Le Club Français du Vin decides to focus on customer satisfaction. Hence the club offers a €5 (five Euros) coupon to customers whenever it runs out of a particular bottle of wine that the customer ordered. What will be the effect of this change on the club’s optimal order quantity of that bottle?
a)Increase the order quantity, because Cu increases and Co stays the same.
b)Decrease the order quantity, because Cu stays the same and Co increases.
c)No change to the optimal order quantity, because offering a coupon has no effect on Cu or Co.
d)Decrease the order quantity, because the cost of doing business just went up.
e)None of the above.
In this case, the underage cost i.e. the cost of a lost sale of bottle of wine is getting increased by 5 euros. This cost can be attributed to the ordering of the next bottle of wine. This will decrease the optimal ordering quantity of the company as the overall cost of business is going up.
Answer: Option d
Le Club Français du Vin decides to focus on customer satisfaction. Hence the club offers a...