At year end of 2020, brand X noticed a slight profit decrease compared to previous years. In an attempt to revive their profits for next year and reach their objective of $15M, they are considering two alternative strategies:

STRATEGY 1: increase the marketing budget by $570,000 (plan to introduce a new national advertising campaign), while everything else remains the same.

STRATEGY 2: decrease retail price by $1.75 (to stimulate demand), while everything else remains the same, including trade margins.

Below you'll find 2020 information about Brand X and the market.

Retail price: $57.50 Retain margins (on selling price): 43%

Cost of production: $4.85 per unit Packaging cost: $1.10 per unit Other miscellaneous variable costs: $6.45 Fixed manufacturing costs: $125,000 / month Managerial salaries: $105,000 / biweekly (every second week) * assume 52 weeks in a year Marketing budget: $1,675,000 / year Salespeople commission: 10% of manufacturing price

Market size: 18 million Brand X's market share: 6%

1. How much profit did Brand X make in 2020?

2. In 2021, industry demand is expected to increase by 1.5%. a) If Brand X decides to implement strategy 1, what market share do they have to capture to make $15M in profits? b) If Brand X decides to implement strategy 2, what market share do they have to capture to make $15M in profits? c) Based on your answers for questions 2a and 2b, which strategy would you recommend, and explain why.