Business Strategies: How to Maximize Profit with Market Analysis, Branding and Customer Retention
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Question 1 (25 points)
Creative Solutions, Inc. has a successful brand with the name Top Goal. The market size in which Top Goal competes is $2 billion, and Top Goal has generated sales of $150 million. It has a contribution margin of 30%.Creative Solutions is thinking of introducing a new brand under the name of Peak Goal. Peak Goal will compete in the same market as Top Goal. The budget to launch this brand is expected to be $20 million.If it is launched, Peak Goal will capture 10% of the market. It has a contribution margin of 40%. Half of the sales of Peak Goal will be cannibalized from the sales of Top Goal. An alternative strategy for Creative Solutions is to cancel the introduction of Peak Goal and instead to spend the $20 million to promote Top Goal. This action is expected to double the sales for Top Goal. Both brands (Top Goal and Peak Goal) would sell at the same price.Where should the company spend the $20 million and why? You must show all calculations to receive credit.
Question 2 (25 points)
A large hotel resort decides to develop a customer retention program. The goal of this program is to motivate its heavy users to continue being loyal to the company by offering them appropriate incentives. You will create a marketing research plan to help the company design the retention program. Specifically, you need to identify:
1. The types of information the company will need to design the retention program.
2. Where to obtain the information.
3. The best method to obtain the information.
Question 3 (25 points)
Your company has a market share of 25%. The total market size is $100 million. Your contribution margin (the ratio of the contribution per unit over the price per unit) is 20%. Your variable cost is $16 per unit.You are thinking of hiring 10 more salespeople. The annual cost per salesperson (including salary and benefits) is $120,000. In addition, each salesperson receives as a bonus 10% of the sales he or she generates. How much should your market share increase to make this a profitable action? (Hint: To solve the problem you need to calculate the price per unit and then calculate the new contribution per unit that will reflect the added cost of the 10% bonus given to the salespeople.) You must show all calculations to receive credit.
Question 4 (25 points)
Anytime Fitness is a company that has 24/7 fitness centers. Members are given keys to the centers and can work out any time, any day. The company provides modern equipment, but not classes and personal training sessions like other gyms. You are a marketing manager for this company and need to select a target market.
1. What segmentation criteria would you use to segment this market?
2. Of the segments you included in your answer above, select one as your target market and describe it in detail. Why did you select it?
3. What key benefits will you present to potential customers? Why should they care (i.e. how will make these benefits appealing)?
Question 5 (25 points)
Travelmania Inc. is a new, Internet based travel agency specializing in customized exotic and adventure travel. The company has limited resources and very low level of awareness in the market. Even within the exotic and adventure travel market, it has to deal with competition from the major online travel companies and needs to create a comprehensive differentiation and branding strategy.
1. What segmentation variables would you use to segment the market, and which segment would you focus on?
2. What should be the key concept at the center of the company’s brand identity? Describe what should cross the customer’s mind when they come across the Travelmania brand name.
Question 6 (25 points)
Forsman, Inc. has sales of $10,000,000. The contribution margin is 40% and the fixed costs are $1,000,000. The price per unit is $10. The company is considering two different strategies for increasing their profits:
1. Spend $800,000 in advertising. The result is expected to increase the company’s sales by 50%.
2. Reduce the price by 20%. The price-demand elasticity is 2.0.
Which of the two strategies will generate the highest profits? You must show all calculations to receive credit.
Answer 1 The company should spend the $20 million to promote Top Goal. By launching Peak Goal, the company will only capture 10% of the market, but will also cannibalize half of the sales of Top Goal. This means that Peak Goal will only bring in an additional 5% of the market, or $100 million in sales. With a contribution margin of 40%, this will only bring in an additional $40 million in profit.
Promoting Top Goal, on the other hand, is expected to double its sales. With a contribution margin of 30%, this will bring in an additional $45 million in profit. Additionally, the company would not have to deal with the added costs of launching a new brand and can instead focus on promoting the established and successful Top Goal brand.
- The company will need information on customer demographics, purchasing habits, and loyalty levels.
- The company can obtain this information through surveys, customer data analysis, and focus groups.
- Surveys can be sent out to current customers to gather demographic and purchasing information. Customer data analysis can be used to track loyalty levels. Focus groups can be used to gather qualitative information on customer needs and preferences.
Answer 3 To make hiring 10 more salespeople a profitable action, the company’s market share would need to increase by at least 7.5%.
To calculate this, we must first calculate the contribution per unit. With a contribution margin of 20%, the contribution per unit is $2 ($10 x .2).
We can then calculate the additional cost per unit of the 10% bonus given to the salespeople. With 10 salespeople at an annual cost of $120,000 each, the additional cost per unit is $0.12 ($120,000 x 10 / $10,000,000).
With the added cost of $0.12 per unit, the new contribution margin is now 18.8%. To maintain the same level of profit, the market share must increase by 7.5% from 25% to 32.5%.
- Segmentation criteria: demographic (age, income, gender), lifestyle (health-conscious, busy schedule), location (urban vs. rural)
- The target market will be health-conscious, busy individuals with a high disposable income living in urban areas. This segment is attractive because they value the convenience of 24/7 access to fitness centers and are willing to pay a premium for it.
- Key benefits to present to potential customers include the convenience of 24/7 access, modern equipment, and flexibility in terms of workout schedule. These benefits will appeal to the target market because they align with their busy lifestyles and desire to maintain a healthy lifestyle.
- Segmentation variables: type of travel (exotic and adventure), budget, and level of experience. The company should focus on the budget-conscious and experienced travelers looking for exotic and adventure travel.
- The key concept at the center of the company’s brand identity should be “customized, authentic, and adventurous travel experiences.” This should cross the customer’s mind when they come across the Travelmania brand name.
- Spend $800,000 in advertising. The result is expected to increase the company’s sales by 50%. By increasing the sales by 50%, the company’s total sales will be $15,000,000. With a contribution margin of 40%, this will bring in an additional $6,000,000 in profit.
- Reduce the price by 20%. The price-demand curve shows that the demand for the product increases as the price decreases. By reducing the price by 20%, the contribution per unit will decrease to $8 ($10 x .8). However, the company can expect an increase in sales, which will offset the decrease in contribution per unit. To calculate the increase in sales, we can use the price-elasticity of demand.
The increase in sales and profit will depend on the elasticity of demand of the product. If the demand is inelastic, the decrease in price will result in a relatively small increase in sales, but a significant decrease in contribution per unit. If the demand is elastic, the decrease in price will result in a significant increase in sales, which will offset the decrease in contribution per unit.
It is important to note that the company should analyze the long term effect of reducing the price. If reducing the price results in a decrease in the perception of the product’s value and a decrease in customer loyalty, it may not be a profitable action in the long run.
In conclusion, both options have the potential to increase profits but it’s important for the company to consider the long term effects of their strategy and to conduct a thorough analysis of the market and customer demand before making a decision.
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