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"Growing Your Business" - A Management Simulation

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NEW COMPETITIVE INTELLIGENCE NOW AVAILABLE!!!!!

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General Manager

William Sellums (Marketing Manager)

Market Growth

During our first 24 months of operation, we have gone from sales of 422 units in the first quarter to 829 units during the last quarter. That's nearly 100% growth since we started.

We are convinced there is tremendous potential growth for our product in the market. Growing demand will follow expanding sales, marketing and advertising investment and decreasing prices. To get a major share of that growing market, we need to be price competitive with a quality product, and we must make a major dollar investment to market our product. Even though we have been in business for over a year now, our name is still unknown; it will take the right balance of marketing and advertising monies to build our brand image. The marketing dollars will support our distributor in his efforts to get “air time” with our end-users. Our distributor charges 10% of the selling price to the customer as his margin to cover pre and post sales costs of supporting our products. For example, if our price to the distributor is $630, the price to the customer is $700. The distributor receives 10% of $700 or $70 per unit.

Our expenditures for 2019/2020 were as follows:

2019/2020 EXPENDITURES ADVERTISING MARKETING* 1st Quarter 2019 $36,000 $31,000 2nd Quarter 2019 $36,000 $31,000 3rd Quarter 2019 $36,000 $31,000 4th Quarter 2019 $39,000 $34,000 1st Quarter 2020 $18,000 $35,000 2nd Quarter 2020 $23,000 $38,000 3rd Quarter 2020 $28,000 $42,000 4th Quarter 2020 $31,000 $46,000 *Includes the cost of the MAA Marketing Report.

We recommend an aggressive marketing program – we should be looking at investing 15% of sales into marketing and 5-10% of sales into advertising each quarter in 2021. This market will not reach its potential without stimulation, and we cannot depend on our competitors to do the stimulating for us.

Of course, there is a downside to this life cycle phenomenon. At some point, the "mature" phase follows the "growth" phase. Demand begins to level off and eventually declines. The marketing challenge is to anticipate when that is going to happen. We must balance our manufacturing and marketing efforts to be able to serve the market when the demand exists and to curb manufacturing before demand declines.

Our manufacturing capacity is of real concern to me. Our projection for major growth must be matched by manufacturing expansion to keep up with that growth. There is more at stake than losing a few sales. An industry that lacks the manufacturing capacity to meet increasing demand often keeps prices high and loses sight of keeping costs low. Such an industry offers a tempting opportunity for a low-cost producer to enter into the market with a significantly lower price.

Whenever we have shortage of capacity to meet the demand, we lose all of the unfulfilled demand. There is no backlog that would roll forward to the next quarter. We cannot afford to allow any unfulfilled demand.

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 Reginald Whimbush

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