Background

Valentino chocolates are made in Turin, Italy. They are recognized as luxury products with a delicious and unique taste. Some of Valentino’s finest chocolates are handmade and have won many international awards.

Expansion

The company started by selling raw chocolate to other chocolate manufacturers. They used it to make their own products. Later, Valentino began selling packaged chocolates directly to the public and created the Valentino brand.

The company expanded fast. It now has 300 employees, 75 company-owned shops and a turnover of 90 million euro. However, in the last two years, sales growth has slowed down and costs have risen. This has caused a fall in profits by 1.8 million euro.

Reasons for falling profits:

1. Prices

There is a widespread price cutting in the industry.

2. Production

Factory machines often break down.

1. Demand

Demand for its Classic Bar is falling. Valentino’s new products, biscuits and

cakes are not selling well. They constitute only 1% of turnover.

The future

The company’s owners want Valentino to become an international business. They believe it makes the finest chocolates in the world. This year they have set aside 1.5 million euro to invest in their company. Their problem is to decide how to spend the money so that the company will continue to expand. Recently, a well-known business journal did a profile of the company. It ended as follows:

Valentino can continue to grow, but only if it develops new products and finds new markets.

The ways in which Valentino could invest the 1.5 million euro are listed below.

Investment Options

Option Cost Benefit
1. Extend the factory 500,000 euro Increase the factory’s capacity by 30 %
2. Invest in more research and development 200,000 euro Develop new products such as low-fat chocolate drink, new biscuits and cakes
3. Buy new machinery 200,000 euro End the delays caused by old machines breaking down
4. Buy out a local competitor 1.5 mln euro Reduce local competition
5. Set up a factory in the US 1.3 mln euro Manufacture chocolates in a major new market
6. Launch a marketing campaign 500,000 euro Increase sales of all products
7. Finance a market survey and research trips to the US 100,000 euro Assess the market potential for Valentino products. Contact agents.
8. Invest in an existing group of cafes 500,000 euro Become a partner in cafes which sell and promote Valentino chocolates
9. Set up online sales 150,000 euro Increase sales and profits
10. Buy a new fleet of cars 500,000 euro Increase motivation of the sales staff



Task

You are directors of Valentino. Meet to discuss your investment plan.


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