16. Stylco, Inc., is a producer of specialty clothing. To differentiate its designs and appeal to its African American target market, Stylco uses authentic African prints. Originally, it just focused on designs targeted at adults in the 35–44 age range.

However, sales to these middle-aged adults started to level off, so Stylco added a more conservative line of clothes for older consumers. Most buyers of the conservative styles are in the 45–59 age group.

Stylco has focused on distributing its products through select fashion boutiques in metropolitan market areas with the highest concentrations of African American consumers. This approach has reduced Stylco’s personal selling expense; as a result, however, only a percentage of the total black population is served by current Stylco retailers. For example, about half of the consumers in the 35–44 age group are in the market areas served by Stylco retailers.

Naomi Davis, Stylco’s marketing manager, read an article about the “graying of America.” This left her wondering how shifts in the age distribution might affect her market and sales.

To get a long-run view of these trends, she looked at census data on black consumers by age group. She also looked up estimates of the expected percent rate of change in the size of each group through the year 2010. By multiplying these rates by the size her target markets were in 2005, she can estimate how large they are likely to be in the year 2010. Further, from analysis of past sales data, she knows that the number of units the firm sells is directly proportional to the size of each age group. Specifically, the ratio of units sold to target market size has been about 5 units per 1,000 people (that is, a ratio of

.005). Finally, she determined the firm’s average unit profit for each of the lines. To see how changes in population are likely to affect Stylco units sold and future profits from each line, Davis programmed all of the data, and the relationships discussed earlier, into a spreadsheet.

a. Briely compare the profit data for 2005 and estimated profit for 2010 as it appears on the initial spreadsheet.

What is the basic reason for the expected shift? What are the implications of this and other data in the spreadsheet for Stylco’s marketing strategy planning?

b. The rate of growth or decline for different age groups tends to vary from one geographic region to another. Davis thinks that in the market areas that Stylco serves the size of the 35–44 age group may decrease by as much as 10 to 12 percent by 2010. However, the Census Bureau estimates that the decline of the black 35–44 age group for the whole country will only be about 21.7 percent. If the decline in the target market size for Davis’ market areas turns out to be 21.7 percent rather than the 210.1 she has assumed, what is the potential effect on profits from the young adult line? On overall profits?

c. Because more firms are paying attention to fast-growing ethnic markets, Davis thinks competition may increase in lines targeted at affluent African Americans in the 45–59 age group. Because of price competition, the line targeted at this group already earns a lower average profit per unit.

Further, as more firms compete for this business, she thinks that her “ratio of units sold to market size” may decrease.

Use the what-if analysis to prepare a table showing how percent of profit from this group, as well as total profit, might change as the ratio of units sold to market size varies between a minimum of .001 and a maximum of

.010. Explain the implications to the firm.