Break-Even Point and Total Sales/Revenue are Equal - Assignment Example

Marketing File Assignment Question 1: Break-even Analysis Break-even point is defined as the point at which total costs/expenses and total sales/revenue are equal. At this point, a business has not made any profit or loss but it has paid for all the costs incurred in the production process. Mathematically it is defined as the number of units of a product that yield zero profit and is expressed as follows: B.E = Fixed Costs / (Price per unit – variable costs) = Fixed Cost / Contribution margin per units Break-even analysis is one of the most important analytical tools in a business. Any business that intends to make supernormal profits must carry out a break-even analysis. This is because BE analysis helps a company to determine the optimal level of production that must be attained to ensure profitability. It also provides a rough estimate of the impact that marketing activities have on any activity in the business. In the data provided as follows, we have the fixed costs as well as variable costs per drink in dollars. FIXED COSTS VARIABLE COSTS (in units) Rent (m) $ 8,000 Labor .18 M&E (m) 6,200 Ingredients .15 Insurance (a) 5500 Utilities .04 Promotion (a) 1,750,000 Distribution .04 Management (a) 195,000 Packaging .05 We complete the table as follows to make the costs uniform FIXED COSTS per month per annum VARIABLE COSTS (in units)   Rent $ 8,000 $96,000 Labor 0.18 M&E $ 6,200 $74,400 Ingredients 0.15 Insurance $ 458 $5,500 Utilities 0.04 Promotion $ 145,833 $1,750,000 Distribution 0.04 Management $ 16,250 $195,000 Packaging 0.05  Total $176,741.67 $2,120,900.00   0.46 To calculate the breakeven point per month for instance we will need the following: total fixed costs (TFC) per month, selling price (SP) per unit, and total variable costs (TVC) per unit. In this case, we have TFC as $176,741.67, TVC as $0.46 , but we do not have SP. Question 2: Explain how “marketing delivers” our standard of living (sol)? Be very specific: What is sol? Why is it important? How does it actually “happen/work?” Before we answer the question on how marketing improves the standard of living, we need understand the meaning of the phrase standard of living. Standard of living is basically a standard that measures the availability, accessibility, and affordability of human needs such as food, clothing, shelter, education, healthcare, and so on. When we claim that marketing improves the standard of living, we therefore have to show how marketing contributes to the availability, accessibility, and affordability of these needs. It also means that marketing is responsible for our lives. Empirical studies conducted globally have shown that there is a positive correlation between a country’s standard of living and its macro marketing system (Lamb, Joseph, and Carl 122) Marketing improves the standard of living by promoting large-scale production and sales, which lower the cost of production thereby higher profits. Here it meets the condition for promoting availability of goods. Increased profits could lead to higher incomes for workers, which has a direct impact on the affordability of human needs. It also leads to lower commodity prices, which translate to increased consumption of these commodities by a large number of consumers thereby increasing accessibility, availability, and affordability. For instance, company XYZ manufactures a detergent for removing stains on clothes. Without marketing efforts, XYZ will attract only a handful of customers. This will mean that they will operate below optimum with high fixed costs and therefore they will sell their detergent at a relatively high price. With marketing efforts, their product will get more customers and they will operate at higher than optimum level. The benefit accruing from technical economies of scale will be a lower production cost per unit, which will mean a lower selling price. Their customers will save money and where they were unable to buy enough quantities, they will now be able to do this. Question 3: History of Lipitor Lipitor has been described as a bestseller in the history of pharmaceuticals. Lipitor, a product of Pfizer Pharmaceuticals is a cholesterol-lowering product. By the time of its launch in 1997, it was the fifth in its category of stations, which also included blockbusters, which commanded sales of over $1 billion annually. With such statistics in the market, making Lipitor to hit the market seemed a far dream. However, Pfizer Pharmaceuticals engaged in an aggressive marketing campaign. Their efforts were reinforced by a study conducted in 1996, which showed that the satin lowered bad cholesterol five times more than other satins. This motivated the sales team of Pfizer to launch a more strategic campaign and a branding exercise that turned the product into the world’s bestselling drug, with sales totaling over $125 billion in a period of 15 years. Only three years after its launch, Lipitor had become the bestselling satin and accounted for about 25% of Pfizer’s revenue. The growth of this product into a top brand was dramatic considering that it entered an already saturated market and few took it seriously including physicians and competitors. Some of the strategies that Pfizer Pharmaceuticals to catch the market include a) offering an discount card to insured patients through which they could get the drugs at $4 per month, which was way below the $25 average copayment for competing original drugs and $10 lower for generics. This offer was promoted through paid ads, direct marketing and on the company website, 2) paying those pharmacies who mailed the patient offers on the co-pay card and counseled patients that Lipitor was the most effective drug, and 3) Ensuring that they kept the U.S. marketing nearly level through the patent expiration date. Question 4: Why can it be said that one of the major functions of marketing is to change the slope of the demand curve for your product/service. How can this be accomplished? The demand function is a mathematical relationship between the quantity supplied of a commodity, the price, and other factors that affect the purchases of the commodity. A demand curve is therefore a graphical representation of this relationship and it plots the quantity demanded on one axis and the price of the commodity on the other axis. The empirically tested law of demand states that consumers will demand more of a commodity at a lower price, which explains the downward sloping of the demand curve. When the quantity demanded changes as a result of change in price, then we say there is a movement along the demand curve. The answer to this question on how marketing changes the slope of the demand curve requires us to show how marketing changes the price of commodities. By promoting large scale production of goods, marketing leads to reduced prices of commodities, which will cause a sharp increase in the quantity demanded, a factor that is also coupled with the fact that marketing enables a wider reach for the product. These increases in quantity demanded will lead to movements along the demand curve and therefore change the slope of the demand curve. Question 5: What does supply chain management refers to…what is the difference, if any, with distribution channel…identify different types of service providers in the channel and the types of services they can provide? A supply chain can be defined as all those activities that are involved in the delivery of a product from raw material stage to the consumer. This long process incorporates the sourcing of raw materials and parts, manufacturing and assembly of parts, warehouse and inventory tracking, order entry and management, distribution across all channels and networks, delivery of the product to the consumer, and all the information systems put in place to monitor and track all these activities. Supply chain management therefore entails the coordination and integration of all these activities into a process that is seamless and efficient. It helps in creating linkages to all the players in the chain all the way from departments within the organization and external players such as suppliers, distributors, third party firms, and information system providers. It also entails the harmonization of processes that are vital in the creation, sourcing, making, and delivery of the product to demand. On the other hand, a distribution channel refers to a chain of intermediaries or organizations that handle the product or service till it is safely in the hands of the consumer. It includes such people as wholesalers, retailers, distributors, and information service providers. In other words, a distribution channel also defined as a marketing channel is a group of individuals and organizations that order the flow of products from producers to consumers. They are responsible for ensuring the availability of the product to the consumer at the right time, at the right place, and in the right quantities. Looking at this definition, we could say that a distribution channel falls within a supply chain. In other words, it is one of the activities in the supply chain and therefore part of what is entailed in supply chain management. Question 6: What is branding…why is branding so important… are there disadvantages to branding…what alternative branding strategies are available…take two brands that you are familiar with… one, which you are positively disposed towards, and the other negative…explain why? Branding is the process through a firm creates a unique name and image of their product in the minds of consumers through marketing promotions and advertising with the aim of establishing a notable differentiable presence of their products in the market that makes them acquire loyal customers. Okonkwo defines a brand as a name, term, sign, symbol, design or a mix of all these that is intended to identify the seller’s product and to distinguish it from those of its competitors. It is therefore that identifiable entity of a firm’s total offerings that makes specific and constant promises of value, resulting in an overall experience for the consumer or anyone who comes in contact with it (9). A brand therefore symbolizes a guarantee and credibility that assures the consumer that they are just about to purchase a product that will deliver its promise. We now examine why branding is important to a company. Marketers have a heavy responsibility of attracting customers who add value to the company (Davis 18). They do so through a variety of tools ranging from marketing communication, to field sales. However, they are always faced by the reality that their product is competing in a crowded market with an ever-growing number of competitors seeking the same customers. The challenge therefore remains the ability of marketers that they offer the product that is best suited for their needs. Such a strategy cannot is hard to since the market is full of competitors offering similar high quality products. Competing on price to increase the market share is not sustainable over the long run, as it requires the company to invest in operational excellence necessary to reduce costs in order to keep prices down. This may cause the company to compromise on product quality, people development, and customer service, all of which are vital to the long-term success of the company (Davis 19). Branding is however a strategic move and entails developing a valuable reputation in the marketplace. It means that the company alters the perception of its products in the market so that customers value them and this increases loyalty (Davis 19). Question 7: What is meant by value pricing …and why, in most cases, is it critical to the success of consumer products/services? Value pricing or value based pricing is a method used in pricing products where companies begin by determining how much their products are to their customers. The goal of determining this worth is to ensure that the company does not set prices that are either too high for their customers or lower than what the customers would be willing and ready to pay with the knowledge of the kind of benefits that they would derive from the product (Baker 144). Value pricing has several advantages that make it critical to the success of consumer products. First, it provides real willingness to pay data, i.e. it offers real that that compels a company to adopt a profit-generating price that is within its strategy. This means that a company can generate the most possible profit from a product. Second, it helps in promoting better quality for products since it informs the process that will be followed to ensure maximum benefit. For instance, exploring competition helps a company to discover the strengths of its products and focus the marketing strategies there and also the weaknesses that should be altered. Third, value pricing allows the customer to offer phenomenal customer service. Since most of the data in value based pricing is acquired through customer surveys and interviews, it enables a company to interact with customers and engage in a discussion and get feedback. The attention to consumer opinions and needs will mean the creation of more personalized and considerate services (Baker 146). Question 8: What is the promotional mix? Promotional mix refers to a set of tools that a company uses to communicate effectively the benefits and advantages of its products to its customers. It is called a mix because it entails several tools, which include advertising, public relations, sales promotions, direct marketing, and personal selling among others. It can be seen as a part and parcel of the wider marketing mix. Promotional mix is important to a business in that it will be impossible for a business to survive in the current competitive marketplace if customers are not aware of the products and services it provides (Morgan 166). Works Cited Baker, Ronald J. Pricing on Purpose: Creating and Capturing Value. Hoboken, N.J: Wiley, 2013. Internet resource. Dam, Jespersen B, and Tage Skjøtt-Larsen. Supply Chain Management: In Theory and Practice. Copenhagen: Business School Press, 2005. Print. Davis, John. Competitive Success: How Branding Adds Value. Chichester, West Sussex, U.K: John Wiley, 2010. Print. Lamb, Charles W, Joseph F. Hair, and Carl D. McDaniel. Essentials of Marketing. Mason, Ohio: South-Western Cengage Learning, 2012. Print. Morgan, Melissa J. J, and Jane Summers. Sports Marketing. Southbank, Vic: Thomson, 2005. Print. Okonkwo, Uche. Luxury Fashion Branding: Trends, Tactics, Techniques. Basingstoke: Palgrave Macmillan, 2007. Internet resource. Read More