis.
There is no possibility that they understand the value of such an advanced setup. So IPCSL
should create a new post to marketing where a marketing professional can explain the setup of
IPCSL, its advantages and the reason the cost is high. It will also be more effective if the
marketing professional could explain the above to them in their local language.
Also methods to have an advertisement can help the farmers know the process in detail.
5. What lessons you have learned about Industrial or Business Buying Behavior - B2B

Marketing & how the case offers an opportunity for a B2B player like IPCSL?