DELIVERABLE C: SALES & MARKETING

i. Marketing

Marketing is the process by which a company creates and distributes something of value to its customers. It encompasses a wide range of activities in your business. The 4 P's of marketing - product, price, promotion, and place - provide a framework for understanding the process of creating and distributing value to customers.

1. How would you define the product offered at your caf? Is it just coffee, or is it something more than that?
2. What methods can you use for setting price? What tools are available for measuring the impact on your price decision?
3. What is the role of advertising and promotion in your marketing mix? How might you measure the effectiveness of your advertising and promotion decisions?
4. The location of your caf was chosen for you. What decision(s) can you make in the context of the simulation that affects distribution of your product? Can you think of any other distribution options outside the context of the simulation?
5. Who is your target customer?
6. What is the best mix of decisions for marketing to your target customer? Be specific about product, price, promotion, and place (distribution) decisions.

ii. Pricing

Pricing is an important decision in BizCaf. When setting price, you need to consider both the cost of your product and expectations of consumers in the market. You can use break-even analysis to project how many cups you need to sell at a given price to cover costs. But you also want to understand the impact of price on the demand for your product and the revenue generated. In this assignment you will look at some examples of how price can impact demand and how that can affect financial results. Keep in mind that the numbers shown in this assignment are examples only and will differ from your actual results in the simulation.

1. Firms A, B, and C were all selling 1,000 cups of coffee per day at $3.50 per cup, and they wanted to experiment with pricing. The table below shows the change in sales as a result of their new prices; they made no other changes. Complete the table by calculating the revenue, cost of goods sold (COGS), and gross margin for each firm.

Firm	Price per Cup	Cups Sold	Revenue	COGS @ $0.35 per Cup	Gross Margin
Baseline	$3.50	1,000	$3,500	$350	$3,150
A	$3.00	1,150
B	$4.00	900
C	$2.50	1,450

1. Coffee prices are going up, and Firm B is trying to decide whether to pass on to customers a cost increase of 10 per cupto $0.45 per cup. If raising the price from $4.00 to $4.10 reduces demand by 2%, should they do it? What if demand goes down by 4%?
2. Lowering price does not always increase revenue with increased demand. Besides reducing price, what else can a firm do to stimulate demand for its product?
3. Caf X is selling coffee in 3 different sizes at the prices and costs shown in the table below. They are considering raising the price of their small to $2.75, and they project that sales of smalls will go down while sales of mediums and larges will go up slightly. make spreadsheet to calculate the projected change in gross margin based on the estimated changes in cups sold. Be sure to show all intermediate calculations.

Size	Price per Cup	Cost per Cup	Cups Sold	Est. Change in Cups Sold with Small @ $2.75
Small	$2.50	$0.20	2,500	-10%
Medium	$3.50	$0.35	1,500	+6%
Large	$4.50	$0.50	800	+3%

iii. Advertising Development

Advertising is more than just deciding how much to spend; it involves developing a message that appeals to your target audience. A good advertisement contains the following elements: copy (the written portion of the ad), illustration (photos and graphics), and signature (company logo). You will be creating an ad that appeals to the market segment you are targeting in your business plan.

In order for your ad to be effective, you should keep in mind the following items:

• What image are you trying to project?
• The advertising content should reflect your other decisions.
• Whether or not you choose to show an image of your product, consider that your ad is meant to create or feed the desire for your product. How you do that is up to you.
• Remember: Less is more in almost all cases.
• A half-page ad for the web is typically 300 pixels wide by 600 pixels tall.

You may use any graphics program to design the ad, but the submitted image must be formatted as a GIF, JPEG or PNG. You can post your ad from the CREATIVE tab within the simulation.

iv. Break-Even Analysis

Break-even analysis attempts to determine the volume of sales necessary for a business to cover costs, or to make revenue equal costs. It is helpful in setting prices, estimating profit or loss potentials, and planning for the coming period. There are a couple of formulas that will be helpful for this :

Break-Even Units =	Fixed Costs
Price - Unit Variable Cost

Break-Even Price = Variable Cost +	Fixed Costs
Projected Units

1. An important distinction is made in the calculation between fixed and variable costs. Fixed costs do not change with the units sold (at least in the short term). Variable costs depend on the units sold in the period. Identify each of the following as a fixed (F) or variable (V) cost in the context of BizCaf.

Item	Cost Type
Advertising
Coffee
Cups

Item	Cost Type
Equipment
Payroll
Rent

1. Calculate the break-even units if fixed costs are $12,000 and you are selling coffee for $3.60 at a cost of $0.40 per cup.
2. Using the same fixed and variable costs as in question 2, what is the new break-even point if the price is lowered to $2.90?
3. Using the fixed and variable costs from question 2, what is the break-even price if you project that you will sell 3,000 cups of coffee?
4. How can knowing the break-even units help you with other decisions?