Pricing, Advertising, and Prepaid Contracts

You work on the new product development team for your company's new tablet computer offering, a smaller version of your wildly popular eTablet line. You have been given the task of determining three important decisions for this new product. First, you have been asked to determine the price for this product. Pricing is a tricky decision. You don't want to price the new tablet too high because few customers will choose the new product over your full-sized tablet offerings and you risk losing sales to your aggressively priced competitors' products. You don't want to price the product too low, because you want to earn as much revenue as possible from the product. Second, you must determine where to set the marketing budget for the new product. You know that there will be a base demand for your product that comes from your loyal customers who will buy just about anything you produce. Beyond that you also know that every dollar you spend on advertising will increase the demand for your product. Of course, there is a limit to how much money you will want to spend on advertising because eventually more money spent on advertising will have little effect on demand and will reduce the profitability of the new product. Finally, you have been asked to help decide how much money to prepay to the suppliers of the raw materials of the new product to reduce the overall costs of these materials. Every dollar you spend on prepaying your suppliers will reduce the costs of these materials and will ensure that your competitors don't have access to these materials. You have completed a spreadsheet model to aid in your analysis. Use the 'What If Analysis' options in Excel to help you determine the right price, advertising spending, and prepaid supplier contract for your new product.

Task #	Points	Task Description
1	15	Use the scenario manager to input each of the four decision sets depicted in the picture near cell B16. Make sure the scenario name is the name given in the image. You must type the data into scenario manager, because Excel does not allow you to use a cell reference to enter data into a Scenario . Create the summary of the scenarios. Enter the name of the most profitable scenario in cell D22 using the drop-down box in the cell.
2	10	Create a goal seek analysis to determine what the price should be to generate demand of 2,625,000 tablets given that the supplier contract is $75,000,000 and the advertising budget is $35,000,000 (you may need to change these values). Complete the analysis using the Goal Seek tool. As Goal Seek does not store your entries; enter the "Set cell", "To value", and "By changing cell" elements of your analysis in cells C25, C26, C27, respectively, for grading purposes. Enter the resulting price in cell C29.
3	10	Create a one-way data table using the values in cells B32:B43 after referencing total profit (calculated in cell F12) to determine the supplier contract amount that leads to the most profit given that price is $290 and advertising budget is $35,000,000. Enter this contract amount in cell C45. Notice the "Supplier Contract and Profitability" chart updates with the values in the data table to visually demonstrate the relationship between supplier contract amounts and profitability.
4	15	Create a two-way data table after referencing total profit (calculated in cell F12) and using the values in cells B49:B69 (Price) and C48:E48 (Advertising Budget) to analyze the relationships among advertising budget, price, and profitability. Make sure you highlight cells B48:E69 before going to the Data Table tool. Complete the "Price, Advertising, and Profitability" chart to include series for advertising budgets $50,000,000 and $75,000,000 on your data table (notice that the series for $25,000,000 is already on the chart). Enter the advertising budget amount from your analysis that will produce the most profit E71. Enter the price that will product the most profit in cell E72.
Total:	50

A B D E F G Decisions to be Made Price $350 Supplier Contract $75,000,000 Advertising Budget $35,000,000 Market Information Competitor Pricing $200 Base Demand 1,000,000 Market Size 5,000,000 Variable Cost Calculations Variable Production Costs Prepaid Discount Amount Adjusted Variable Costs $199 $26 $173 Profitability Total Revenue $551,250,000 (-) Total Variable costs $272,078,355 (-) Total Fixed Costs $110,000,000 Total Profit $169,171,645 Demand Calculations Price Demand Factor Total Demand -7596 1575000 13 14 15 16 17 18 19 20 21 22 23 Inputs Decision Set 1 Decision Set 2 Decision Set 3 Decision Set 4 Price (C3) $200 $250 $329 $250 Supplier Contract (C4) $50,000,000 $75,000,000 $100,000,000 $20,000,000 Advertising (C5) $25,000,000 $25,000,000 $50,000,000 $50,000,000 Which Scenario is most profitable? F H 17 18 B D E Inputs Decision Set 1 Decision Set 2 Decision Set 3 Decision Set 4 Price (C3) $200 $250 $329 $250 Supplier Contract (C4) $50,000,000 $75,000,000 $100,000,000 $20,000,000 Advertising (C5) $25,000,000 $25,000,000 $50,000,000 $50,000,000 19 raw materials of the new product spend on prepaying your supplier your competitors don't have acce to aid in your analysis. Use the 'w price, advertising spending, and 20 21 22 Which Scenario is most profitable? 23 24 25 Goal Seek Parameters and Results Set Cell To Value By Changing Cell 26 Supplier Contract and Profitability 27 28 29 1.2 Resulting Price? 30 1 31 32 0.8 33 Profit 0.6 34 35 0.4 Supplier Contract and Profitability Supplier Contract $0 $10,000,000 $20,000,000 $30,000,000 $40,000,000 $50,000,000 $60,000,000 $70,000,000 $80,000,000 $90,000,000 $100,000,000 36 37 38 39 40 0.2 0 $o $20,000,000 $60,000,000 $70,000,000 $40,000,000 $50,000,000 41 $80,000,000 $90,000,000 $100,000,000 42 $10,000,000 $30,000,000 43 Supplier Contract Level 44 45 Optimal Supplier Contract? A E F H 1 J K L M N B By Changing Cell G Supplier Contract and Profitability 1.2 Resulting Price? 1 0.8 Supplier Contract and Profitability Supplier Contract $0 $10,000,000 $20,000,000 $30,000,000 0.6 0.4 0.2 0 $40,000,000 $50,000,000 $60,000,000 $70,000,000 $ $80,000,000 $90,000,000 $100,000,000 SO $10,000,000 $40,000,000 000'000'06$ $20,000,000 $30,000,000 $50,000,000 $100.000,00 Supplier Contract Level $60,000,000 $70,000,000 S80000.00 Optimal Supplier Contract? Advertising Budget $50,000,000 $75,000,000 Price, Advertising, and Profitability $25,000,000 $1 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 55 56 56 57 57 58 59 33 60 co 61 62 62 00 63 04 64 55 65 66 56 67 68 69 70 70 71 72 73 $1 $1 Total Profit $1 $25,000,000 $200 $210 $220 $230 $240 $250 $260 $260 C270 $270 C200 $280 200 $290 $200 $300 $310 c220 $320 $330 20 $340 $ ca $350 $ $360 $370 $370 $380 $390 $400 $0 $0 $o $200 $2 10 $220 $230 $240 $250 $260 $270 $2 BD $290 $300 $310 53 20 $330 $340 $350 $360 $370 $380 $390 $400 Price How much should they spend on advertising? Where should they set their price? A B D E F G Decisions to be Made Price $350 Supplier Contract $75,000,000 Advertising Budget $35,000,000 Market Information Competitor Pricing $200 Base Demand 1,000,000 Market Size 5,000,000 Variable Cost Calculations Variable Production Costs Prepaid Discount Amount Adjusted Variable Costs $199 $26 $173 Profitability Total Revenue $551,250,000 (-) Total Variable costs $272,078,355 (-) Total Fixed Costs $110,000,000 Total Profit $169,171,645 Demand Calculations Price Demand Factor Total Demand -7596 1575000 13 14 15 16 17 18 19 20 21 22 23 Inputs Decision Set 1 Decision Set 2 Decision Set 3 Decision Set 4 Price (C3) $200 $250 $329 $250 Supplier Contract (C4) $50,000,000 $75,000,000 $100,000,000 $20,000,000 Advertising (C5) $25,000,000 $25,000,000 $50,000,000 $50,000,000 Which Scenario is most profitable? F H 17 18 B D E Inputs Decision Set 1 Decision Set 2 Decision Set 3 Decision Set 4 Price (C3) $200 $250 $329 $250 Supplier Contract (C4) $50,000,000 $75,000,000 $100,000,000 $20,000,000 Advertising (C5) $25,000,000 $25,000,000 $50,000,000 $50,000,000 19 raw materials of the new product spend on prepaying your supplier your competitors don't have acce to aid in your analysis. Use the 'w price, advertising spending, and 20 21 22 Which Scenario is most profitable? 23 24 25 Goal Seek Parameters and Results Set Cell To Value By Changing Cell 26 Supplier Contract and Profitability 27 28 29 1.2 Resulting Price? 30 1 31 32 0.8 33 Profit 0.6 34 35 0.4 Supplier Contract and Profitability Supplier Contract $0 $10,000,000 $20,000,000 $30,000,000 $40,000,000 $50,000,000 $60,000,000 $70,000,000 $80,000,000 $90,000,000 $100,000,000 36 37 38 39 40 0.2 0 $o $20,000,000 $60,000,000 $70,000,000 $40,000,000 $50,000,000 41 $80,000,000 $90,000,000 $100,000,000 42 $10,000,000 $30,000,000 43 Supplier Contract Level 44 45 Optimal Supplier Contract? A E F H 1 J K L M N B By Changing Cell G Supplier Contract and Profitability 1.2 Resulting Price? 1 0.8 Supplier Contract and Profitability Supplier Contract $0 $10,000,000 $20,000,000 $30,000,000 0.6 0.4 0.2 0 $40,000,000 $50,000,000 $60,000,000 $70,000,000 $ $80,000,000 $90,000,000 $100,000,000 SO $10,000,000 $40,000,000 000'000'06$ $20,000,000 $30,000,000 $50,000,000 $100.000,00 Supplier Contract Level $60,000,000 $70,000,000 S80000.00 Optimal Supplier Contract? Advertising Budget $50,000,000 $75,000,000 Price, Advertising, and Profitability $25,000,000 $1 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 55 56 56 57 57 58 59 33 60 co 61 62 62 00 63 04 64 55 65 66 56 67 68 69 70 70 71 72 73 $1 $1 Total Profit $1 $25,000,000 $200 $210 $220 $230 $240 $250 $260 $260 C270 $270 C200 $280 200 $290 $200 $300 $310 c220 $320 $330 20 $340 $ ca $350 $ $360 $370 $370 $380 $390 $400 $0 $0 $o $200 $2 10 $220 $230 $240 $250 $260 $270 $2 BD $290 $300 $310 53 20 $330 $340 $350 $360 $370 $380 $390 $400 Price How much should they spend on advertising? Where should they set their price