Financial Aspects of Marketing Management Variable Costs

Financial Aspects of Marketing Management
Variable Costs : uniform per unit of output, within a time frame fluctuate in proportion to output
Fixed Costs : remain constant within a time frame , per unit cost decreases with increase in output, programmed costs (e.g., marketing expenses) , committed costs
Relevant Costs : occur in the future, differ among alternatives being considered
Sunk Costs : occurred in the past , mostly irrelevant to future decisions , sunk cost fallacy

-414020297180Trade Margin
Suppose a retailer purchases an item for $10 and sells it at $20.
Retailer Margin as a percentage of cost is: $10 / $10 x 100 = 100 percent
Retailer Margin as a percentage of selling price is: $10 / $20 x 100 = 50 percent
Contribution Analysis
Break-even point : is the unit or dollar sales at which an organization neither makes a profit nor a loss.
At the organization’s break-even sales volume: Total Revenue = Total Cost
opportunity analysis
A tool to identify and assess the attractiveness of business opportunity
A value chain: a set of value creating activities within a firm.

A value system: a set of value creating activities connecting a firm with other firms and customers
-55689525336500Considerations for value creation:
Trapped value: efficiency, accessibility, customer empowerment
New value: personalization, extension, community-building, collaboration
Horizontal plays: improve functional operations
Vertical plays: improve industry specific business activities
Product or Service Strategy
Distribution Channels
Describe how you will get your products or services in front of target customers. For example, a gourmet candy maker could start out by marketing at gourmet food fairs as well as selling the products through the company’s website. As the products become more popular and the brand name better known, the owner could begin wholesaling the products to specialty food stores or upscale grocery markets.

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Target Markets
Present a clear picture of who your best customers are or will be. Don’t limit your description of target markets in your business plan to basic demographic characteristics, such as age or income level.

Positioning Versus Competitors
When choosing among vendors of a product or service, potential customers compare their perceptions of the advantages and disadvantages of each company’s products and services. They consider the features or benefits that are important to them and try to identify the company that most closely meets their needs
Marketing Message
why the benefits of your products and services are powerful enough to give you a competitive advantage. Part of devising your marketing strategy is determining how best to communicate these compelling benefits to your target customers. 
Media and Methods
Explain the reasoning behind the platforms you chose to deliver your marketing message. Choosing poorly can mean wasting precious marketing dollars and losing opportunities to acquire customers. 
south delaware coors case
•Soon to be MBA Graduate Larry Brownlow is considering opening a Coors Distribution Center in Delaware
•Currently has $15,000 in funds available to conduct feasibility research and has commissioned an outside firm to complete
•Issue: Larry has limited funds available and must decide which marketing studies proposed by the research firm will be needed for him to make an informed decision on whether or not to pursue the distribution opportunity.

Larry: MBA Educated, Financially Stable, Entrepreneurial Sprit
Coors: Fourth largest brewery in the U.S., Uncompromising quality, closely controls distributors & vendors
Manson Research: Well respected research firm in the South Atlantic region, Computer modeling expertise, thorough, quality work.

Situation Analysis
Facts and Figures involved in the case:
Budget of 15,000 for research
Importance of sales and pricing
Population in the 2 county area
Target market or the percentage of consumers
Expenses of being a distributor of Coors Inc.

The study is limited to only secondary and primary data by Manson and Associates Research
Environmental factors: success of Coors depends on the two wholesalers
Strategic marketing factors: ranking in sales compared to other brands
Financing factors: $500,000 held in trust for Larry, access to only $15,000 for feasibility research

Manson & Associates Stage One Research
A – National and Delaware Per Capita Beer Consumption
Information on per capita consumption of beer in both the national scale and in Delaware
Population estimates, it provides information on possible demand of beer in both the national scale and in Delaware
It cannot provide information to estimate Coors’ potential market demand in Delaware
B – Population Estimates for Two Delaware Counties in Market Area.

Provides information about the number of potential customers
With Beer Per Capita Consumption, it can provide information on the potential demand of beer in Delaware
It cannot provide information to estimate Coors’ potential market demand in Delaware
C – Coors Market Share Estimates
Quantitative information is provided on Coors’ market share for the two county market area
It cannot provide clear information on Coors’ potential market demand in Delaware
D – Estimated Liquor and Beer Licenses for the Market Area.

Information on the number of liquor or beer sales operations in the market area
Information is provided relative to competition in the market area
E – Beer Taxes Paid by Delaware Wholesalers
Sales operations in the market area
Relative information on competition in the market area
F – Industry Composite Financial Statements
Financial information is given on the industry, considering: margins and returns
Stage Two Research Primary Data
G – Consumer Study
Offers information on customer preferences and the outlook concerning the product
Concentrates on group interviews and mail questionnaires of to establish customer’s past experiences, acceptance and intention to purchase Coors beer
H – Retailer Study
Gives information on retailers’ readiness and preferences to sell the product
I – Wholesale and Retail Beer Prices
Provides information on prices charged by wholesalers to retailers
What Larry Can Accomplish Himself
Study B, Population data and age 21+ can be researched using census data
Study C, market share can be attained through the Coors’ management or research, market watch shows Coors Light at 8.7% of total volume as of 2011
Total gallons consumed can be calculated through study E, in lieu of Study A
Visiting other distributors in the state, Larry can find out if Coors is as well liked in Delaware as it is nationwide
What Larry Has Researched
Start up costs of $800,000, annual costs of approximately $250,000
Beer in bottles/cans is 75% of sales, beer in kegs is about 25% of sales and is about 45% of the price of bottles/cans per gallon.

Funds available: $500,000 from trust fund, $400,000 from ‘other sources’ (assumed family/friends), $400,000 line of credit
What can be Calculated Based on Research
From Report E
Industry demand = taxes paid in market area / $.06 per gallon
From Report I
Estimation of the contribution per gallon
Average retail price – average wholesale price / .5625 (6 pack vol. vs liter vol.)
From report C, market share
Multiply market share by industry demand (a) to get expected sales vol.
Multiply this value times contribution per gallon (b) to get Gross Profit
Options ;Recommendations
Option 1
Perform no research on his own and only purchase research
Option 2
Perform some of the research on his own and purchase the remaining research from Manson ; Associates
Option 3
Purchase none of the studies from Manson and research everything on his own
With Larry’s $15,000 he should:
Perform the research necessary for studies A, B & C on his own
Move forward with studies D, E, F, G, H, and I from Manson and Associates
South Delaware Coors, Inc., Case Analysis Essay
Executive Summary
Larry Brownlow. shortly to be finishing his MBA. heard that Coors would be spread outing in two counties of South Delaware. Coors presently does non hold any distribution hubs in this or the environing countries. Consumers in the country know the Coors trade name and see the merchandise as a good tasting and quality merchandise. The consumer involvement in the Coors merchandise is high and will supply the demand for the merchandise. Larry has ever believed that the best concern chances and wagess are in smaller proprietor operated concerns and is interested in the chance to put in one of the Coors distributorships in South Delaware. Larry has $ 500. 000. 00 in a trust that will go available in a few months. Larry is really busy finishing his MBA and with his household that he is non able to make the proper research for the Coors investing chance so he enlisted the aid of Manson and Associates.

Manson and Associates is based in Wilmington. Delaware and carry on general research ; they have conducted other feasibleness surveies in the South Atlantic part of the state. They are best known for their computing machine mold and simulations and they deliver choice work to their clients. Larry has $ 15. 000. 00 available to pass on feasibleness research. which is non adequate to cover all of the proposed research so Larry will hold to make up one’s mind which research points provide him with the right information. The research information will supply Larry with the proper informations to make up one’s mind whether or non he should put in the Coors chance.

Problem Statement
Larry Brownlow has been given the chance to put in a new Coors distributorship enlargement in South Delaware. In this instance there exists two jobs that Larry Brownlow must turn to. The first job identified in this instance is Larry’s limited research budget of $ 15. 000. 00. Larry’s research budget is non adequate to cover all of the research provided by Manson and Associates. Larry must make up one’s mind what research will be most good to him for his determination of whether or non to put in the Coors distributorship chance. The 2nd job is Larry must do a determination on whether or non to put in the concern chance of get downing a Coors distributorship.

Analysis and Evaluation
Since Larry has a limited research budget of $ 15. 000. 00. It is critical that he selects the research that will help him the most in his determination to put in the Coors chance. The needed information to do a intelligent determination will be comprised of the undermentioned constituents: Industry demand. projected market portion. consumer credence of Coors. required investings. merchandise pricing. costs. and possible net incomes.

Industry Demand
To find the demand on the beer industry the information from Studies A ; A ; B is required to execute a per capita analysis. The cost for these two surveies is $ 2. 500. 00. The complete age 21 population. in Delaware. will be considered for both a per capita ingestion along with populations in both Kent and Sussex counties. The demand is computed by multiplying gallons of per capita beer ingestion by the population in Kent and Sussex counties. For illustration. the demand for the twelvemonth 2000 would be: 39. 4 gallons per capita ten ( 75. 200 + 85. 300 ) = 6. 324 million gallons of beer. In analysing the information for Studies A ; A ; B the information has a go oning growing tendency so the demand should increase twelvemonth over twelvemonth every bit good. The industry demand can besides be computed by utilizing a tax-based attack.

The information from Study E. which costs $ 200. 00. will be required to execute this analysis. Study E merely provides revenue enhancement information for 1997 and 1998 so the revenue enhancement will hold to be projected frontward to 2000. The revenue enhancement addition between 1997 and 1998 is 6. 3 % . Table 1 shows what the jutting revenue enhancements are through the twelvemonth 2000. a 6. 3 % additive revenue enhancement addition is assumed. The Beer revenue enhancements are based on a volume sold footing and are taxed at $ 0. 06 per gallon. To find the demand the revenue enhancements paid by each jobber in the twelvemonth 2000 should be divided by $ 0. 06 to find how many gallons each jobber sold. Table 2 shows the figure of gallons sold by each jobber and the entire figure of gallons sold by all jobbers combined. The demand as computed by the tax-based attack is 5. 758 million gallons of beer.

Now there are two demand computations so one needs to be selected for Larry and his determination. The best demand computation is the tax-based attack. The tax-based attack is better because it is determined from the revenue enhancements that have been paid by jobbers in the direct market country so it more accurately reflects the demand in this market country. Both of these demand estimations have some grade of mistake so potentially a better demand prognosis could be used. nevertheless. despite many efforts at demand finding for beer it is hard to understand the nature of the demand coevals ( Fogarty. 2010 ) . The per capita attack is based upon the broader population of Delaware.

Projected Market Share
To find the jutting market portion you need the industry demand computations and the information from Study C. which costs $ 2. 000. 00. The market portion informations shows a really stable 8. 8 % market portion. The jutting market portion for Larry and his distributorship would be 6. 3237 million gallons of beer multiplied by 8. 8 % . which equals 556. 486 gallons of beer utilizing the per capita demand computations. Using the tax-based demand computations the projected market portion is 506. 733 gallons of beer. The information provided by Manson and Associates could be evaluated and their computing machine theoretical accounts improved. Wilcox ( 2001 ) computed the market portion of all major US beer providers. The market portion for Coors is ~13 % . Manson and Associate’s theoretical accounts could be improved by sporadically reexamining the theoretical account end product with industry tendencies and historical industry informations. To this point Larry has spent $ 4. 700 of his $ 15. 000 research budget.

Customer Analysis
Customer credence is of critical importance for Larry’s success. The information on public perceptual experiences of the Coors trade name and what people have to state about the Coors merchandise. this requires that Study G be performed at a cost of $ 6. 000 go forthing $ 4. 300 in the research budget. Harmonizing to Mosher ( 2012 ) the beer industry has been turning steadily particularly in the young person market ; older frequenters tend to be more drawn to liquors. With this informations Larry may desire to aim the bulk of his advertisement to the younger ( 21 and over ) demographic. Larry should non wholly disregard the older demographic. nevertheless. and should besides use some advertisement here every bit good.

InvestingsLarry estimated what his initial investings would be for the Coors chance and that investing would necessitate to be $ 800. 000. but he left out hard currency and histories receivables. Datas from Study F is required to gauge these line points. The costs the Larry did gauge history for 74. 1 % of assets in Study F. A revised investing estimation can be found in Exhibit 1. The entire investing required is calculated by: $ 800. 000/0. 741 = $ 1. 079. 622. The entire investing is so multiplied by 11. 1 % for hard currency finding and 14. 8 % for histories receivable finding. Cash = $ 1. 079. 622 ten. 111 = $ 119. 838. Histories receivable = $ 1. 079. 622 ten 0. 148 = $ 159. 784.

In order to supply for this investing Larry has the chance for a $ 400. 000 loan from a bank every bit good as a $ 400. 000 loan from household and friends. Larry should leverage both of these loan options every bit good as retreating $ 279. 622 from his $ 500. 000 trust. The information provided by Study F may non be wholly valid for this market country. It is non clear what regions the 510 jobbers conduct concern. If this information is all based upon Midwest wholesalers the investing Numberss for Larry could be even higher.

Merchandise Pricing
Merchandise pricing will be on a gallon footing. The mean sweeping monetary value per gallon for both bottles/cans and kegs demands to be determined. To calculate the sweeping gallon monetary values informations from Study I. at a cost of $ 2. 000. will be required. The mean sweeping monetary value for six packs of bottles/cans is ( $ 3. 29+ $ 3. 29+ $ 3. 29+ $ 2. 57+ $ 3. 29+ $ 2. 68+ $ 3. 68 ) /7 = $ 3. 16 per-six battalion. The sweeping gallon monetary value for bottles/can can be determined by multiplying $ 3. 16 ( sweeping six-pack monetary value ) by 1. 77 ( multiplier for sweeping gallon cost ) . which yields: $ 5. 59 as the sweeping per gallon monetary value for bottles/cans. The sweeping per gallon monetary value demands to be determined for kegs.

The information in the instance indicates that kegs are 45 % of the sweeping monetary value of bottles/cans so the sweeping per gallon monetary value for kegs is = $ 5. 59?0. 45 = $ 2. 52 per gallon. The overall mean sweeping monetary value per gallon takes into history that bottles/cans sells at a three to one ratio over kegs. Therefore. the overall mean sweeping monetary value per gallon is ( 0. 75 ten $ 5. 59 ) + ( 0. 25 ten $ 2. 52 ) = $ 4. 82 per gallon wholesale. Larry should monetary value his six packs at least $ 3. 16 each and for each keg. which contains 15. 5 gallons. the sweeping monetary value should be at least $ 39. 09. With information from Study I Larry should be able to monetary value his six packs somewhat higher than the lower limit of $ 3. 16.

CostssThe first costs to be determined are the fixed costs. Larry estimated what he believed his fixed costs would be but neglected to include involvement payments. advertisement. and travel. The information from Study F. which costs $ 49. 50. will be required to help in finding Larry’s fixed costs. After all research Larry has $ 2. 250. 50 staying in his research budget. Exhibit 2 provides a revised fixed costs estimation. The loan refund is broken into two line points. The first is the $ 400. 000 line of recognition from the bank with a 15-year term at 7 % involvement rate. The 2nd is a loan from household and friends of $ 400. 000 with at 15-year term at 5 % involvement rate. Advertising budget is 1 % of the net gross revenues from the projected market portion. mean gallon monetary value. and demand computations. ( 506. 733 gallons x $ 4. 82 per gallon ) x 0. 01 = ~ $ 24. 000.

This advertisement budget is higher than what other jobbers are presently passing but in order to allow that clients and retail merchants know Larry is ready for concern some advertisement demands to be done. Travel has been entered at $ 10. 000 one-year outgo. There will be quarterly visits for Larry to Coors’ central office. These trips will include airfare. housing. and rental auto. Variable costs need to be determined. The variable costs incorporated here will be cost of goods sold ( COGS ) and incentive compensation. From Study F the COGS for the beer sweeping industry are 77. 1 % . Exhibit 3 shows the tabular array for estimated variable cost. The entire COGS = $ 4. 82 ( . 771 ) + 4. 82 ( 0. 03 ) = $ 3. 86 per gallon that includes the $ 0. 06 per gallon beer revenue enhancement.

Net incomes
Break-even volume and dollar analysis can be calculated. Break-even volume = ( entire fixed costs ) / ( unit gallon merchandising monetary value – unit gallon variable costs ) . Puting the information into the equation yields break-even volume = 364. 400/ ( $ 4. 82- $ 3. 86 ) = 379. 583 gallons is the break-even volume that Larry needs to accomplish. The break-even dollar volume is 379. 583 ten $ 4. 82 = ~ $ 1. 83 million dollars. Once the break-even volume is achieved Larry would be doing net income for his concern since all costs should be paid for in the given twelvemonth. This should be easy achieved due to the expected market portion of 506. 733 gallons.

The break-even volume is at 75 % of his overall estimated market portion and by accomplishing this market portion Larry will hold a net income determined by ( 506. 733 gallons – 379. 583 gallons x $ 4. 82/gallon ) = $ 612. 863 for the twelvemonth and with the informations from Study F the mean jobber gross net income is 22. 9 % . In dollars the mean jobber gross net income is: 506. 733 gallons x $ 4. 82 ten 0. 229 = $ 559. 321 on this degree of gross revenues. Larry would be on the high terminal of the gross net incomes as compared to his rivals. His gross net income per centum of net gross revenues is $ 612. 863/ ( 506. 733 ten $ 4. 82 ) = 25. 1 % which is 2. 2 % greater than the mean gross net income for jobbers in this market country. Larry’s net net income. before revenue enhancements. would be ( 506. 733 ten $ 4. 82 ten 0. 022 ) = $ 53. 734.

To assist visually see the pros and cons a Strengths. Weaknesses. Opportunities. and Threats ( SWOT ) analysis is provided in Exhibit 4. SWOT is a method of placing and structuring relevant informations in order to ease the determination devising procedure ( Kerin & A ; Petersen. 2013 ) . After analysing the information and the computations Larry should put in the Coors chance. Larry. in his first twelvemonth of concern will ensue in a nice net income and with his larger than mean advertisement budget he has the chance to turn his market portion to 13 % or better per Wilcox ( 2001 ) and his beer industry market portion research. 81. 2 % of consumers in the market country will seek the Coors trade name so the market demand is good.

Coors. A. ( 2000. January 1 ) . Molson Coors Corporate Website. Retrieved January 22. 2013. from Molson Coors Investor Relations: hypertext transfer protocol: //phx. corporate-ir. net/phoenix. zhtml? c=101929 & A ; p=irol-reportsannual Fogarty. J. ( 2010 ) . The demand for beer. vino. and liquors: A study of the literature. Journal of Economic Surveys. 24 ( 3 ) . 428-478. Kerin. R. A. . & A ; Petersen. R. A. ( 2013 ) . Strategic selling jobs: Cases and remarks ( 13th ed. ) . Boston. MA. USA: Pearson. Mosher. J. F. ( 2012 ) . Joe camel in a bottle: Diageo. the Smirnoff trade name. and the transmutation of the young person intoxicant market. American Journal of Public Health. 102 ( 1 ) . 56-63. Wilcox. G. B. ( 2001 ) . Beer trade name advertisement and market portion in the United States: 1977 to 1998. International Journal of Advertising ( 20 ) . 149-168.