Calculate the pretax ROIC:
Return on invested capital is the return that any company, firm, or an individual earns on the amount of capital invested over a period of time.
The pretax return on invested capital (ROIC) can be calculated by using the following formula:
For wholesaler channel estimate:
For net income as $4, dividends as $0 and total capital as $13
Thus, the return on invested capital is 30.76%.
For original Levi's store channel estimate:
For net income as $6, dividends as $0, and total capital as $38
Thus, the return on invested capital is 15.78%.
Personal pair system changes the value chain:
• Currently, the company is facing dual pressures. On one side, there is aggressive price competition and on the other side, that company is facing different set of competitors who have challenged them on the fashion and image.
• Personal pair would provide an edge to the company in the current situation as the company has enough resources to implement this strategy, and thus would be adding value to the value chain model of the company.
• This personal pair system requires a separate set of employees to work, and thus the raw material logistics step of the value chain model will get affected, the next step might not get affected much and thus in the further processes the effect will be seen. But this cost will be nullified by the profit that this process will generate.
• The pricing of the personal pair jeans will depend not only on the demand for the same but also on the differential cost that will be incurred for producing the same. The standard jeans cost $50, and the personal pair jeans should cost more than this as the services are provided as per the order of the customer. For the ease of the customer the specialized kiosk has been made to update the order and for the processing.
• This is the case of personal pair of jeans where customer has expressed preference for particular pair of jeans. Overall cost of pair of jeans is likely to be high. Further, this is one time order. Hence, price will not be lowered because customer has inelastic demand for personal pairs of jean. Demand from customer is of relative conspicuous nature where customer would be ready to pay inflated price.
In nutshell, producer is most probably going to raise the price of pairs of jean.