Discussion Homework for Marketing

EXAMPLE - Marketing Research Assignment for MarketShare

ASSIGNED REPORT

The Income Statement

Period 0

I. SOURCE OF INFORMATION

Internal Company Report

II. TYPE OF RESEARCH & DATA

Secondary Marketing Research (NB: primary purpose is not marketing, rather financial accountability).

III. DESCRIPTION & INTERPRETATION of DATA

Please refer to the figure below.

This report provides a snapshot of the brand's financial performance at a specific point in time. For the simulation, this point is at the end of a period. The report is divided into three sections.

1 - Revenue and Direct Product Costs:

This sections show sales revenue (the "topline"), which is the amount of money that wholesalers and retailers paid for the Allround product. It is calculated by multiplying units sold by the average manufacturer's selling price. To arrive at gross margin (the "middle line"), subtracts out the cost of products sold (aka, COGS, which is a variable cost) and promotional allowances (the money that Allstar paid to intermediaries for promoting Allround, which also is a variable cost). COGS is a manufacturing expense. Although promotional allowance are not considered a marketing expense (i.e., expenses by the marketing department), the item does represent some of the costs incurred for marketing the Allround product.

In the last period,

· Allround's sales revenue was $214,300,000.

· Because Allround sold 55,800,000 units (available in the company performance summary), we can estimate the company received about $3.82 (subject to rounding error) on average for each Allround product sold to intermediaries. ($3.82 = $213.4/55.8)

· It cost $54,000,000 to manufacture the Allround units that were sold.

· Because Allround sold 55,800,000 units, it cost less than $1 to manufacture the product. (NB: No math is required to determine it cost less than one dollar to manufacture. $54.0/55.8 = $0.97 < $1.00)

· From the income statement, we know that 13% of product sales are returned to intermediaries as an allowance for promoting the product.

· The gross margin or the middle line is $132.5M or 61.8%.

2 - Marketing Expenses:

This section of the income statement itemizes all of the expenses that are DIRECTLY controlled by Marketing. These expenses should be considered fixed costs. Each period the Marketing Manager receives a budget to spend to make promotion, advertising and sales force decisions. The administrative category includes any fixed overhead costs directly incurred by the marketing department, such as salaries of the marketing team and supplies & related expenses.

In the last period,

· Allround spent $25,800,000 on marketing expenses, which was 12% of sales revenue.

· Allround spent more on promotional allowances given to intermediaries (13% of sales revenue) than it spent on its own marketing (12% of sales revenue). In total, 25% of sales revenue were spent on marketing (13% + 12% = 25%).

· The marketing expenses in this sections are all considered part of promotions (the promotion P of the 4 Ps): sales force, advertising & promotions.

· Allround spent more on its sales force than than any other marketing expense ($8.5M).

· Allround spent the least on promotions, such as samples & coupons, than any other marketing expense ($3.2M).

3 - Profit Calculations:

This section of the Income Statement calculates net income (or profit) that is attributable to the Allround brand. Contribution (aka Contribution Income) is the sales revenue leftover after marketing expenses have been deducted from the the middle line. Fixed costs are expenses not affected by sales but are incurred by running the company, such as overhead costs, and charged to the brand. The bottomline is Allround's net income.

The marketing budget for the next period is also shown in this report, but it is not a traditional item for a Income Statement.

In the last period,

· Allround's contribution income was $106.7M or nearly 50% of sales revenue.

· Allround's net income is $50.7M or 23.6% of sales revenue.

In the next period,

· Allround has a marketing budget of $28.3M, which is a 9.6% increase over the last period's $25.8M in marketing expenses.

IV. USE

Tracking revenues and expenses over time is very helpful for identifying problems in brand performance. For example, changes in the product should yield higher revenues through either increased unit sales or higher prices due to increased consumer preference. If higher revenues are not the result of a product change, then careful examination of the income statement will often indicate the source of the problem. Marketing managers should be able to pinpoint which aspect of their marketing strategy affects the different parts of the Income Statement.

Word Count: 665 words (longer than the 400-500 words expected for your assignment)