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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. Alec, Ng Hon Yin………………...02730827G Alice, Cheung Kit Yan……………02415378G

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Problem 2

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  1. Managerial Economics Problem 2 MSc in Marketing Management The HK Polytechnic University Professor Howard DAVIES Problem 2 Presented by Team D 18 November 2002

  2. 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

  3. Outline • Part I • Background Information • Profit & Loss Analysis • Part II • Budget Planning • Part III • Budget Allocation and Promotion campaign • Conclusion

  4. 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

  5. Market Overview • Major Competitors • Pen power, GoGo Pen • Advertising Focus of competitors • PC Magazine • Road show • On-site demonstration • Expo

  6. 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

  7. 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

  8. Promotion Objectives Promotion Objective • Objectives • To improve profitability • To enhance Customer Loyalty • To build up the Entry Barrier for rivals Task 1-Promotion Planning

  9. Sales Targets • Sales target: • Double the sales revenue in a year • i.e. from $HK50m to $HK100m Task 1-Promotion Planning

  10. 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

  11. Regional Sales Forecast Task 1-Promotion Planning

  12. 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

  13. Part II Budget Planning

  14. 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

  15. Target Segment • Usage Segmentation • Chinese word processing necessity • PC users • Individual buyers • Corporate companies Task 2- A&P Budgeting

  16. Part III Budget Allocation

  17. Budget Allocation For South China Task 3- Budget Allocation

  18. Budget Allocation For South China Task 3- Budget Allocation

  19. 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

  20. Budget Allocation For HK Task 3- Budget Allocation

  21. 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

  22. Simulation result on Sale volume on different amount of A&P **Simulation based on the selling price of HKD230** Task 1-Promotion Planning

  23. 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

  24. Thank You! Thank You

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