Shown following are data from case Exhibit 5, along with estimates for a 20 percent return on investment, estimates for expenditures on advertising and promotion, unit contribution margins for the various distribution and pricing options as given in the case, and resulting Breakeven quantities. Student results will differ based on their assumptions for ROI and expenditures for advertising and promotion.
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Operational Scope |
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Two Regions |
Four Regions |
National Market |
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1998 Market Potential Initial Investment (Rs.000) |
55,000 units 4,000 |
110,000 units 8,000 |
430,000 units 30,000 |
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20% Return on Initial Investment (Rs.000) Advertising and Promotion (Rs.000) |
800 500 |
1,600 1,000 |
6,000 2,000 |
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Analysis for Dealer Channels Fixed Overhead(Rs.000) Total Fixed Costs (Rs.000) Skimming Unit C.M. (Rs.) Skimming Breakeven Q Penetrating Unit C.M. (Rs.) Penetrating Breakeven Q |
4,000 5,300 650 8,155 units 300 17,670 units |
7,000 9,600 650 14,770 units 300 32,000 units |
40,000 48,000 650 73,850 units 300 160,000 units |
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Analysis for Direct Salesforce Fixed Overhead (Rs.000) Total Fixed Costs (Rs.000) Skimming Unit C.M. (Rs.) Skimming Breakeven Q Penetrating Unit C.M. (Rs.) Penetrating Breakeven Q |
7,200 8,500 500 17,000 units 200 42,500 units |
14,000 16,600 500 33,200 units 200 83,000 units |
88,000 96,000 500 192,000 units 200 480,000 units |
Students should compare Breakeven quantities above with the three estimates of market size, shown on the first line above and in case Exhibit 5. The range for Breakeven market share is (14,770 units)/(110,000 units) = 13.4 percent for the skimming price and dealer channel combination to (480,000 units)/(430,000 units) = 111.6 percent for the penetrating price and direct salesforce combination.
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