DATA FOR THE QUESTION
Consumer research showed that the product had superior taste to the original and competitors. There was 85% intent to purchase among adult ketchup users who represent about 15 % of the ketchup market volume. Total Canadian Market is estimated at 5 million units. The costs have been estimated. Costs for producing Spicy Ketchup Competitive Comparisons with consumer perception Competitive Comparisons Retail Market Consumer perceptions Brand price 1L share Texture Taste Value Heinz 2.99 50 % High High High original PC Brand 2.79 25% Med High High $.48 $.50 $.27 Raw materials Packaging Direct Labour Production overhead Administrative expenses Advertising and promotion Retail and Wholesale margin No name 2.49 15 % Med Low Low Hunts 2.79 10 % Med High Med $ 100,000 $ 120,000 $ 500,000 20% Total 2.85 100% High High Spicy tbd tbd High Ketchup 1 Average Retail Price (weighted average) Your task: When selecting pricing options, consider the following Compare financial impact of four pricing strategies and make a pricing recommendation supported by financial facts. 1. 2. 3. 4. 5. What factors might Heinz consider in setting the price for this new product? (Hint: 5 C's of marketing) How helpful is the market research provided in this case to evaluate alternative pricing strategies? How elastic is the product category? Explain your answer providing at least 4 drivers of elasticity. How might market share forecasts be impacted by various pricing strategies? How might Marketing Budget Estimates be impacted by various pricing strategies? How might other elements of marketing mix be affected by pricing decisions? This case is for the product manufacturer, so you need to be able to calculate manufacturer selling price from the retail selling price provided in the research. How significant do you think that cannibalization of existing product might be i.e. impact on Sales and Gross Profit on Heinz Original product sales)? 1. Select 4 pricing options that Heinz might consider for this new product. For each pricing option, provide sales forecasts and marketing mix assumptions. 2. Create and compare pro-forma income statements, ratio and breakeven analysis for first year. Use Pro-forma template provided. 3. Which retail price do you recommend for this product? Justify your recommendation using at least five financial facts from your pro-forma and analysis. Hint: Recommendations will depend on the business objective that you assume. 6. 7. 8. Assumptions Option 1 Option 2 Option 3 Option 4 Notes Line Item Price Strategy 1 Retail Price 2 3 4 Manufacture Price Manufacturers' VC per Unit Contribution per unit Market Share assumption 5 6 7 Forecasted units Proforma Income statement Sales Revenue 8 9 COGS Gross Profit/Contribution 10 Advertising Costs 11 Other Fixed Costs 12 Total Fixed Costs 13 14 Net Profit Analysis Gross Margin 15 Net Profit Margin 16 Breakeven (in units) 17 BE Market Share 18 19 Margin of Safety Advertising as % of Sales Forecast Cannibalization(high, medium or low) 20 21 Consumer research showed that the product had superior taste to the original and competitors. There was 85% intent to purchase among adult ketchup users who represent about 15 % of the ketchup market volume. Total Canadian Market is estimated at 5 million units. The costs have been estimated. Costs for producing Spicy Ketchup Competitive Comparisons with consumer perception Competitive Comparisons Retail Market Consumer perceptions Brand price 1L share Texture Taste Value Heinz 2.99 50 % High High High original PC Brand 2.79 25% Med High High $.48 $.50 $.27 Raw materials Packaging Direct Labour Production overhead Administrative expenses Advertising and promotion Retail and Wholesale margin No name 2.49 15 % Med Low Low Hunts 2.79 10 % Med High Med $ 100,000 $ 120,000 $ 500,000 20% Total 2.85 100% High High Spicy tbd tbd High Ketchup 1 Average Retail Price (weighted average) Your task: When selecting pricing options, consider the following Compare financial impact of four pricing strategies and make a pricing recommendation supported by financial facts. 1. 2. 3. 4. 5. What factors might Heinz consider in setting the price for this new product? (Hint: 5 C's of marketing) How helpful is the market research provided in this case to evaluate alternative pricing strategies? How elastic is the product category? Explain your answer providing at least 4 drivers of elasticity. How might market share forecasts be impacted by various pricing strategies? How might Marketing Budget Estimates be impacted by various pricing strategies? How might other elements of marketing mix be affected by pricing decisions? This case is for the product manufacturer, so you need to be able to calculate manufacturer selling price from the retail selling price provided in the research. How significant do you think that cannibalization of existing product might be i.e. impact on Sales and Gross Profit on Heinz Original product sales)? 1. Select 4 pricing options that Heinz might consider for this new product. For each pricing option, provide sales forecasts and marketing mix assumptions. 2. Create and compare pro-forma income statements, ratio and breakeven analysis for first year. Use Pro-forma template provided. 3. Which retail price do you recommend for this product? Justify your recommendation using at least five financial facts from your pro-forma and analysis. Hint: Recommendations will depend on the business objective that you assume. 6. 7. 8. Assumptions Option 1 Option 2 Option 3 Option 4 Notes Line Item Price Strategy 1 Retail Price 2 3 4 Manufacture Price Manufacturers' VC per Unit Contribution per unit Market Share assumption 5 6 7 Forecasted units Proforma Income statement Sales Revenue 8 9 COGS Gross Profit/Contribution 10 Advertising Costs 11 Other Fixed Costs 12 Total Fixed Costs 13 14 Net Profit Analysis Gross Margin 15 Net Profit Margin 16 Breakeven (in units) 17 BE Market Share 18 19 Margin of Safety Advertising as % of Sales Forecast Cannibalization(high, medium or low) 20 21
