3 Scenario and sensitivity analysis (Please refer to data in the Case Study to answer this question)

You are considering expanding your operations selling sneakers in the women segment. The cost of manufacturing women’s shoes is the same as that of manufacturing men’s shoes, so purchasing costs are similar [24}. However, you know a manufacturing company that has indicated that it might reduce their price to € 20 or € 22. The additional fixed cost associated with selling in the new market segment is for an advertising campaign; this can be paid interest-free in four yearly instalments. Your decision should be based on the returns in the first year of entering the market, when sales are expected to reach 8,800 pairs, but could be 10% higher or 10% lower.

How could scenario and sensitivity analysis help you decide whether to expand in the women’s market? (6 marks)

3.2 Identify three alternative scenarios for what may happen if you decide to expand in the new market segment and explain which elements are uncontrollable and why. (9 marks)


Sneaker brand Shoestring has been selling trainers in the men’s and children market for five years. They have adopted a cost leadership strategy. They are cutting all unnecessary costs and focusing on efficiency to have the most affordable trainers.

Table 1: Sales, Revenue and Cost Data for Shoestring (2021-2025)

Years 2025 2024 2023 2022
Sales volume
Men 64,073 51,258 48,695 46,260
Children 37,124 32,669 30,708 29,787
Total revenues (Men) €3,203,650 €2,562,900 €2,434,750 €2,313,000
Total revenues (Children) €1,856,200 €1,633,450 €1,535,400 €1,489,350
Total revenues €5,059,850 €4,196,350 €3,970,150 €3,802,350
Cost of sales (Men) €1,537,752 €1,230,192 €1,168,680 €1,110,240
Cost of Sales (children) €965,224 €849,394 €798,408 €774,462
Distribution Cost €404,788 €335,708 €317,612 €304,188
Total Cost of sales €2,907,764 €2,415,294 €2,284,700 €2,188,890
Gross margin €2,152,086 €1,781,056 €1,685,450 €1,613,460
Marketing and Sales €240,000 €240,000 €240,000 €120,000
General administration cost €1,500,000 €1,400,000 €1,200,000 €1,200,000
Net profit €412,086.00 €141,056.00 €245,450.00 €293,460.00



Purchasing cost

Men trainers: € 24,00

Children trainers: € 26,00

Distribution cost

The distribution cost is € 4,00 per pair of trainers

Due to problems in the supply chain, distribution costs may increase. The in-house research team estimates that distribution costs may increase by 10%. However, some supply-chain consultancies expect distribution costs to increase by 20%.


Selling price

Men trainers: € 50.00

Children trainers: € 50.00


Cost of promotion campaigns





“I wonder what we used to wear when we were kids,” says Margaret Hamilton, trend watcher. “If I see 20 kids a day, certainly 15 of them are wearing sneakers, as if there are not any more practical shoes for kids than sneakers.”



You can spot them more and more: stylish flat shoes in hip colours. They are called moccasins, and they are a real trend within men’s fashion, taking over from sneakers.

Annie Conners, stylist at Terra Men’s Fashion, does not think it is odd. “The modern man is more in touch with their style. Women used to be the only ones checking whether their shoes and handbags matched; now, you see men checking their belts and shoes in a similar way. “Sneakers are loved for their comfort and versatility, but so are moccasins. A pro for moccasins is that they look slightly more classy and serious underneath formal attire, and men are becoming more and more aware of this.”



Research done by Female Sneaker shows that more companies aim for women as their target group. Many large retail stores have started selling sneakers specifically designed for women, and smaller stores have followed suit.

At the moment, there are 440,000 potential women customers in search of women’s trainers. Only two competitors are currently operating in that market, but research shows ample room for new contenders.



Due to extended supply chain disruptions, and the linked increase in inflation, interest rates are rising. To address this, the Bank of England has decided to raise its interest rate by 1%, leading commercial banks to announce that they will offer loans at a rate of 3%.



More and more consumers choose quality shoes. “This has everything to do with durability and sustainability”, according to Jimmy Cahill. “The consumer has access to more information and realizes it does not want cheap, mass-produced products. Instead, they prefer good quality shoes, which fit well and promote a healthy and sustainable lifestyle.”


Market research

Market size

Total volume per market segment (number of sneakers sold in each market segment)

Men Women Children
452,744 440,000 300,854


Market Analysis

The government has announced that it expects ‘substantial growth’ in consumer spending. However, a well-known consultancy forecasts consumer spending to remain low or even to stagnate. Market analysis by your in-house team has concluded that there is a 50% probability of the government being right and that the chances of consumer spending stagnating are very low.


Your in-house research team has also done some analysis about the sneaker market.


Years Additional profits
1 150,000
2 153,000
3 156,060
4 159,181
5 162,364


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