Business & Finance - Marketing Zoëcon Corporation Case Assignment

Test market break-even analysis. Table 4 presents break-even estimates for the test market in units, dollars, and market share.…[ Review the key numbers, specifically stating the bottom-line estimates of break-even in units, dollar sales, and market share. Speculate on the probable meaning of break-even market share. Discuss the actual market share earned from the TM. Compare the estimate to the estimate of break-even market share.]

Projections for commercialization. The process of making the projections for commercialization takes the factors used in the chain ratio method of the 4-City test market to predict sales, expenses, and break-even for the more significant 19-City estimates, as shown in Tables 5 and 6. [ Discuss the logic of the chain ratio method for projecting sales anticipated for commercialization using the TM results. Can be discussed here or in the next section on sales projections.]

Sales projections. Table 5 presents the results of applying test market sales data to the 19-city market area. [ If not already done above, review the logic of the chain ratio method for estimating sales from commercialization. Specifically cite the end result of your computations, do not simply refer the reader to the table.] …..

Pro forma income statement. The income statement for the 19-city projection, Table 6, together with the break-even analysis, gives the best picture for analyzing profitability and whether to move forward…[ You must present and thoroughly discuss your proforma income statement comparing all three proposed cost scenarios. You must specifically discuss why one or more cost scenarios may not be realistic and must provide detailed support for the choice of the most reasonable cost scenario. The template uses a single table that compares all three scenarios side-by-side.] ….

Break-even analysis. The lower portion of Table 6 presents the break-even analysis for commercialization. Break-even estimates are in units sold, dollar sales, and market share. Figure 1 is a graphic representation of the break-even market share estimates for all three fixed cost scenarios...[ A break-even analysis must be tabled and thoroughly discussed. Break-even must be computed and presented in unit sales, dollar sales, and market share. Implications of break-even market share must be specifically discussed. Break-even market share estimates should be compared with shares held by competitors, with speculation on the implications]...[ Note: The figure is optional. If not included, delete the example and reference to that sample.]

Consumers’ Acceptance of IGR-based Insecticides

[ You must specifically examine the consumer behavior issues surrounding the use of pesticides and SRE in particular. How receptive are consumers to the concepts of an IGR? You must also relate relevant behavioral issues to the test market results and commercialization projections. ]

Additional DF [Use an appropriately descriptive title]

Additional DF [Use an appropriately descriptive title]

Table 1

4-City Sales Mix and Margin Analysis

1 Weighted Avg. Unit Price = (aerosol unit price * sales mix) + (fogger unit price * sales mix). Price and unit cost data are taken from Case Exhibit 4.

2 Weighted Avg. Unit Contribution = (aerosol unit contribution * sales mix) + (fogger unit contribution * sales mix). Price and unit cost data are taken from Case Exhibit 4.

3 Contribution Margin = weighted avg. unit contribution / weighted avg. unit price.

Table 2

4-City Trial Sales Analysis (Non-Annualized)

Estimation of Dollars and Units Sold

1 Repeat households are 30% of the number of households making an initial purchase.

2 First-time unit sales are 6% of the total households x an average of 1.3 purchases per household. Repeat unit sales refer to the number of households engaged in repeat purchasing (30%) multiplied by an average of 3.5 purchases per household.

3 Dollar sales are the number of units sold multiplied by the weighted average manufacturer's price.

Table 3

Zoëcon Corporation

Income Statement

For the 6-Month Period Ending October 31, 1985

(Representing the 4-city test market)

Sales 1 Amount Totals

Aerosol $xx,xxx

Fogger $ xxx,xxx $xxx,xxx

Cost of goods sold 2

Aerosol $xxx,xxx

Fogger $x xx,xxx $xxx,xxx

Gross margin $xxx,xxx

Marketing expenses 3

Promotion & Advertising $x,xxx,xxx

Setup/Auditing $xxx,xxx

Marketing Research $xx,xxx

Miscellaneous xx,xxx $x,xxx,xxx

Net income before tax $x,xxx,xxx

1 Sales in dollars and units are taken from Table 2.

2 Cost of goods sold equals unit sales from Table 2 multiplied by unit costs taken from Table 1.

3 Marketing expenses are taken from Case Exhibit 6.

Table 4

4-City Break-Even Analysis

Break-Even Item Estimates

Expenses1 $1,478,000

Break-Even Dollars 2 $xxx,xxx

Break-Even Units 3 xxx,xxx

Break-Even Market Share 4 xx.xx%

4-City Market Size5 $x,xxx,xxx

Market Share Earned6 xx.xx%

1 Fixed costs from the test market are taken from Case Exhibit 6, totaling $1,478,000.

2 Break-Even Dollars = total fixed costs/weighted average contribution margin of 55% from Table 1.

3 Break-Even Units = total fixed costs / (weighted avg. unit price minus weighted avg. unit cost) from Table 1.

4 Break-Even Market Share = break-even dollars divided by total market dollar size based on the roach-only segment

5 The 4-City market size is determined from CG Table 5 for the roach-only segment.

6 Earned market share = total dollar sales divided by market size for the roach-only segment.

Table 5

19-City Projections Financial Analysis

Estimation of Dollars and Units Sold for 19-City Commercialization 1

1 Percent purchase rate for initial trial and repeat purchases, based on test market results, units purchased per household, and prices are taken from Table 2.

2 Repeat households are 30% of the 6% of the 22,000,000 households engaging in the initial trial.

Table 6

Zoëcon Corporation

Pro Forma Income Statement

For the 12-Month Period Ending December 31, 1986

(Representing the 19-city projections)

Sales 1

Aerosol $ x,xxx,xxx

Fogger x,xxx,xxx $ x,xxx,xxx

Cost of goods sold 2

Aerosol $ x,xxx,xxx

Fogger x,xxx,xxx $ x,xxx,xxx

Gross margin $ x,xxx,xxx

Marketing expenses 3

A-Promotion & Advertising (per capita) $ x,xxx,xxx

B-Promotion & Advertising (per city) $ x,xxx,xxx

C-Promotion & Advertising (ROT) $ x,xxx,xxx

Net income before tax $ x,xxx,xxx $xxx,xxx $ x,xxx,xxx

1 Sales projections are annualized estimates from Table 5. Annualized adjustments are obtained by dividing estimates from Table 5 by .75 since 75% of pesticide sales occur during the 6-month period of the test market.

2 Cost of goods sold = units from Table 5 * unit cost.

3 Marketing Expense A (per capita). Since $1,016,000 was spent on 5.3 percent of consumers comprising the total 19-city market, the “spend” required for the entire market would be 20 times what was spent in the test market.

4Marketing Expense B (per city). Assuming expenditures are based on a per-city approach and spending on advertising and promotion in 4 of 19 cities (test market cities) was $1,016,000, the total spend would be $1,016,000/4x19 = $4,826,000; rounded to $5,000,000.

Break-Even Analysis

Fixed Cost Alternatives

Break-Even Metric Per Capita Per City Rule of Thumb

Fixed Cost Estimate $20,000,000 $5,000,000 $10,000,000

Break-Even Dollars $ x,xxx,xxx $ x,xxx,xxx $ x,xxx,xxx

Break-Even Market Share (Ant & Roach) 1 xx.xx% xx.xx % xx.xx %

Break-Even Market Share (Roach) 2 xx.xx % xx.xx % xx.xx %

1Break-even is given by dividing fixed cost estimates by the weighted average contribution margin of 55%.

2The total market size is $72,934,400. Estimate is derived via the chain ratio method: Total Market = $xx Mil (1985 Total) * 1.1(mkt growth rate %) * 40% (ant & roach %) * 80% (19 cities) * 70% (supermarket %) * 74% (aerosol & fogger %).

3The total market size for roaches only is assumed to be 50% of the combined ant and roach segment.