As soon as possible Need brief answers of alternatives and decision criteria of Clairtone Company In February 2016, Don Roberts, director of Clairtone Inc., a small Hamilton, Ontario manufacturer and retailer of high quality headphones and headsets, had just met with a purchasing agent from 2001 Audio, a major Canadian electronics retailer. The agent had approached Roberts regarding the possibility of carrying a line of Clairtone headphones, which involved a potential order of over three times the number of headphones currently being manufactured each year. However, during the meeting it became apparent that 2001 Audio had expected a price much lower than Clairtone was prepared to offer. Don was wondering if it would be possible to agree upon a price, and if so, was it in the best interests of his company to supply headphones to a large retailer such as 2001 Audio. As he left the meeting at the retailer's office, Don was aware that he would have to contact the purchasing agent within a few weeks. COMPANY BACKGROUND Clairtone was started in 1990 by Frank Roberts, Don's father. Frank, an experienced sound engineer and electronics tinkerer, decided to specialize in the area of headphones for people with poor hearing (especially at the higher end of the sonic range of 16,000hz to 20,000hz), a market that had not been fully developed. Typically, as people age they become less able to distinguish very high pitched sounds which can affect their enjoyment of music. Mr Roberts originally concentrated on custom-made specialised headphones made to order, but eventually expanded into high quality lightweight on the ear headphones and later headsets. As time passed, the headphones became his major retail segment. Over the years, the company's image had evolved from catering to those who had lost some of their hearing range to one of providing high quality sound. As these products became more popular, Clairtone's reputation for value (good quality at a reasonable price) attracted a customer base that, while not very large, was loyal and was growing gradually. In 2006, Don joined his father in the small family business, after studying Business Administration at Sheridan College. One of the first things that Don did was set up a corporate website and begin to engage on social media. He found that these were good for attracting interest, but very little sales, as people wanted to try the headphones before purchasing. The manufacturing and retail facilities were located in the same building in Hamilton. Two product lines were manufactured: Clairtone, an over the ear headphone with custom moulded earpieces for mature adults, designed to "let you hear sounds that only young people can"; and Booster, a headset for those who worked in call centres, but had hearing difficulties. These lines sold in the company's own retail store and were also distributed to a small number of selected stores in southern Ontario. Other lines carried in the retail store but not manufa.

1. As soon as possible
Need brief answers of alternatives and decision criteria of Clairtone Company
In February 2016, Don Roberts, director of Clairtone Inc., a small Hamilton, Ontario
manufacturer and retailer of high quality headphones and headsets, had just met with a
purchasing agent from 2001 Audio, a major Canadian electronics retailer. The agent had
approached Roberts regarding the possibility of carrying a line of Clairtone headphones, which
involved a potential order of over three times the number of headphones currently being
manufactured each year.
However, during the meeting it became apparent that 2001 Audio had expected a price much
lower than Clairtone was prepared to offer. Don was wondering if it would be possible to agree
upon a price, and if so, was it in the best interests of his company to supply headphones to a large
retailer such as 2001 Audio. As he left the meeting at the retailer's office, Don was aware that he
would have to contact the purchasing agent within a few weeks.
COMPANY BACKGROUND
Clairtone was started in 1990 by Frank Roberts, Don's father. Frank, an experienced sound
engineer and electronics tinkerer, decided to specialize in the area of headphones for people with
poor hearing (especially at the higher end of the sonic range of 16,000hz to 20,000hz), a market
that had not been fully developed. Typically, as people age they become less able to distinguish
very high pitched sounds which can affect their enjoyment of music.
Mr Roberts originally concentrated on custom-made specialised headphones made to order, but
eventually expanded into high quality lightweight on the ear headphones and later headsets. As
time passed, the headphones became his major retail segment.

2. Over the years, the company's image had evolved from catering to those who had lost some of
their hearing range to one of providing high quality sound. As these products became more
popular, Clairtone's reputation for value (good quality at a reasonable price) attracted a customer
base that, while not very large, was loyal and was growing gradually.
In 2006, Don joined his father in the small family business, after studying Business
Administration at Sheridan College. One of the first things that Don did was set up a corporate
website and begin to engage on social media. He found that these were good for attracting
interest, but very little sales, as people wanted to try the headphones before purchasing.
The manufacturing and retail facilities were located in the same building in Hamilton. Two
product lines were manufactured: Clairtone, an over the ear headphone with custom moulded
earpieces for mature adults, designed to "let you hear sounds that only young people can"; and
Booster, a headset for those who worked in call centres, but had hearing difficulties.
These lines sold in the company's own retail store and were also distributed to a small number of
selected stores in southern Ontario. Other lines carried in the retail store but not manufactured by
Clairtone included Klipsch, Bose, and Sennheiser, all imported from Germany, a country with a
good reputation in high end audio equipment. The Company did not compete in the popular lines
of headphones and earbuds made by companies such as Beats by Dr Dre, Skullcandy, or
Monster.
For some time, Don had wanted to increase the company's manufacturing activities, so as to
make better use of its underutilized plant facilities. Expansion was also planned on the retail side,
including an increase in both the number of retailers and additional product lines, by adding
other hearing and audio supplies to the mix.
MEETING WITH 2001 Audio
A representative from the 200 Audio chain of stores had been impressed by a review for

3. Clairtone in AudiophileReview.com, a leading high end audiophile blog and review website,
Roberts was contacted, and a meeting was arranged at 2001 Audio's headquarters in Toronto in
February 2010. The 2001 Audio purchasing agent expressed interest in distributing Clairtone
headphones to all of their major retail stores and featuring it in their online store.
First year volume was estimated by 2001 Audio to be as high as 20,000 sets. However, when the
topic of price was raised, it became apparent to Don that Clairtone's regular wholesale price of
$135.00 was totally unacceptable to 2001 Audio. Although the meeting ended without a counter
offer from 2001 Audio, Don got the impression that 2001 Audio wanted a price in the $100.00 to
$110.00 range. It was decided that the two parties would be in contact in a few weeks when Don
would send the agent several pairs of headphones for closer examination.
THE COSTING OF CLAIRTONE HEADPHONES
The cost of a pair of Clairtone headphones consisted of materials, labour and overhead.
Material costs included:
frame: $12.50 per set
electronics: 22.50 per set
earpiece: 20.00 per set
packaging: 5.00 per set
labour cost: $25.00 per set, based on time studies.
overhead costs: $25.00 per set, calculated as follows: overhead (fixed) costs of $150,000 per year
divided by the current production level of 6,000 headsets per year.
Although only 6,000 units of Clairtone headphones were currently being manufactured annually
(about 500 pairs per month), production of 26,000 sets per year (over 2,000 pairs per month)
could be accommodated by the plant.
Don estimated that if production were increased to the level required by the 2001 Audio contract,

4. the costs of gearing up production capacity, including hiring new employees, to the higher level
would be about $5.00 per headphone set produced.
Decision Time
One of Don's major corporate objectives was to increase the company's manufacturing activities,
as the plant was underutilized. However, he was not sure whether the contract with 2001 Audio
was the best way to do this. He was extremely reluctant to lower his wholesale price, since he
was already undercutting his major competitors by 20%.
On the other hand, he realized that a contract with 2001 Audio would allow the Clairtone brand
to become established across Canada within a year. He felt that being carried by a major
electronics store could enhance his company's image, and that it would be easier to deal with one
customer with a large volume of sales. However, Don was also concerned by the prospect of
devoting about 80% of his capacity to one customer.
He might also face problems with his suppliers, especially the electronics, which came from
Germany; shipments of which tended to arrive late. At the current low level of production, this
was not a major problem. However, Don was unsure how this problem would affect his company
at the much higher production levels involved in the 2001 Audio contract.
He also wondered whether or not a high quality specialised headphone was suitable for mass
merchandising, and what effect the possibility of a lower retail price by 2001 Audio might have
on his own retail business and on his sales and prices through other retailers. In addition,
expansion would mean the hiring of additional workers.
As he drove back from Toronto to Hamilton, Don realized that his decision could drastically
change the nature of his company. His initial reaction was that he could not afford to lower the
wholesale price, but he wanted to expand production and knew that $135.00 would not be an
acceptable price to 2001 Audio. Within a few weeks he had to contact the company, and

5. wondered what he should do.
As soon as possible
Need brief answers of alternatives and decision criteria of Clairtone Company
In February 2016, Don Roberts, director of Clairtone Inc., a small Hamilton, Ontario
manufacturer and retailer of high quality headphones and headsets, had just met with a
purchasing agent from 2001 Audio, a major Canadian electronics retailer. The agent had
approached Roberts regarding the possibility of carrying a line of Clairtone headphones, which
involved a potential order of over three times the number of headphones currently being
manufactured each year.
However, during the meeting it became apparent that 2001 Audio had expected a price much
lower than Clairtone was prepared to offer. Don was wondering if it would be possible to agree
upon a price, and if so, was it in the best interests of his company to supply headphones to a large
retailer such as 2001 Audio. As he left the meeting at the retailer's office, Don was aware that he
would have to contact the purchasing agent within a few weeks.
COMPANY BACKGROUND
Clairtone was started in 1990 by Frank Roberts, Don's father. Frank, an experienced sound
engineer and electronics tinkerer, decided to specialize in the area of headphones for people with
poor hearing (especially at the higher end of the sonic range of 16,000hz to 20,000hz), a market
that had not been fully developed. Typically, as people age they become less able to distinguish
very high pitched sounds which can affect their enjoyment of music.
Mr Roberts originally concentrated on custom-made specialised headphones made to order, but
eventually expanded into high quality lightweight on the ear headphones and later headsets. As
time passed, the headphones became his major retail segment.
Over the years, the company's image had evolved from catering to those who had lost some of

6. their hearing range to one of providing high quality sound. As these products became more
popular, Clairtone's reputation for value (good quality at a reasonable price) attracted a customer
base that, while not very large, was loyal and was growing gradually.
In 2006, Don joined his father in the small family business, after studying Business
Administration at Sheridan College. One of the first things that Don did was set up a corporate
website and begin to engage on social media. He found that these were good for attracting
interest, but very little sales, as people wanted to try the headphones before purchasing.
The manufacturing and retail facilities were located in the same building in Hamilton. Two
product lines were manufactured: Clairtone, an over the ear headphone with custom moulded
earpieces for mature adults, designed to "let you hear sounds that only young people can"; and
Booster, a headset for those who worked in call centres, but had hearing difficulties.
These lines sold in the company's own retail store and were also distributed to a small number of
selected stores in southern Ontario. Other lines carried in the retail store but not manufactured by
Clairtone included Klipsch, Bose, and Sennheiser, all imported from Germany, a country with a
good reputation in high end audio equipment. The Company did not compete in the popular lines
of headphones and earbuds made by companies such as Beats by Dr Dre, Skullcandy, or
Monster.
For some time, Don had wanted to increase the company's manufacturing activities, so as to
make better use of its underutilized plant facilities. Expansion was also planned on the retail side,
including an increase in both the number of retailers and additional product lines, by adding
other hearing and audio supplies to the mix.
MEETING WITH 2001 Audio
A representative from the 200 Audio chain of stores had been impressed by a review for
Clairtone in AudiophileReview.com, a leading high end audiophile blog and review website,

7. Roberts was contacted, and a meeting was arranged at 2001 Audio's headquarters in Toronto in
February 2010. The 2001 Audio purchasing agent expressed interest in distributing Clairtone
headphones to all of their major retail stores and featuring it in their online store.
First year volume was estimated by 2001 Audio to be as high as 20,000 sets. However, when the
topic of price was raised, it became apparent to Don that Clairtone's regular wholesale price of
$135.00 was totally unacceptable to 2001 Audio. Although the meeting ended without a counter
offer from 2001 Audio, Don got the impression that 2001 Audio wanted a price in the $100.00 to
$110.00 range. It was decided that the two parties would be in contact in a few weeks when Don
would send the agent several pairs of headphones for closer examination.
THE COSTING OF CLAIRTONE HEADPHONES
The cost of a pair of Clairtone headphones consisted of materials, labour and overhead.
Material costs included:
frame: $12.50 per set
electronics: 22.50 per set
earpiece: 20.00 per set
packaging: 5.00 per set
labour cost: $25.00 per set, based on time studies.
overhead costs: $25.00 per set, calculated as follows: overhead (fixed) costs of $150,000 per year
divided by the current production level of 6,000 headsets per year.
Although only 6,000 units of Clairtone headphones were currently being manufactured annually
(about 500 pairs per month), production of 26,000 sets per year (over 2,000 pairs per month)
could be accommodated by the plant.
Don estimated that if production were increased to the level required by the 2001 Audio contract,
the costs of gearing up production capacity, including hiring new employees, to the higher level

8. would be about $5.00 per headphone set produced.
Decision Time
One of Don's major corporate objectives was to increase the company's manufacturing activities,
as the plant was underutilized. However, he was not sure whether the contract with 2001 Audio
was the best way to do this. He was extremely reluctant to lower his wholesale price, since he
was already undercutting his major competitors by 20%.
On the other hand, he realized that a contract with 2001 Audio would allow the Clairtone brand
to become established across Canada within a year. He felt that being carried by a major
electronics store could enhance his company's image, and that it would be easier to deal with one
customer with a large volume of sales. However, Don was also concerned by the prospect of
devoting about 80% of his capacity to one customer.
He might also face problems with his suppliers, especially the electronics, which came from
Germany; shipments of which tended to arrive late. At the current low level of production, this
was not a major problem. However, Don was unsure how this problem would affect his company
at the much higher production levels involved in the 2001 Audio contract.
He also wondered whether or not a high quality specialised headphone was suitable for mass
merchandising, and what effect the possibility of a lower retail price by 2001 Audio might have
on his own retail business and on his sales and prices through other retailers. In addition,
expansion would mean the hiring of additional workers.
As he drove back from Toronto to Hamilton, Don realized that his decision could drastically
change the nature of his company. His initial reaction was that he could not afford to lower the
wholesale price, but he wanted to expand production and knew that $135.00 would not be an
acceptable price to 2001 Audio. Within a few weeks he had to contact the company, and
wondered what he should do.