Strategic Marketing Individual Assignment 3

Company Three: Product Two and Territory Two

Jason Yeoman MKTG 3023-04 Dawn Rovers

Tuesday February 22, 2011

TABLE OF CONTENTS
1.0 Target Market and Marketing Mix 1.1 Overall Strategy and Objectives 1.2 Consumer Profile 1.3 Product Strategy 1.4 Price 1.5 Place 1.6 Promotion 2.0 Operations Planning 3.0 Market Research 4.0 Management Controls 4.1 Units Sold per Sales Rep Quarters 1-3 4.2 Unit Contribution Quarters 1-3 4.3 Return on Owners Equity Quarters 1-3 5.0 Strategy Changes

1.0

Target Market and Marketing Mix

1.1 Overall Strategy and Objectives

Territory Two is relatively small, however Product Two is a perfect match for the affluent and open-minded market. Company Three seeks to capture a significant market share in Territory Two for Product Two while maintaining a high return on sales. In order to meet these objectives, Company Three has decided to spend a considerable amount of money on quality and features while employing a premium pricing strategy for Product Two. Company Three believes that a high level of ad spending coupled with aggressive web spending will draw the attention of customers and retailers. In order to compliment the increased awareness, Company Three has a large sales staff in Territory Two to provide a high quality of service. Company Threes objectives for Product Two in Territory Two are: Consistently remain as one of the top three companies in total units sold with market share growth of approximately 0.50% per quarter. To lead all companies in gross sales dollars per quarter, with over $200,000 in total sales.

1.2

Consumer Profile

The population of Territory Two is only half the size of other territories. However, its customers higher income levels and openness to new products make them ideal

consumers for Product Two. As a result of their up-scale style, Company Three feels comfortable aggressively marketing Product Two while charging a higher price to offset costs. Company Three believes that this strategy will result in a stable growth in market share each quarter.

1.3

Product Strategy

Company Three strives to be one of the leading companies in quality and features for Product Two. To date, Company Three has spent $50,000 on feature development for Product Two. Our feature development has resulted in 3 product features at a cost of $0.90 per unit. After spending $3.00 per unit on product quality in Quarter One, Company Three has increased product quality spending to $4.00 per unit. Based on current market research, this level of quality spending puts Company Three considerably higher than the industry average of $3.08 per unit.
Product Two Quality Costs

4 0 2.5

0 4

0.5

9 4

1 2 3 4 5 6 7 8 9 10 11 12

2 4

Company Three intends to continue to spend approximately $15,000 per quarter on features spending with plans to increase product quality spending to $5.00 per unit in

order to match the industry leader.

1.4

Price

Company Three intends to employ a premium pricing strategy for Product Two in Territory Two. As one of the industry leaders in quality and features, Company Three can afford to charge a price of $75.00 or more while still experiencing growth in market share. Company three charged an introductory price in the first two quarters of between $73.50 and $74.00. In Quarter Three, Company Three increased the price to $76.50 and still received a higher than expected demand.

Company Threes price in Territory Two is relatively expensive in comparison to the competitors pricing of Product Two in the same territory. With an average price of $70.91, Company Threes current price of $76.50 is almost 8% higher than the industry average. However, with the highest unit sales in the industry, Company Threes price doesnt exceed what the market can bare. In order to maintain a high net income, Company Three has decided not to spend money on process improvements for Product Two. Since the number of units sold for Product Two are considerably lower than Product One, the entire process improvement budget has been dedicated to Product One. 1.5 Place

Company Three seeks to be a leader in service and product availability. Company Three ensures that it employs a large sales force in Territory Two while

making sure that the product is made widely available through aggressive advertising in trade magazines. Company Three has maintained a fairly stable sales force. Company three hired four sales reps in Quarter One to bring Territory Twos sales force to 9 reps. Company Three has maintained a 5% commission rate for Territory Two as the higher retail cost results in a larger commission for sales reps. Quarter One 5 Quarter Two 9 Quarter Three 9

# Of sales reps

1.6

Promotion

Company Three is employing a push and pull strategy for Product Two in Territory Two. Due to Product Two being a relatively new product, Company Three believes that it is important to entice retailers to carry the product while encouraging consumers to try Product Two. Advertising Type Newspaper Ads Consumer Ads Trade Ads Ad Message Quarter One 18 15 20 Benefits Quarter Two 10 18 20 Quality Quarter Three 10 12 20 Quality

Company Three has aggressively advertised in trade magazines while limiting the number of newspaper ads and trying to maintain a fairly high level of consumer advertising. Company Three believes that is important to focus on penetrating the consumers and retailers consciousness to ensure they buy and carry our product. Company Three sees little benefit in newspaper advertising, as it does not meet the needs of many of our core consumers. However, Company Three believes it is important to still have a presence in newspaper advertising to reinforce the companys position as a top manufacturer. Company Three is the most successful company advertising its

qualities. A high quality coupled with an aggressive marketing strategy has given Company Three the edge among businesses that are promoting their quality.

2.0

Operations Planning
In order to forecast market demand for specific territories, Company Three uses

the following equation: (Actual Units Sold <Q3>/Demand Estimate <Q3>) x Demand Estimate <Q4> E.g. (6500/54000) x 58800 = 0.12037037 x 58800 = 7707.7 = 7708 Therefore, the forecast for P2T2 is 7078 units. The calculation for Company Threes market share for Quarter Three is: Total Sales: 53323 Company 3 Sales: 6500 6500/53323 = 0.1219 Therefore, Company Three had a 12.19% market share for Product Two in Territory Two for Quarter Three. Company Threes target for inventory carrying costs in Territory Two are to keep carrying costs under $4,000 per quarter. In order to keep carrying costs low, Company Three will utilize strong forecasting skills to keep the number of units available slightly higher than market demand. Company Three had no carrying costs between Quarter Two and Quarter Three due to stock-outs. Company Threes goals for stock-outs are to limits stock-outs in Territory Three to three quarters without carrying a significant amount

of inventory.

Company Three had lost sales in Quarter Two of 1,500 units and a loss of 461 units in Quarter Three. Company Three has utilized the short-term loan facility save for an accounting error in Quarter Two, which resulted in the bank issuing an emergency loan. Company Three has a strategy of leaving a contingency fund every quarter of approximately 20% over projected costs. This increase in the short-term loan request insures against lower sales or an unforeseen expense. Company Three asked for $675,000 in Quarter Two but actually required $737,741 for which an emergency loan was received. Interest paid on the loan at a 20% interest rate was $36,887. Therefore, the total cost of the money borrowed in Quarter Two was $774,628.

3.0

Market Research

Quarter

Units X

1 2
(co.9&12)

Price X X

News

Cons

Trade

Reps

Msg X X

Feat

Qual

Web

Demand 2 3,4

5,6

Quarter One Costs: Price - $1,000 Ad Messages - $1,800 Demand Quarter Two - $2,000 TOTAL: $3,800

Quarter Two Costs: Units - $400 Price - $500 Ad Messages - $800 Demand Quarter Three and Four - $4,000 TOTAL: $5,700

Quarter Three Costs: Price - $1,000 Features - $3,500 Ad Messages - $1,800 Demand Quarter Five and Six - $4,000 TOTAL: $10,300 The research that Company Three has collected for Product Two has been helpful to determine the success of other companies that are using similar marketing strategies. With the research made available to Company Three in Quarter Three for free, Company Three will be able to better determine how aggressively companies are pricing and marketing their products. Company Three has been able to determine through market research provided by the Chairman that the key to success in Territory Two for Product Two is a strong sales force backed by features and quality. By comparing Company Three, which has the highest sales in the territory to Company Seven, which has a similar marketing mix but is 6th in sales in the territory, it becomes clear that the main difference is in the

features and sales force of the two companies.

Co. 3 7

Units 6500 4152

Price 76.50 70.99

Feat 3 0

Qual 4.00 4.00

Web 15000 15000

News 10 10

Cons n/a n/a

Trd 20 20

Rep 9 5

Msg Q Q

This information will allow Company Three to maintain its position as a leader in sales in Territory Two for Product Two by allowing the company to focus its attention on the most important aspects of Territory Two which are a strong sales force and a number of features.

4.0

Management Controls
4.1 Units Sold Per Sales Rep Product Two/Territory Two

Quarter One: 4,289 units/5 reps = 857.8 units Quarter Two: 2,711 units/9 reps = 634.5 units Quarter Three: 6,500 units/9 reps = 722.2 units 4.2 Quarter One: Sold at: $74.00, Base Cost: $27.00, Quality: $3.00, Features: $0 Unit Contribution = $44.00 Unit Contribution Product Two/Territory Two

Quarter Two: Sold at: $73.50, Base Cost: $27.00, Quality: $4.00, Features: $0.30 Unit Contribution = $42.20 Quarter Three: Sold at: $76.50, Base Cost: $27.00, Quality: $4.00, Features: $0.90 Unit Contribution: $44.60 4.3 Quarter One: Net Income After Tax: $189,196 Return on Owners Equity = 15.05% Quarter Two: Net Income After Tax: $177,011 Return on Owners Equity = 12.34% Quarter Three: Net Income After Tax: $251,342 Return on Owners Equity = 14.91% Company Three needs to address the number of unit sales per rep. While stockouts in Quarters Two and Three skew the data slightly, the sales per rep in Quarter One were considerably higher than in any previous quarter. In order to address this issue, Company Three will evaluate these numbers after Quarter Four to see if improved inventory assists the sales per rep, and if it does not improve, one to three sales reps will be laid off from Company Three. Owners Equity: $1,685,632 Owners Equity: $1,434,291 Owners Equity: $1,257,276 Return on Owners Equity

5.0

Strategy Changes
In order to maintain a high market share and a solid return on sales, Company

Three needs to address issues of possible over-advertising and too many salespeople. While Company Three has been successful in the territory, cutting a small amount of advertising and a salesperson will give Company Three an opportunity to monitor these changes affects on the companys sales and profit goals.