Marketing Management and Strategy
Q1 part 1 (55 marks)
Explain why a product or service’s contribution (selling price minus variable cost) is an important element in developing a marketing strategy, giving examples to illustrate your answer. You can use any example including those covered in the module such as the Strategist Simulation or any of the other case studies examined.
Q1 part 2. (45 marks)
Imogen, the brand manager for ‘Skinsoft’, was reviewing price and promotion alternatives for her brand. She wanted to increase market share, but was unsure whether she should ask for an increase in advertising budget or consider a price promotion.
The current volume, price, and cost summary for ‘Skinsoft’ follows:
Imogen thought she might be able to negotiate with her boss and secure either a temporary 10 percent price reduction, or an investment of an incremental £150,000 in advertising.
a. What absolute increase in unit sales and revenue would be necessary to recoup the incremental increase in advertising expenditure?
b. What increase in absolute unit sales and revenue would be necessary to maintain the level of total contribution if the price is reduced by 10 percent?
c. Which alternative would you recommend to Imogen? Explain your choice.
Q2 Part 1 (40 marks).
Explain the difference between Existing, Latent and Incipient Demand, giving real examples in each
case. (40 marks)
Q2 Part 2 (60 marks).
What role does market research play in helping companies beDer sa3sfy each form of demand. Give
examples to illustrate your answer. (60 marks)
Q3.
Hendrix Ltd have just developed a new component, an ‘axis’ for use in large capacity flash drives. The
current component with which it would compete, costs £4 and its price in real terms has been
dropping at 7% per annum over the past three years.
Skinsoft
Unit Price £2.00
Unit Variable Cost £1.40
Unit Volume 1,000,000
Hendrix would be only the second supplier of these components to the market where demand is
estimated to be as follows:
current year 0.5 million units
next year 1 million units
year 3 1.5 million units
year 4 2 million units
Hendrix have been test manufacturing the ‘axis’ and they calculate that the 16th unit off the final
production line cost £100 and the company have estimated they will be opera3ng on an 80%
experience curve.
Part a. (50 marks)
Assuming the 80% experience curve holds for the manufacture of the components you are asked to
calculate the following:
i) If the 16th unit cost £100, what did the first unit cost?
ii) What will be the average cost per unit at the point at which Hendrix have produced a total
250,000 units of the component?
iii) What will be the average cost per unit at the point at which Hendrix have produced a cumulative
total of 2 million units?
Part b. (50 marks)
Based on the experience curve, recommend a pricing strategy to Noel Redding, the marke3ng
manager of Hendrix Ltd. poin3ng out any other issues which you feel he should consider.
