Question 1: What are the possible financial outcomes if George orders 5,000 shirts, 7,500 shirts and 10,000 shirts, respectively? Based on the information given in the case, the expected number of attendees is: E(x) = 80,000*0. 25 + 50,000*0. 5 + 20,000*0. 25 = 50,000 people Selling price per shirt: $100/12 = $8. 33 Discount price: $1. 5 Scenario 1: Assumption: George orders 5000 T-shirts; cost: $17,750; the number of attendees buy his T-shirts are 5%, 10% and 15% respectively The possible financial outcomes under scenario 1 are as follows: Scenario 2:Assumption: George orders 7,500 T-shirts; cost = $25,250; the number of attendees buy his T-shirts are 5%, 10% and 15% respectively The possible financial outcomes under scenario 2 are as follows: Scenario 3: Assumption: George orders 10,000 T-shirts; cost: $32,125; the number of attendees buy his T-shirts are 5%, 10% and 15% respectively The possible financial outcomes under scenario 3 are as follows: Question 2: How many T-shirts should George buy and why? Assumption: 50,000 people will attend the concert; the chance that 15% of attendees will buy a T-shirt is so low that it is unlikely to happen and therefore, we just ignore this chance.Scenario 2 is out of question because it brings the least profit among the three scenarios. We are left with scenario 1 and 3.
Under these 2 scenarios, George will make the same amount of profits whether 5% or 10% of attendees buy a T-shirt from him. In fact, if the chance of them each buying a T-shirt is 15%, George will be the best off under scenario 3. However, this chance is very unlikely to happen. Additionally, the more unsold T-shirts are left after the event, the more time it will take to sell, the longer it will take to get his investment, and he will incur the costs from storing the inventory.Apart from that, it costs George more money on investment in scenario 3 to earn the same amount of money in scenario 1. For all these reasons, George should by 5,000 T-shirts.
Question 3: What would George do if he had perfect information about the future? How much is perfect information worth to him? George would use the information to maximize his profit. In question 1, George did not have perfect information about the future, therefore his best bet was to take the conservative route based on assumptions, and estimations.For instance, the profit he made based on the assumption in scenario 1 (50,000 people would come, 10% will buy his T-shirt) is $23,900. If he had perfect information, say he knew that the number of attendees would be 80,000 and 10% of them would buy a shirt from him, he would place an order of exactly 8000 T-shirts. Assumption: He pays $5 for one extra T-shirt in excess of 7,500 pcs. * Cost = $25,250 + 500*$5 = $27,750 * Revenue = 8,000*8. 33 = $66,640 * Profit = $66,640 – $27,750 = $38,890 Perfect information is worth: $38,890 – $23,917 = $14,973Question 4: Assume George makes T-shirts for 30 events per year: Should George quit his day job and become a T-shirt entrepreneur full time? I will need the following information to address this question. 1) How much is his income at his current job? 2) Is the income from making T-shirts more or less substantial than his current job? 3) Based on the question he potentially has an event every 12 days.
How big are these events? Are they all as lucrative as the current event? 4) What is the competitive landscape? Is he the only special events T-shirt maker?If not, how competitive is it? 5) Are there any potential changes in regulation that may affect his business? Question 5: How can he expand his business? Should he hire design help, more vendors, expand geographically? Are there other markets he can tap? Assume that the T-shirt business is good; he can expand his business by creating shirts for different events other than concerts, major sporting events and fund-raising events. For instance, he can make T-shirts for schools, or even fashion stores which target young audiences who like to wear cool T-shirts (Forever 21 for instance).Apart from that, he could contact bars or clubs which normally sell T-shirts as souvenirs. George can also contact meetings and events companies for more business leads.
If he has relationships with them, they can refer him to clients who have needs for customized T-shirts. He should definitely look for more vendors because at present they are his only distribution channel. If his business grows stronger with substantial orders, George should expand geographically as long as the profits from expansion can justify costs, and he has enough resources to make sure that he can serve his customers well regardless of where they are.