Pencil Pushers (PP) Jacqueline is a sole trader who owns PP. She set up the business six months ago to manufacture pencils. The market for pencils in PP's country is separated into the niche market of supplying pencils for schools and the mass market. When she started the business, Jacqueline decided to target the mass market. Table 3 shows Jacqueline's initial market research into the two markets. Table 3: Initial market research data Mass market • 10 producers are in the market. Each producer has 7% – 12% market share. • Sold through many retailers, including online retailers. • Branding and reputation are very important. Schools market • One producer is in the market with 100% market share. • Sold directly through e-commerce. • Branding and reputation are not important. PP is establishing a good reputation as a reliable supplier of pencils to shops that sell stationery. However, as a relatively new business, PP has had to use penetration pricing to build up a customer base. She sells each pack of five pencils for $1. PP holds a large inventory so that orders can be delivered quickly. PP employs four full-time production workers in one factory. The production process is capital intensive. Production data for the factory is in Table 4. Table 4: Production data for PP's factory Maximum capacity per month 75000 pencils Monthly fixed costs $8500 Variable costs per 100 pencils $3 PP has no trade payables but Jacqueline is concerned about the cash flow of PP. The latest cash flow forecast showed that PP might run out of cash in three months' time. This is mainly because the shops which sell PP's pencils demand 30–60 days to pay for their orders.