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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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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

  • 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


Outline

  • Part I

    • Background Information

    • Profit & Loss Analysis

  • Part II

    • Budget Planning

  • Part III

    • Budget Allocation and Promotion campaign

  • Conclusion


Background Information

  • Unique Chinese grammar check product feature

  • Product price: $HK230

  • Good sales in HK and South China:

    • $HK50m per annum

  • Sales distribution:

Assumption:

Anti-copying protection in China and HK

is in effect up to date


Market Overview

  • Major Competitors

    • Pen power, GoGo Pen

  • Advertising Focus of competitors

    • PC Magazine

    • Road show

    • On-site demonstration

    • Expo


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


Task

  • 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 Objective

  • Objectives

    • To improve profitability

    • To enhance Customer Loyalty

    • To build up the Entry Barrier for rivals

Task 1-Promotion Planning


Sales Targets

  • Sales target:

    • Double the sales revenue in a year

    • i.e. from $HK50m to $HK100m

Task 1-Promotion Planning


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

Task 1-Promotion Planning


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


Part II

Budget Planning


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

  • Usage Segmentation

    • Chinese word processing necessity

  • PC users

    • Individual buyers

    • Corporate companies

Task 2- A&P Budgeting


Part III

Budget Allocation


Budget Allocation For South China

Task 3- Budget Allocation


Budget Allocation For South China

Task 3- Budget Allocation


Budget Allocation For HK

Budget Allocation For HK

Outdoor

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 HK

Task 3- 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


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

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

Task 1-Promotion Planning


Conclusion

  • 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


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