DBA 8020 Module 6 Final Paper: An Economic Case for Launching a Refill Concentrate Subscription Example

Refills, Externalities and the Role of Government: An Economic Case for a Product Launch

Student Name

Doctor of Business Administration, Thomas Edison State University

DBA-8020: Seminar in Economics and Finance: Models and Matrices of Sustainability

Mentor Name

Month Day, Year

Refills, Externalities and the Role of Government: An Economic Case for a Product Launch

The Company and the Product

The company makes household cleaners sold through supermarkets, with about $38 million in annual sales and a 2 percent share of the surface cleaner market. Its new product is a refill subscription: a durable bottle and monthly pouches of concentrate that the customer mixes with tap water, cutting plastic per use by about 80 percent and shipping weight by about 90 percent.

Consumers and Demand

Module 1 found that the neoclassical model predicts adoption that real shoppers do not deliver: loss aversion and mental accounting slow switching (Kahneman & Tversky, 1979). Module 2 estimated demand from a survey adjusted for overstatement, finding demand inelastic below $10 a month and elastic above it, with profit maximized at $12. The launch plan therefore combines a $12 price with an $8 first month and a pre-filled first bottle to lower the perceived losses of switching.

Market Structure

Module 3 showed a concentrated oligopoly, with a four-firm ratio of 75 percent and a Herfindahl-Hirschman Index of 1,618, protected by advertising, scale and control of shelf space. A direct-to-consumer subscription avoids the shelf barrier. The main threat is a refill line from a large incumbent; speed, subscriber loyalty and bottle compatibility are the defenses.

The Macroeconomic and Policy Environment

Module 4 traced how tighter monetary policy raised the company's borrowing costs and tightened its bank's terms, a pattern consistent with the credit channel (Bernanke & Gertler, 1995), and led to a regional launch funded partly with trade credit. Module 5 analyzed a proposed 20-cent fee on plastic cleaner bottles, finding that most of it, about 13 of the 20 cents, would land on shoppers and that it would modestly favor refills.

Welfare Economics: Plastic Waste as an Externality

Saros (2020) explains that markets allocate resources efficiently, in the neoclassical sense, only when prices reflect all the costs and benefits of production and consumption. When an activity imposes costs on people outside the transaction, an externality, the market produces too much of it. A spray bottle's price covers resin, molding and transport, but not the cost of collecting, sorting, landfilling or cleaning up bottles that escape into streams and streets. Those costs fall on municipalities and the public.

Pigou (1920) argued that a tax equal to the external cost at the margin would lead private decisions to account for the social cost, restoring efficiency. The 20-cent fee analyzed in Module 5 is a Pigouvian tax if it roughly matches the external cost of a bottle. Its deadweight loss, about $92,000 a year in the standard calculation, is then not a loss at all: the bottles no longer sold are ones whose social cost exceeded their value.

Coase (1960) took another view: if property rights are clear and bargaining costs little, the people affected by a spillover can strike an efficient deal on their own, with no tax needed. Plastic waste fails Coase's conditions: millions of buyers and sellers, diffuse harm to many people and high costs of bargaining. That is why government action is needed here.

The Role of Government: Three Tools

Several states have adopted extended producer responsibility laws for packaging, and the textbook's pluralistic approach invites attention to institutions as well as prices: whichever tool is chosen, its design will shape how firms innovate.

What a Pluralistic View Adds

The textbook's pluralistic approach also asks whose interests a policy serves. A packaging fee falls mostly on consumers, as Module 5 showed, and lower-income households spend a larger share of income on household goods. Returning part of the fee's revenue through recycling programs that serve all neighborhoods, or pairing it with refill options priced within reach, would address that concern. Institutions matter too: extended producer responsibility gives producers, not municipalities, the job of funding collection, which changes who has an incentive to redesign packaging.

The Case for Launching

The economic case for the launch rests on four findings. Demand exists at a profitable price, though behavioral barriers require an introductory offer. The market's barriers can be avoided through direct sales. The financing constraint can be eased by a regional launch and trade credit. And policy is moving toward pricing the external cost of plastic, which will raise the cost of the main substitute.

Financial Summary

In the three launch regions, about 1.2 million target households, the Module 2 estimate of 140 subscribers per thousand at $12 implies a long-run base of about 168,000 subscribers if adoption reaches survey levels. A more cautious plan assumes 20 percent of that in year one, about 34,000 subscribers, producing roughly $4.8 million in revenue and $2.9 million in contribution after unit costs and the first-month discount, before marketing. Break-even on launch marketing and fulfillment setup comes in the second year.

Risks

Adoption may lag the survey, an incumbent may launch a competing line, and a policy fee may be delayed or weakened. The phased regional launch limits exposure to each.

Recommendation

Launch the refill subscription in three regions at $12 a month with an $8 first month, fund inventory with trade credit and a modest bank draw, and expand nationally once subscriber retention exceeds 70 percent after six months. Support extended producer responsibility and packaging fees in states where the company sells, since they correct a real externality and favor lower-waste products.

Conclusion

The course's economics, from consumer behavior to welfare analysis, support the launch. Plastic waste is an externality the market does not price, and well-designed government action would move the market toward products like refills. The firm's strategy should combine sound pricing and entry with a clear view of where policy is heading.

References

Bernanke, B. S., & Gertler, M. (1995). Inside the black box: The credit channel of monetary policy transmission. Journal of Economic Perspectives, 9(4), 27-48. https://doi.org/10.1257/jep.9.4.27

Coase, R. H. (1960). The problem of social cost. Journal of Law and Economics, 3, 1-44. https://doi.org/10.1086/466560

Kahneman, D., & Tversky, A. (1979). Prospect theory: An analysis of decision under risk. Econometrica, 47(2), 263-291. https://doi.org/10.2307/1914185

Pigou, A. C. (1920). The economics of welfare. Macmillan.

Saros, D. E. (2020). Principles of political economy: A pluralistic approach to economic theory (3rd ed.). Valparaiso University.