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Managerial Economics. Problem 2. MSc in Marketing Management The HK Polytechnic University. Professor Howard DAVIES. Problem 2 Presented by Team D 18 November 2002. Group Members of Team D. Alec, Ng Hon Yin………………...02730827G Alice, Cheung Kit Yan……………02415378G

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Problem 2

Managerial Economics

Problem 2

MSc in Marketing Management

The HK Polytechnic University

Professor Howard DAVIES

Problem 2

Presented by Team D

18 November 2002

Group members of team d
Group Members of Team D

  • Alec, Ng Hon Yin………………...02730827G

  • Alice, Cheung Kit Yan……………02415378G

  • Cary, Cheung King Sau………….02720545G

  • Christie, Cheung Pui Kwan………02435421G

  • Christine, Chan Wing Lan………..02402531G

  • Dana, Lau………………………….02427943G

  • Irene, Man Oi Ling………………...02713161G

  • Rita, Chung Yuk To……………….02435470G

  • Ryan, Chan King Ming…………...02417833G


  • Part I

    • Background Information

    • Profit & Loss Analysis

  • Part II

    • Budget Planning

  • Part III

    • Budget Allocation and Promotion campaign

  • Conclusion

Background information
Background Information

  • Unique Chinese grammar check product feature

  • Product price: $HK230

  • Good sales in HK and South China:

    • $HK50m per annum

  • Sales distribution:


Anti-copying protection in China and HK

is in effect up to date

Market overview
Market Overview

  • Major Competitors

    • Pen power, GoGo Pen

  • Advertising Focus of competitors

    • PC Magazine

    • Road show

    • On-site demonstration

    • Expo

Profit loss analysis
Profit & Loss Analysis

  • Sales revenue$50 m

  • COGS$ 1 m

  • Gross margin$49 m

  • Operating expense$ 5 m

  • Operating earnings$44 m

  • Income tax expense$ 7 m

  • Net income$37 m

Problem 2

  • Promotion Planning:

    • To decide whether to launch a promotional campaign to improve profitability

  • A& P Budgeting :

    • To set promotion budget

  • Budget Allocation:

    • To decide how the budget should be spread across different promotional media

Promotion objectives
Promotion Objectives

Promotion Objective

  • Objectives

    • To improve profitability

    • To enhance Customer Loyalty

    • To build up the Entry Barrier for rivals

Task 1-Promotion Planning

Sales targets
Sales Targets

  • Sales target:

    • Double the sales revenue in a year

    • i.e. from $HK50m to $HK100m

Task 1-Promotion Planning

External environment
External Environment

  • Computer usage rate in China, the usage rate increase by more than 20% per annum in 2001 and 2002 and will continue in coming years.

    Source: Computer Business Review - Aug 2002

Task 1-Promotion Planning

Regional sales forecast
Regional Sales Forecast

Task 1-Promotion Planning

Advertising elasticity ea
Advertising Elasticity (Ea)

  • PLC: new product (introductory stage)

  • Structure of industry & rivals’ behavior

  • Market share: low

  • Product nature: infrequent purchase

  • Economy: recession

Ea 

Ea 

Ea 

Ea 

Ea 

Overall: Ea is elastic

Task 1-Promotion Planning

Problem 2

Part II

Budget Planning

A p budgeting
A&P Budgeting

  • Objective & Task Approach

    • Prime Objective:

      • To increase sales revenue from HK$50m to HK$100m

    • A&P Budget to achieve the objective:

      • From simulation, A&P budget at HK$6.5M will double the sale volume

      • A&P budget $HK6.5m ~17% of net income

Task 2- A&P Budgeting

Target segment
Target Segment

  • Usage Segmentation

    • Chinese word processing necessity

  • PC users

    • Individual buyers

    • Corporate companies

Task 2- A&P Budgeting

Problem 2

Part III

Budget Allocation

Budget allocation for south china
Budget Allocation For South China

Task 3- Budget Allocation

Budget allocation for south china1
Budget Allocation For South China

Task 3- Budget Allocation

Budget allocation for hk

Budget Allocation For HK

Budget Allocation For HK


To reach the regional

sales target in HK

Island, Kowloon and

NT, the budget

allocation is set as:

Task 3- Budget Allocation

Budget allocation for hk1
Budget Allocation For HK

Task 3- Budget Allocation

Geographical budget allocation
Geographical Budget Allocation

  • Advertising budget for both South China and HK

    • 17% of net income: HKD 6.5m

      (Total net income : 37m)

  • Budget proportion:

    • South China: 30%

    • HK: 70%

Task 3- Budget Allocation

Problem 2

Simulation result on Sale volume on different amount of A&P

**Simulation based on the selling price of HKD230**

Task 1-Promotion Planning


  • Sales in china market is expected to grow more than that of HK

  • High Advertising elasticity

  • There is a need for promotion campaign to increase profitability, enhance customer loyalty and build up entry barrier

  • Objective and Task approach is adopted for Advertising Budget

  • In order to meet the sales target of HKD100m sales revenue in next year, a promotion campaign is launched with budget HKD 6.5m

Thank you

Thank You!

Thank You

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