2 Nabisco the parent company of Life Savers and the Bubble Y

2. Nabisco, the parent company of Life Savers and the Bubble Yum line of chewing products. have developed a related product called Bubble Yum Glow. In addition to providing a product that can create large bubbles when blown, it actually glows in the dark The company has calculated that the cost of the gum ingredients will be $0.03 per package and the special glow-paper packaging will run $0.02 per package. Fixed expenses are expected to total $2.500,000 On the one hand, the company believes it can price below currently avai products, at $O.15 per package to wholesalers. At this price, they spend $2.500,000 on advertising for a successful launch and introduction. lable standard gum expect they will need to Alternatively, they can price above the competition, at $0.35 per package to wholesalers, but expect that they will need to spend $5.500.000 on advertising. In either case, management feels they need to make a profit of $1,000,000 on the I* year of sales. alternative pricing plans? (5 What are the target-profit breakeven points for both of the points) a) Both wholesalers and retailers use standard markup pricing. Wholesales normally take a 40% mark-up on cost. Retailers normally take a 50% mark-up on the wholesale price. Under both the high and low price scenarios, what would be the retail selling price? (3 points) b) e) As the marketing manager of Nabisco, explain the effect of advertising on the demand curve. Explain how this effect will lead to higher sales and profits. (2 points)

Solution

a. Let us assume that the target profit break even point is reached at x units in alternative 1 ( when Selling price is $ 0.15) & y units in alternative 2 ( when selling price is $ 0.35)

( Figures in $)

Less: Variable Cost

( $ 0.03 + $ 0.02) = $0.05 per package

As per the above equation,

0.10 x - $5000000 = $1000000

0.10 x = $6000000

x = 6000000/0.10

x = 60000000 packages

As per the equation,

0.30 y - $8000000 = $1000000

0.30 y = $9000000

y = 9000000/0.3

y = 30000000 packages

b. Retail Selling Price ( all figures in $)

c. Advertising can have a range of impacts on consumer demand for a product or service. Depending on the message you send with your advertising, you can target what type of demand your business will realize.

If your marketing plan calls for increasing sales among a certain type of consumer, such as women, seniors, mothers or other specific groups, your advertising can increase demand with those buyers. Changing the music, graphics and copy of an ad that sells the same product for the same price at which it has always been sold can increase demand among a new customer segment.

The effect of advertising on the demand elasticity depends on the extent to which the advertising rotates the demand curve, but also on the shift in the curve. In fact, curve rotation is neither necessary nor sufficient for advertising to alter the demand elasticity. Since this is important for empirical testing, it bears analysis.

In the short run, the impact of advertising on firms can have an impact on both supply and demand curves. Increased spending in research and development, as well as in advertising, has been shown in different studies to increase the demand curve for specific products.

The role of the marketing department is to increase the products demand, therefore generating more demand for the product, while at the same time making the product prices less sensible to changes in price, decreasing its elasticity. If the campaign is effective, the price of the product can increase, causing additional revenue.

Advertising can have both immediate and long term effects on your company\'s sales volume, depending on your objectives. Short-term sales promotions tend to lead to higher sales volume more quickly, whereas long-term brand management advertising produces higher sales and profits over time.

Advertising is a method of communication between the retailer and the customer. It is a marketing tool used for the purpose of informing, persuading and building brand recognition, leading to purchases of goods and services by the customer. Advertising is facilitated through a mass marketing approach, reaching large audiences with the goal of generating high levels of sales. As sales increase, economies of scale occur, which may lead to decreases in costs, ultimately creating higher profits and earnings enjoyed by investors.

Particulars	Alternative 1 (x units)	Alternative 2 ( y units)
Sales	0.15 x	0.35 y
Less: Variable Cost ( $ 0.03 + $ 0.02) = $0.05 per package	0.05 x	0.05 y
Contribution	0.10 x	0.30 y
Less : Fixed Cost
Manufacturing Expense	2500000	2500000
Advertising	2500000	5500000
Targeted Profit ( as given)	1000000	1000000