These questions are based on the Titan Boat Case. The calculations in this assignment involve basic marketing math.

1) What is the retail sales price of the 26 foot model?

2) What is the variable cost of production?

2a) What are TBC’s fixed costs if they decide to produce this boat?

3) What is the margin they must allow to dealers?

4) If they launch this 26’ Model Boat, what is their expected margin per sale (in Dollars) per boat?

5) If they give the 5% early season discount, what is their expected margin per sale (In Dollars)?

6) If Titan can sell 200 of these 26 foot boats, can the firm make a profit in Year 1 of the model? If so how much profit can they expect?

BOATING: THE TITAN EXPERIENCE

INTRODUCTION - In July 2015, Mr. John Barnes., Vice-President of Marketing for the Titan Boat Company (TBC), knew that the most important item on the agenda for 2016 was the proposed introduction of a new line of 26'offshore (blue water) fishing boats designed for ocean usage. The new boats would join TBC's family of 12'to 18'outboard motor boats. The 3 models were newly designed 26 feet long, exceptionally safe, outboard motor driven fishing boats and would be the first offshore boats (i.e., designed for ocean usage) ever produced by the company. The new models were virtually unsinkable even in the roughest conditions, but unlike the other boats in the TBC line, they were too big to be trailered to and from the water, and their price would be more than twice as much as TBC's most popular 16 foot model. Some members of the management team thought that this new product introduction was the key to the company's desire to continue their current year's 27% growth in sales into the future. Others felt that this would distract the company and actually interfere with their growth goals. If introduced, it was felt that advertising and distribution were likely to play major roles in the success of the new line.

THE COMPANY - Titan Boat Corporation (TBC) was founded in the 1950s and was one of the first companies to produce fiberglass outboard pleasure boats. By 2016, if the current product development continues, TBC's product line would include 32 different models in four product groups varying from small fishing boats to larger cruisers and family pleasure boats. A breakdown of the product groups follows:

Family (pleasure) 18 models

Skiboat (speed and water skiing) 8 models

Fishing 6 models

Offshore (blue-water) 3 models (Proposed)

Although statistics about this fragmented industry were hard to obtain, company executives thought that TBC was one of the larger builders of fiberglass outboard motor boats under 18 feet in the U.S. In 2014, TBC had sales of $60 million, representing 12,000 units sold, and earned $2.4 million after tax. Sales had increased steadily as the company's name became increasingly familiar to boat owners and to dealers. TBC in the past had sold boats only within the continental U.S. The dealer network had increased steadily over the past 5 years and TBC now sold through 600 of the more than 3000 independent maritime dealers. Boat dealers typically represented 1 or 2 competing national brands of boats and 2 to 3 local manufacturers. Trade relationships were highly valued and dealers changed suppliers infrequently. TBC was the primary line for about half of their dealers. The level of inventory the dealers carried varied greatly. Most dealers typically held a representative selection of the various boat lines they carried (with about half of the in-stock models from their primary line and the rest devoted to the remaining secondary lines). They also displayed promotional materials to show the other available models. Models did not change greatly from year to year unless there was a major redesign effort. Dealers often had inventory from previous years on hand as well, TBC could ship boats to the dealers within 2 weeks of orders being placed during the peak selling period, but preferred to have dealers order their seasons needs before the beginning of the season. TBC's largest dealer accounted for 14% of the total company sales in 2014 and carried a full line of TBC boats and significant backup inventory on the premises at all times. This dealer was located in the Great Lakes Region (Minnesota, Wisconsin, Michigan, Indiana, Illinois and Ohio). The next two largest dealers were situated in the Gulf of Mexico Coastal Region which includes Texas, Mississippi,, Louisiana, Florida and Alabama. All three dealers had sold TBC boats for more than 15 years and together accounted for 29% of TBC sales. The 50 largest dealers accounted for over $30 million in factory sales. In general, TBC sales had been worst historically where the sales of offshore boats had been highest (e.g., Florida, the Gulf Coast and California), and it was hoped that the introduction of the new 26'offshore line would bolster sales in these regions. About 125 of TBC's current dealers were located along the U.S. coasts. Dealers averaged a 20% margin on the sale of new boats, but earned 40-50% on services provided to boat owners. Typically, the larger the boat the greater amount of money spent on add-on purchases such as depth finder, GPS systems, radios, etc. A preliminary survey of large and small coastal dealers indicated that they thought that they could sell a number of these 26’ models and wanted to have first rights of distribution for these boats.

THE BOATING INDUSTRY - The family boating industry was heavily influenced by the general economic environment. Of the 500 to 1000 full line boat manufacturers in the United States, only about 20 - 30 distributed their products nationally and competed directly with TBC. No one manufacturer held more than a 10% share. While most of the national manufacturers produced a full line of boats, some companies, like TBC, focused on inland family boats; some, like Boston Whaler, focused on off shore boats; and some, like Arrow, focused on inland fishing boats. Still, small local boat builders were the nemesis of companies like TBC. Local manufacturers often copy the features of boats produced by national manufacturers and sell at prices below those of comparable nationally produced boats. Three quarters of retail boat sales take place between March and August. TBC typically builds inventory from September through February and tries to encourage pre-peak dealer buying through off-season discounts of up to 5% of the normally invoiced price.

BOAT BUYER BEHAVIOR - Boat purchases were emotional experiences for most consumers. Like with automobiles, consumers enjoyed sitting in the boats and picturing themselves at the wheel on a lake, river or ocean. Quality of construction was the most important factor in this significant purchase, but most consumers were not very good at recognizing quality and were not particularly well informed about the differences among brands. In a study of the overall boat market, TBC found that: * the typical boat owner was a married male in mid to late forties with two teenaged children * the most popular activity by far was fishing, followed by family cruising and water skiing * family and friends were the most important source of information followed by boat dealers, catalogs and brochures, magazine advertising, and websites. · 65% of purchasers of boats over 18' in length had previously owned a smaller boat · the typical boat owner visited a minimum of two dealers before purchasing · although the husband strongly dominated the decision process children and wives often influenced decisions such as color and accessories such as outboard motors were purchased separately from boats but typically from the same maritime dealer · outboard motors generally required yearly maintenance, and this was normally done at the place of purchase. In addition, 25% of current boat owners were aware of the Titan brand, and 10% had seen one of the TBC boats either at a marina or at a dealer

SALES AND PROMOTIONS - TBC's sales organization consists of a national sales manager, two regional sales managers (operating east and west of the Mississippi River) and 20 sales people. The sales force called on the dealers often during the selling season to help merchandise the line and encourage the dealer to maintain demonstration inventory. Promotion consisted of both the usual full color brochures, jackets, banners, cups etc. for the dealers, and participation at the various trade and consumer boat shows. During 2014, TBC spent $250,000 on advertising. As was typical in the industry, this advertising focused exclusively on print media, with 60% going toward boating magazines, and the remainder for dealer catalogs and customer brochures (15%), cooperative advertising with dealers (15%), and internet direct-mail (10%). Mr. Barnes was sensitive to achieving parity with TBC's major competitors in terms of advertising in the five major vertical boating magazines (i.e., those magazines that teach dealers, boat owners and boating enthusiasts). The company's advertising agency estimated that two major competitors, Wellcraft and Starcraft, spent .5 percent of sales and .4 percent of sales respectively. Industry averages were higher still, running at about .6 percent of sales. Advertising for the smaller boats (under 18 feet) usually was highly factual, whereas ads for the larger more expensive boats emphasized the boat's "sizzle" along with the facts. Possible media choices:

(Monthly) (weekly) (Monthly) (Monthly) (Monthly)

"Boating Magazine" "Sports Illustrated" "Small Boat Fisherman" "Powerboat" "Deep Water"

Cost: 1 pg $8,000 $50,000 $2,000 $3,000 $2,000

color 1 time

Circulation 200,000 2,300,000 50,000 80,000 40,000

Editorial Description -

Boating Magazine - General recreational boating magazine

Sports Illustrated - Reports on sports, recreation and leisure

Small Boat Fisherman - Recreational fishing, events, news and trends

Powerboat - News & trends in performance boating, do it yourself tips

Deep Water - Deep sea and game fishing

Catalogs (30 pages covering the full line of Titan boats, color), 2000 units for $20,000;

Brochures (2-3 pages focused on the new 26'boats, color), 2000 units for $2000

THE CURRENT SITUATION - The fall trade show, held in September, was only two months away and TBC had to decide whether to introduce the new line to the dealers and promise delivery in time for the peak selling season beginning in March. The initial show was for the trade, and it was there that manufacturers attempted to attain agreements to carry new products from current and prospective dealers. Three prototypes had been built and successfully tested, and manufacturing had indicated that it could be ready to ship up to 200 units in time for the March selling season, but that an additional cost of $300,000 was required to make the molds for the hull and to purchase the other required tooling. These molds will likely last 4 years - after which, new models will be introduced. Due to space limitations, only one set of molds would be made during the first year since adding more sets would require factory expansion. Trade and consumer boat show expenses alone would increase by about $50,000 if the new line were introduced. The new boats would sell to the consumer for about $15,000, depending on model and accessories. Variable costs of manufacture would run about $9,800 each. No new employees would be needed because the factory currently has sufficient workers to make these boats in addition to the other lines.