The Private-Label Offer That Looks Like Growth

Current position

• Contribution per cup = 1.20 − 0.70 = 0.50 dinar
• Monthly contribution = 25,000 × 0.50 = 12,500
• Monthly profit = 12,500 − 9,000 = 3,500 dinars

The offer, three months

• Private-label contribution = 0.85 − 0.70 − 0.08 = 0.07 dinar per cup
• Volume = 60,000 ÷ 3 = 20,000 cups a month → contribution 1,400 dinars a month
• Lost branded sales in the 30 exclusive outlets = 6,000 cups × 0.50 = 3,000 dinars a month
• Capacity: 25,000 cups is 85% of capacity, so capacity ≈ 29,400 and spare capacity ≈ 4,400 cups. The order needs 20,000, so a night shift is unavoidable → +2,500 fixed cost a month

Net monthly effect = 1,400 − 3,000 − 2,500 = −4,100 dinars, i.e. profit falls from 3,500 to −600. The offer is loss-making even before brand-dilution effects.

Judgement: the headline '60,000 units of new business' is misleading because the margin is only 0.07 dinars and the offer displaces three times as much margin as it creates. Reject as written; the numbers only work if the chain accepts higher price, no exclusivity, or Jibal has genuine idle capacity.

Break-even lift:

• Each extra branded cup earns 0.50 dinar of contribution.
• Required extra volume = 6,000 ÷ 0.50 = 12,000 cups
• Current volume 25,000 → required increase = 12,000 ÷ 25,000 = 48%

The forecast is only 8%, i.e. 2,000 cups × 0.50 = 1,000 dinars of contribution against 6,000 dinars of cost → a 5,000-dinar loss if the forecast is accurate. On these figures the campaign is not a marketing decision, it is a donation.

Assumptions that would have to change:

1. Higher price or mix. At 1.20 dinars the required lift is implausible; the campaign would have to push a premium variant with, say, a 0.50 higher margin, cutting break-even to 6,000 cups (24%).
2. Repeat purchase, not one-off trial. If the 8% is the start of a retention curve sustained for 12 months, cumulative contribution is 12,000 dinars and the campaign breaks even in about month six. The team must present retention data, not a one-month spike.
3. No capacity cost. Spare capacity is only ~4,400 cups, so a 12,000-cup lift needs the night shift (+2,500), raising break-even to 17,000 cups (68%).
4. Attribution. Was the 8% causally produced by the ads? Without a control group or geo-split test, the lift may be seasonal.

Recommendation: approve a small test (1,500 dinars, one district, measured against a control district) before committing 6,000.

Counter-offer design

1. Price 0.95 dinar, not 0.85. Contribution becomes 0.95 − 0.78 = 0.17 per cup → 20,000 × 0.17 = 3,400 dinars a month. This just exceeds the 3,000 lost from exclusivity; the chain's own-label margin still works if its retail price is around 1.30–1.40.
2. Delete exclusivity, or shrink it to the store building. At 0.95 with no exclusivity: +3,400 plus no cannibalisation → profit 6,900 a month before capacity cost. If the chain insists on exclusivity, offer only the own-label not being sold nearby while Jibal's branded cups continue - the chain's real concern is a rival brand, not Jibal's own.
3. Run a trial batch first (20,000 cups over six weeks) instead of 60,000 over three months. This tests whether the night shift is needed at all and limits exposure if the chain delists.
4. Volume-tiered price: 0.88 up to 15,000 cups, 0.95 above, so Jibal is not locked into a low margin if the chain's orders grow.
5. Cost pass-through clause for packaging film and fuel, since those are outside Jibal's control and were not in the original costing.

Remaining non-financial risk: own-label production teaches the chain's buyers exactly how Jibal sources, costs and produces the product. In a later negotiation, or if the chain launches its own plant, Jibal has trained its most powerful competitor and will have no contract to protect it. Mitigation: keep the recipe and supplier relationships in-house, and cap own-label volume at a share of total capacity (e.g. 20%).