note that there are conceptual issues in each of the 3 Financial/Analytical Assignments.You should specifically identify any assumptions that you make and justify the decision(s) made.

This FAQ is based on JCI WS#4.

The Janmar VP of Sales has recognized that Account recruitment has been weak.She has suggested that Janmar add an additional salesperson (at a direct cost of $60,000 per year) whose duties are solely focused on account recruitment. Mr. Robert Burns, Janmars President, has emphasized that the emphasis must be on the long term profitability of the company. He has requested that the VP/Sales provide specific forecasts for account acquisition or conversion in the first year. The salespersons duties in Years 2 through 5 are focused on account retention only.

In response the VP/Sales has provided the following options.The forecasts depend on the specific strategy that the new salesperson follows.

Option#1 Forecast:

D single brand: 3 new accounts

D multiple brand : 3 new accounts

Option#2 Forecast:

ND single brand: 5 new accounts

ND multiple brand: 2 new accounts

Option#3 Forecast:

D: MBSB: 4 account conversions

ND: MBSB: 4 account conversions

Mr. Burns wishes that you determine the Lifetime Value of each of these 3 options using a 5 year time horizon for each forecast.For Forecasts 1 & 2 use the 10% discount factor from WS#4. However Mr. Burns considers the account conversions of Option#3 to be riskier and he requires a 20% discount factor for this strategy.

Your task is to determine the Lifetime Value of each Option.Explicitly show your thought process for each computation.

Given the above analyses, are there any other factors that would enter into your recommendation of which option should be followed? What is your specific recommendation?Would you have any doubts about your decision? Briefly discuss.

Janmar Worksheet #1: A Qualitative Review of the Paint Industry Objective: to understand the specific characteristics of the paint market WS#1: a compilation of the distinctive characteristics of the paint market with specific reference to the environment faced by Janmar. Pay particular notice to the set of margins described in the case! Market definition: broad (surface protection) vs. narrow (the benefit(s) provided by paint) Quality transparency/opaqueness (latent qualities) \"Product cost\" versus \"total cost\" Product life cycle - growth rate price behavior # of manufacturers Evaluative criteria - quality (durability) - aesthetics - ease of application - commoditization (price) Segments: OEM Special Forms Architectural coatings - DIY PP Margins Contractors Retail distribution Mass merchandisers Single brand/ Multiple brand Interior/exterior Latex/oil-based GM = CM = NPM= 40% 35% 9.5% MAR 4804 Dr. B. Seaton Janmar Worksheet #2: Assessing the Attractiveness of the Market and Sub-markets Using Recent Sales (2000 - 2004) Performance Focus \"Nominal\" Growth ($) \"Real\" Growth*($) Total Market (Ex.2) +5.7% -6.2% DFW Market (Ex.2) -5.7% -16.3% Non-DFW Market +29.0% +14.5% Janmar (p. 25) (dollar) +17% +1% p.a. +0% (volume) *Assuming a 3% inflation rate Note: growth rate is a strong contributor to market attractiveness Evaluate each of the above growth rates and use them to assess the 4 levels of performance. Janmar Worksheet #3 This worksheet calculates the Janmar market share in 4 market definitions and 4 possible modes of segmenting the market. All these market shares are mathematically correct but the key question is how meaningful are they? It is from such JUDGEMENTS that marketing expertise manifests itself!!! JC Market Share 1. 2. Industry sales (US) = $5.6B JC (US) = $12M 0.2% Regional sales JC (Regional) = $12M 15% = $80M D sales = $48M JC (D) = $6M 12.5% ND sales = $32M JC (ND) = $6M 18.75% Segment sales JC Sales JC Market Share $D * % Hh (70) =DHh$33.6M $D * % Hh(30) = DHh$1.8M DHh = 5.4 % $D * =DPp$14.4M $D * DPp = 29.2% % Pp $ND * % Hh(90) $ND * % Pp =NDHh$28.8M =NDPp$ 3.2M % Pp = DPp$4.2M $ND * % Hh(70) =NDHh$4.2M NDHh = 14.6% $ND x % Pp NDPp = 56% =NDPp$1.8M 1. Are all the above market definitions legitimate? 2. Suggest alternative market definitions. 3 What insights into competitive strength are provided by the market share determinations? 4. Given the information derived from Worksheets 2 and 3, provide a preliminary evaluation of the attractiveness of the 4 segments as defined by geographic area and buyer type. Glossary: GM CM NPM DFW N(on)DFW D (= DFW) : : : : : : gross margin contribution margin net profit margin Dallas/Ft.Worth metro area external to DFW metro area Dallas/Ft. Worth metro area ND DHh DPp NDHh NDPp painters Hh Pp : : : : : N(on) DFW metro area households metro area professional painters non-metro area householders non-metro area professional : : households professional painters Janmar Worksheet #4 Retail account analysis (Ex. 2, 3, text) Market No. of retail accounts: 1000 (450/550) (p. 24) J.C. No. of retail accounts: 200 (80/120) (p. 26) Market ($Mkt. / #stores = $ /store) J.B. ($Mkt. / #stores = $ /store) Total: $80M/#1,000 = $80K Total : $12M/# 200 =$60K D: $48M/#450 = $106.7K DFW : $6M /# 80 =$75K ND: $32M/#550 = $58.2K N-D : $6M /# 120 =$50K J.C. retail account analysis (Ex.3) Store type # stores $ sales $/Store D - single brand 14 $3.36M $240k D - multiple brand 66 $2.64M $40k(2 or 3) ND - single brand 20 $3.36M $168k 100 $2.64M $26k (*2 or 3) ND - multiple brand Using the above $/Store computations and - assuming a 5-year lifetime - assuming a 10% discount rate - using the contribution margin of 35% (p. 28) Calculate the lifetime values of i) each of the 4 types of Retail Store; ii) the lifetime value of converting a Multiple Brand Store to a singlebrand store. Store type $S/Store $C/Store 5Year PV Factor 3.79 (10%) LV($) D - single brand $240k $84k $318k D - multiple brand $40k $14k $53k ND - single brand $168k $59k $223k ND - multiple brand $26k $9k $36k $ Sales increase/store D: MBSB $200k $70k $265k ND: MBSB $142k $50k $186k Glossary: DV $PV GM CM NPM DFW N(on)DFW :dollar value :Dollar Present Value :gross margin :contribution margin :net profit margin :Dallas/Ft. Worth metro area :external to DFW metro area D (= DFW) :Dallas/Ft. Worth metro area ND :N (on) DFW DHh :metro area households DPp :metro area professional painters NDHh :non-metro area householders NDPp :non-metro area professional painters Hh :household Pp :professional painter Summer \"A\" 2017 MAR 4804/U02A/RXDA (M/W) Financial/Analytical Question #2 (FAQ#2): note that there are conceptual issues in each of the 3 Financial/Analytical Assignments. You should specifically identify any assumptions that you make and justify the decision(s) made. This FAQ is based on JCI WS#4. The Janmar VP of Sales has recognized that Account recruitment has been weak. She has suggested that Janmar add an additional salesperson (at a direct cost of $60,000 per year) whose duties are solely focused on account recruitment. Mr. Robert Burns, Janmar's President, has emphasized that the emphasis must be on the long term profitability of the company. He has requested that the VP/Sales provide specific forecasts for account acquisition or conversion in the first year. The salesperson's duties in Years 2 through 5 are focused on account retention only. In response the VP/Sales has provided the following options. The forecasts depend on the specific strategy that the new salesperson follows. Option#1 Forecast: D - single brand: 3 new accounts D - multiple brand : 3 new accounts Option#2 Forecast: ND - single brand: 5 new accounts ND - multiple brand: 2 new accounts Option#3 Forecast: D: MBSB: 4 account conversions ND: MBSB: 4 account conversions Mr. Burns wishes that you determine the Lifetime Value of each of these 3 options using a 5 year time horizon for each forecast. For Forecasts 1 & 2 use the 10% discount factor from WS#4. However Mr. Burns considers the account conversions of Option#3 to be riskier and he requires a 20% discount factor for this strategy. Your task is to determine the Lifetime Value of each Option. Explicitly show your thought process for each computation. Given the above analyses, are there any other factors that would enter into your recommendation of which option should be followed? What is your specific recommendation? Would you have any doubts about your decision? Briefly discuss. Note: points are in parentheses. The submission (FAQ #2) is due 5/21 (Sunday) at 11:59 PM. (Use Messages function on BB). You are to submit on either an individual basis or in collaboration with one other student in your Team. You may not collaborate with the same student with whom you submitted FAQ#1. You should not discuss the assignment with any other students. If you use a reference you should cite the source. Either type answers in MSWord or scan to a pdf file. Do not use JPEG! Make sure that your name is on the FILE itself. Note: 0.5 points may be deducted for each hour, or part thereof, that a submission is late, with a maximum of 5 points per 24 hours. This is based on 20 points per question! MAR 4804 Janmar - Introduction Introduction: the key marketing/financial concepts that are employed in this case. You should have some level of familiarity with most of them! Key Concepts Branding Break even analysis Capacity utilization rate Cause and Effect (goal-oriented activity) Channel control Consumer decision process Contribution analysis Defensive/offensive strategies Derived demand Elastic/inelastic demand Exclusive distribution Market definition Market segments Market share Price/quality relationship Product line pricing Value in use pricing MAR 4804 Dr. B. Seaton Janmar Worksheet #1: A Qualitative Review of the Paint Industry Objective: to understand the specific characteristics of the paint market WS#1: a compilation of the distinctive characteristics of the paint market with specific reference to the environment faced by Janmar. Pay particular notice to the set of margins described in the case! Market definition: broad (surface protection) vs. narrow (the benefit(s) provided by paint) Quality transparency/opaqueness (latent qualities) \"Product cost\" versus \"total cost\" Product life cycle - growth rate price behavior # of manufacturers Evaluative criteria - quality (durability) - aesthetics - ease of application - commoditization (price) Segments: OEM Special Forms Architectural coatings - DIY PP Margins Contractors Retail distribution Mass merchandisers Single brand/ Multiple brand Interior/exterior Latex/oil-based GM = CM = NPM= 40% 35% 9.5% MAR 4804 Dr. B. Seaton Janmar Worksheet #2: Assessing the Attractiveness of the Market and Sub-markets Using Recent Sales (2000 - 2004) WS#2: the evaluation of market attractiveness is a key component of marketing strategy. The criteria for such an evaluation includes the market growth rate, competitive intensity and the strength of current or potential competitors, profit margins, ease of entry and exit and technological threats. The worksheet focuses on the market and submarket growth rates in both nominal (dollar) and real (inflation adjusted) measures and the performance of Janmar (in both dollar and unit dimensions). Performance Focus \"Nominal\" Growth ($) \"Real\" Growth*($) Total Market (Ex.2) +5.7% -6.2% DFW Market (Ex.2) -5.7% -16.3% Non-DFW Market +29.0% +14.5% Janmar (p. 25) (dollar) +17% +1% p.a. +0% (volume) *Assuming a 3% inflation rate Note: growth rate is a strong contributor to market attractiveness Evaluate each of the above growth rates and use them to assess the 4 levels of performance. MAR 4804 Janmar Worksheet #3: Assessing Competitive Strength Using Market Share as an Indicator This worksheet calculates the Janmar market share in 4 market definitions and 4 possible modes of segmenting the market. All these market shares are mathematically correct but the key question is how meaningful are they? It is from such JUDGEMENTS that marketing expertise manifests itself!!! JC Market Share 1. 2. Industry sales (US) = $5.6B JC (US) = $12M 0.2% Regional sales JC (Regional) = $12M 15% = $80M D sales = $48M JC (D) = $6M 12.5% ND sales = $32M JC (ND) = $6M 18.75% Segment sales JC Sales JC Market Share $D * % Hh (70) =DHh$33.6M $D * % Hh(30) = DHh$1.8M DHh = 5.4 % $D * =DPp$14.4M $D * DPp = 29.2% % Pp $ND * % Hh(90) $ND * % Pp =NDHh$28.8M =NDPp$ 3.2M % Pp = DPp$4.2M $ND * % Hh(70) =NDHh$4.2M NDHh = 14.6% $ND x % Pp NDPp = 56% =NDPp$1.8M 1. Are all the above market definitions legitimate? 2. Suggest alternative market definitions. 3 What insights into competitive strength are provided by the market share determinations? 4. Given the information derived from Worksheets 2 and 3, provide a preliminary evaluation of the attractiveness of the 4 segments as defined by geographic area and buyer type. Glossary: GM CM NPM DFW N(on)DFW D (= DFW) ND : : : : : : : gross margin contribution margin net profit margin Dallas/Ft.Worth metro area external to DFW metro area Dallas/Ft. Worth metro area N(on) DFW DHh DPp painters NDHh NDPp painters Hh Pp : : metro area households metro area professional : : non-metro area householders non-metro area professional : : households professional painters MAR 4804 Janmar Worksheet #4: Market and Retail Account Analysis (COMPLETE) WS#4: this worksheet provides an example of determining the present value of an activity, either account acquisition or account conversion. For example, given a mean level of performance, the present value of a single brand store (given a plausible set of assumptions) is $318k. In marketing terminology this provides a framework for estimating brand equity or customer equity. Retail account analysis (Ex. 2, 3, text) Market No. of retail accounts: 1000 (450/550) (p. 24) J.C. No. of retail accounts: 200 (80/120) (p. 26) Market ($Mkt. / #stores = $ /store) J.B. ($Mkt. / #stores = $ /store) Total: $80M/#1,000 = $80K Total : $12M/# 200 =$60K D: $48M/#450 = $106.7K DFW : $6M /# 80 =$75K ND: $32M/#550 = $58.2K N-D : $6M /# 120 =$50K J.C. retail account analysis (Ex.3) Store type # stores $ sales $/Store D - single brand 14 $3.36M $240k D - multiple brand 66 $2.64M $40k(2 or 3) ND - single brand 20 $3.36M $168k ND - multiple brand 100 $2.64M $26k (*2 or 3) Using the above $/Store computations and - assuming a 5-year lifetime - assuming a 10% discount rate - using the contribution margin of 35% (p. 28) Calculate the lifetime values of i) each of the 4 types of Retail Store; ii) the lifetime value of converting a Multiple Brand Store to a singlebrand store. Store type $S/Store $C/Store 5Year PV Factor 3.79 (10%) LV($) D - single brand $240k $84k $318k D - multiple brand $40k $14k $53k ND - single brand $168k $59k $223k ND - multiple brand $26k $9k $36k $ Sales increase/store D: MBSB $200k $70k $265k ND: MBSB $142k $50k $186k Glossary: DV $PV GM CM NPM DFW N(on)DFW :dollar value :Dollar Present Value :gross margin :contribution margin :net profit margin :Dallas/Ft. Worth metro area :external to DFW metro area D (= DFW) :Dallas/Ft. Worth metro area ND :N (on) DFW DHh :metro area households DPp :metro area professional painters NDHh :non-metro area householders NDPp :non-metro area professional painters Hh :household Pp :professional painter MAR 4804 Janmar: WS #5 Buying Influences and Processes This worksheet provides a framework for distinguishing between the buying influences and processes of the distinct buyer types of households, namely (DIY) and professional painters. The key issue is how their distinguishing characteristics either help or hinder Janmar marketing efforts. Factor Households Knowledge Transaction Type Role of Price Channel Choice Loyalty Services required Information Availability Inventory Nature of Demand Overall Similarity/Distinction Professional Painters MAR 4804 Dr. B. Seaton Janmar W/S #6: Consumer Response to a 20% J.C. price cut Consider the various reactions that consumers could adopt in response to the J.C. price cut, assuming that it is \"passed through\" Value (+,0,-) = Perceived benefits/price Perception 1: Value (0) = Perceived benefits () /price () Perception 2: Value (+) = Perceived benefits (0) /price () Perception 3: Value (-) = Perceived benefits () /price () Perception 4: Value (0) = Perceived benefits (0) /price (0) MAR 4804 WS#6B: Janmar 20% Price Cut - Possible Retail Responses Assume that the typical retail store has a GM of 40%: Hence the following: Initial Price cut (1) Price cut (2) Price cut (3) Retail $100 $100 $80 $88 CGS $60 $48 $48 $48 (Janmar SP) $GM (R) $40 $52 $32 $40 %GM (R) 40% 52% 40% 45.5% Which of the above would characterize as a price cut \"pass through\"? What recommendation would you give to a retail client? MAR 4804 JCI: WS#8, Evaluation of $350,000 in Consumer Advertising To review this issue we need to compute the \"break even\" volume increase and assess the likelihood of this increase being attained. There are 2 options for this calculation! A. Assume that the minimum requirement for success is that the $350,000 in advertising be recovered in a specified time period. Procedure: i) Calculate the volume increase to \"break even\" as follows: $350,000/0.35 (see WS#1); $1,000,000 ii) Determine the required increase in market share! ($1,000,000/$33,600,000) * 100 % = 3.0% increase or 3/5.4% = 55.6% increase B. Make a judgement as to the probability of achieving the necessary sales increase. Assume that the minimum requirement for success is that the $350,000 in advertising results in a sales increase, in a specified time period, that maintains the current 9.5% NP ratio. Procedure: i) Calculate the volume increase to \"break even\" as follows: $350,000/0.255 (see WS#1); $1,373,000 ii) Determine the required increase in market share! ($1,373,000/$33,600,000) * 100 = 4.1% increase or (4.1/5.4) * 100 % = 76% (assuming a 1 year time period) Make a judgement as to the probability of achieving the necessary sales increase in each of A & B. MAR 4804 Dr. B. Seaton JCI: WS#7: 20% Price Cut, Single Brand Store Under what conditions would you expect retailers to pass a J.C. price cut through to their customers? J.C. objectives and Retailer objectives may DIFFER. A: SINGLE BRAND (J.C.) Store Assume Retailer GM is 40%: To maintain $ sales, paint volume would need to increase by 13-25% to compensate for a 20% price cut! Exact amount would depend on exactly how price cut was passed through. To maintain $ contribution (assuming retail margins are 40%), required increase in paint volume would depend on how JCI price cut was passed through (see WS#6B). If price cut not passed through and paint gallonage is not affected, what would be the impact on contribution? If sales did increase would you anticipate sales increases to come from an increase in the market, i.e. the \"pie\" growing? OR A redistribution of sales from competing brands and/or stores? Within a specific store would you anticipate sales increases to come from? i) More customers? From the same or a different type of customer? ii) The average customer purchasing a greater amount of paint? Compare the price sensitivity of household (DIY) and Professional Painters! Discuss! Janmar Worksheet #1: A Qualitative Review of the Paint Industry Objective: to understand the specific characteristics of the paint market WS#1: a compilation of the distinctive characteristics of the paint market with specific reference to the environment faced by Janmar. Pay particular notice to the set of margins described in the case! Market definition: broad (surface protection) vs. narrow (the benefit(s) provided by paint) Quality transparency/opaqueness (latent qualities) \"Product cost\" versus \"total cost\" Product life cycle - growth rate price behavior # of manufacturers Evaluative criteria - quality (durability) - aesthetics - ease of application - commoditization (price) Segments: OEM Special Forms Architectural coatings - DIY PP Margins Contractors Retail distribution Mass merchandisers Single brand/ Multiple brand Interior/exterior Latex/oil-based GM = CM = NPM= 40% 35% 9.5% Janmar Worksheet #1: A Qualitative Review of the Paint Industry Objective: to understand the specific characteristics of the paint market WS#1: a compilation of the distinctive characteristics of the paint market with specific reference to the environment faced by Janmar. Pay particular notice to the set of margins described in the case! Market definition: broad (surface protection) vs. narrow (the benefit(s) provided by paint) Quality transparency/opaqueness (latent qualities) \"Product cost\" versus \"total cost\" Product life cycle - growth rate price behavior # of manufacturers Evaluative criteria - quality (durability) - aesthetics - ease of application - commoditization (price) Segments: OEM Special Forms Architectural coatings - DIY PP Margins Contractors Retail distribution Mass merchandisers Single brand/ Multiple brand Interior/exterior Latex/oil-based GM = CM = NPM= 40% 35% 9.5% MAR 4804 Dr. B. Seaton Janmar Worksheet #2: Assessing the Attractiveness of the Market and Sub-markets Using Recent Sales (2000 - 2004) Performance Focus \"Nominal\" Growth ($) \"Real\" Growth*($) Total Market (Ex.2) +5.7% -6.2% DFW Market (Ex.2) -5.7% -16.3% Non-DFW Market +29.0% +14.5% Janmar (p. 25) (dollar) +17% +1% p.a. +0% (volume) *Assuming a 3% inflation rate Note: growth rate is a strong contributor to market attractiveness Evaluate each of the above growth rates and use them to assess the 4 levels of performance. Janmar Worksheet #3 This worksheet calculates the Janmar market share in 4 market definitions and 4 possible modes of segmenting the market. All these market shares are mathematically correct but the key question is how meaningful are they? It is from such JUDGEMENTS that marketing expertise manifests itself!!! JC Market Share 1. 2. Industry sales (US) = $5.6B JC (US) = $12M 0.2% Regional sales JC (Regional) = $12M 15% = $80M D sales = $48M JC (D) = $6M 12.5% ND sales = $32M JC (ND) = $6M 18.75% Segment sales JC Sales JC Market Share $D * % Hh (70) =DHh$33.6M $D * % Hh(30) = DHh$1.8M DHh = 5.4 % $D * =DPp$14.4M $D * DPp = 29.2% % Pp $ND * % Hh(90) $ND * % Pp =NDHh$28.8M =NDPp$ 3.2M % Pp = DPp$4.2M $ND * % Hh(70) =NDHh$4.2M NDHh = 14.6% $ND x % Pp NDPp = 56% =NDPp$1.8M 1. Are all the above market definitions legitimate? 2. Suggest alternative market definitions. 3 What insights into competitive strength are provided by the market share determinations? 4. Given the information derived from Worksheets 2 and 3, provide a preliminary evaluation of the attractiveness of the 4 segments as defined by geographic area and buyer type. Glossary: GM CM NPM DFW N(on)DFW D (= DFW) : : : : : : gross margin contribution margin net profit margin Dallas/Ft.Worth metro area external to DFW metro area Dallas/Ft. Worth metro area ND DHh DPp NDHh NDPp painters Hh Pp : : : : : N(on) DFW metro area households metro area professional painters non-metro area householders non-metro area professional : : households professional painters Janmar Worksheet #3 This worksheet calculates the Janmar market share in 4 market definitions and 4 possible modes of segmenting the market. All these market shares are mathematically correct but the key question is how meaningful are they? It is from such JUDGEMENTS that marketing expertise manifests itself!!! JC Market Share 1. 2. Industry sales (US) = $5.6B JC (US) = $12M 0.2% Regional sales JC (Regional) = $12M 15% = $80M D sales = $48M JC (D) = $6M 12.5% ND sales = $32M JC (ND) = $6M 18.75% Segment sales JC Sales JC Market Share $D * % Hh (70) =DHh$33.6M $D * % Hh(30) = DHh$1.8M DHh = 5.4 % $D * =DPp$14.4M $D * DPp = 29.2% % Pp $ND * % Hh(90) $ND * % Pp =NDHh$28.8M =NDPp$ 3.2M % Pp = DPp$4.2M $ND * % Hh(70) =NDHh$4.2M NDHh = 14.6% $ND x % Pp NDPp = 56% =NDPp$1.8M 1. Are all the above market definitions legitimate? 2. Suggest alternative market definitions. 3 What insights into competitive strength are provided by the market share determinations? 4. Given the information derived from Worksheets 2 and 3, provide a preliminary evaluation of the attractiveness of the 4 segments as defined by geographic area and buyer type. Glossary: GM CM NPM DFW N(on)DFW D (= DFW) : : : : : : gross margin contribution margin net profit margin Dallas/Ft.Worth metro area external to DFW metro area Dallas/Ft. Worth metro area ND DHh DPp NDHh NDPp painters Hh Pp : : : : : N(on) DFW metro area households metro area professional painters non-metro area householders non-metro area professional : : households professional painters Janmar W/S #6: Consumer Response to a 20% J.C. price cut Consider the various reactions that consumers could adopt in response to the J.C. price cut, assuming that it is \"passed through\" Value (+,0,-) = Perceived benefits/price Perception 1: Value (0) = Perceived benefits () /price () Perception 2: Value (+) = Perceived benefits (0) /price () Perception 3: Value (-) = Perceived benefits () /price () Perception 4: Value (0) = Perceived benefits (0) /price (0) Janmar W/S #6: Consumer Response to a 20% J.C. price cut Consider the various reactions that consumers could adopt in response to the J.C. price cut, assuming that it is \"passed through\" Value (+,0,-) = Perceived benefits/price Perception 1: Value (0) = Perceived benefits () /price () Perception 2: Value (+) = Perceived benefits (0) /price () Perception 3: Value (-) = Perceived benefits () /price () Perception 4: Value (0) = Perceived benefits (0) /price (0) MAR 4804 WS#6B: Janmar 20% Price Cut - Possible Retail Responses Assume that the typical retail store has a GM of 40%: Hence the following: Initial Price cut (1) Price cut (2) Price cut (3) Retail $100 $100 $80 $88 CGS $60 $48 $48 $48 (Janmar SP) $GM (R) $40 $52 $32 $40 %GM (R) 40% 52% 40% 45.5% Which of the above would characterize as a price cut \"pass through\"? What recommendation would you give to a retail client? Janmar Worksheet #4 Retail account analysis (Ex. 2, 3, text) Market No. of retail accounts: 1000 (450/550) (p. 24) J.C. No. of retail accounts: 200 (80/120) (p. 26) Market ($Mkt. / #stores = $ /store) J.B. ($Mkt. / #stores = $ /store) Total: $80M/#1,000 = $80K Total : $12M/# 200 =$60K D: $48M/#450 = $106.7K DFW : $6M /# 80 =$75K ND: $32M/#550 = $58.2K N-D : $6M /# 120 =$50K J.C. retail account analysis (Ex.3) Store type # stores $ sales $/Store D - single brand 14 $3.36M $240k D - multiple brand 66 $2.64M $40k(2 or 3) ND - single brand 20 $3.36M $168k 100 $2.64M $26k (*2 or 3) ND - multiple brand Using the above $/Store computations and - assuming a 5-year lifetime - assuming a 10% discount rate - using the contribution margin of 35% (p. 28) Calculate the lifetime values of i) each of the 4 types of Retail Store; ii) the lifetime value of converting a Multiple Brand Store to a singlebrand store. Store type $S/Store $C/Store 5Year PV Factor 3.79 (10%) LV($) D - single brand $240k $84k $318k D - multiple brand $40k $14k $53k ND - single brand $168k $59k $223k ND - multiple brand $26k $9k $36k $ Sales increase/store D: MBSB $200k $70k $265k ND: MBSB $142k $50k $186k Glossary: DV $PV GM CM NPM DFW N(on)DFW :dollar value :Dollar Present Value :gross margin :contribution margin :net profit margin :Dallas/Ft. Worth metro area :external to DFW metro area D (= DFW) :Dallas/Ft. Worth metro area ND :N (on) DFW DHh :metro area households DPp :metro area professional painters NDHh :non-metro area householders NDPp :non-metro area professional painters Hh :household Pp :professional painter MAR 4804 Janmar: WS #5 Buying Influences and Processes This worksheet provides a framework for distinguishing between the buying influences and processes of the distinct buyer types of households, namely (DIY) and professional painters. The key issue is how their distinguishing characteristics either help or hinder Janmar marketing efforts. Factor Households Knowledge Transaction Type Role of Price Channel Choice Loyalty Services required Information Availability Inventory Nature of Demand Overall Similarity/Distinction Professional Painters MAR 4804 Dr. B. Seaton JCI WS#7A: 20% Price Cut B. Multiple Brand Stores Issues: a) How does JCI's current price point mesh with a Retail Store's merchandising strategy? 3 Brand Price Points (most probable) High (presumably JCI) Medium Low b) Given the above, speculate on the probable response of a Multiple Brand Store to JCI's 20% price cut? What role does JCI paint play within a multi-brand store (see W/S #4)? In your deliberations explicitly focus on the objective(s) of the MBS! c) If JCI's sales were to increase, speculate as to the SOURCE of these additional sales within the multi-brand stores. Discuss the potential conflict between JCI and its multiple-brand retailers in the latter entities' responses to the potential 20% price cut. MAR 4804 JCI: WS#8, Evaluation of $350,000 in Consumer Advertising To review this issue we need to compute the \"break even\" volume increase and assess the likelihood of this increase being attained. There are 2 options for this calculation! A. Assume that the minimum requirement for success is that the $350,000 in advertising be recovered in a specified time period. Procedure: i) Calculate the volume increase to \"break even\" as follows: $350,000/0.35 (see WS#1); $1,000,000 ii) Determine the required increase in market share! ($1,000,000/$33,600,000) * 100 % = 3.0% increase or 3/5.4% = 55.6% increase B. Make a judgement as to the probability of achieving the necessary sales increase. Assume that the minimum requirement for success is that the $350,000 in advertising results in a sales increase, in a specified time period, that maintains the current 9.5% NP ratio. Procedure: i) Calculate the volume increase to \"break even\" as follows: $350,000/0.255 (see WS#1); $1,373,000 ii) Determine the required increase in market share! ($1,373,000/$33,600,000) * 100 = 4.1% increase or (4.1/5.4) * 100 % = 76% (assuming a 1 year time period) Make a judgement as to the probability of achieving the necessary sales increase in each of A & B. MAR 4804 Dr. B. Seaton JCI: WS#7: 20% Price Cut, Single Brand Store Under what conditions would you expect retailers to pass a J.C. price cut through to their customers? J.C. objectives and Retailer objectives may DIFFER. A: SINGLE BRAND (J.C.) Store Assume Retailer GM is 40%: To maintain $ sales, paint volume would need to increase by 13-25% to compensate for a 20% price cut! Exact amount would depend on exactly how price cut was passed through. To maintain $ contribution (assuming retail margins are 40%), required increase in paint volume would depend on how JCI price cut was passed through (see WS#6B). If price cut not passed through and paint gallonage is not affected, what would be the impact on contribution? If sales did increase would you anticipate sales increases to come from an increase in the market, i.e. the \"pie\" growing? OR A redistribution of sales from competing brands and/or stores? Within a specific store would you anticipate sales increases to come from? i) More customers? From the same or a different type of customer? ii) The average customer purchasing a greater amount of paint? Compare the price sensitivity of household (DIY) and Professional Painters! Discuss