Professional Documents
Culture Documents
Roxor Watch Company Pty Ltd in Australia is a subsidiary company of Roxor International, the
parent company having its headquarters in Geneva. The Australian company is considered one
of the territories of the parent company for its reporting purposes. Appendix I shows the
various territories around the world. The company was established 2 years ago and its
Australian subsidiary was incorporated in Year0.
In Year2, Roxor International in Geneva recruited Ronald Tan a marketing whiz-kid who had
launched the popular Quasar brand of electronic watches for his Singapore based company.
The Traditionalist within the firm wondered where all the Swiss experts were, but reluctantly
had to agree that the company much needed the injection of some oriental know-how in the
marketing of electronic watches.
Ronald segmented the market at the customer level by the functions (or operations) an
electronic watch can perform. He subdivided the watches into six types basic; standard;
popular; advanced; superior; and State of the Art (see Appendix II). He decided to leave the
basic segment to the small manufacturers in Hong Kong, Taiwan and Korea. As Roxor was a
not known brand name in the electronic watch industry, it could only compete with those
manufacturers on price and he was certain that Roxor was unable to embark in a price-war at
this stage. Ronald therefore decided to compete in the next three levels:
TYPE B:
Standard
TYPE C:
Popular
TYPE D:
Advanced
He drew up his plans, taking into account all possible aspects of the marketing mix: product;
price; promotion; and physical distribution. He knew his products had no technological
advantages when compared to the products of the two leading Japanese brands: Seiko and
Casio. He therefore decided to give the customers a price advantage and promote the Roxor
brand as a quality Swiss product at a reasonable price due to production efficiencies. The
Swiss-Made tag still, amazingly, seemed to carry some brand recognition and customer
loyalty.
In late Year2, Ronald test marketed the three product types in all territories and found that the
competition was too great in North America and Far-East Asia. In the Middle East the customers
seemed reluctant to purchase electronic watches and preferred the mechanical watches. All
the big Japanese names were not performing That well in the region where the status
mechanical watches like Rolex, Dunhill and Patek-Phillip had captured the petro-dollar market.
In Europe and Australia Roxor performed well. The European market was mainly in the EEC
countries with certain favourable trade quotas being given to Roxor. The Australians, on the
other hand, still seemed to be upgrading their electronic watches very regulary a trend first
noticed in 1979.
Roxor International shipped all watches to Australia when it began 2 years ago, and in Year0
incorporated the Roxor Watch Co. Pty Ltd in Melbourne to assemble the watches mainly due
to certain trade regulations. In Australia there were only two Districts:
?
The performance of Roxor watches from Year0 to Year2 for District 1 (NSW, ACT, Queensland)
in Australia is given in Appendix III. The Australian District 2 performance trends were very
similar.
The manager of District 1, Mr. David Smith was quite pleased with his performance in a very
competitive market. Although the completion was too intense in the Type C (popular) customer
segment with even the leading brands starting to cut their prices heavily the Roxor brand
types B and D had managed to hold their sales volumes and even have some growth. The
growth percentages (in sales volume) are given below:
Year1
Year2
TYPE B:
+48%
+51%
TYPED:
+30%
+46%
However, these volume increases were partly made possible by price cutting, and it was only
because the variable costs also dropped appreciably due to new technologies was there some
maintenance of contribution per unit. It seemed now that the further the cost cutting was not
possible for some time and any more price reductions would adversely affect cash flow.
Appendix IV gives the prices per unit of Roxor watches and its leading competitors in Australia.
Appendix V gives the historical contribution per unit of Roxor watches.
The problem that David faced in Year2, was that for the forthcoming year he had received
advanced knowledge that Casio was to cut its price on product type B and hoped to sell it at
$27.00 per unit. Thus Roxor watches would have to be sold at the same price or perhaps a
dollar lower. In addition to that bad news, Seiko had apparently decided to cut $15.00 off its
price for product type D and thus sell it for $60.00. Not only would this be $5.00 less than the
Year2 Roxor price for the similar product, the Seiko name was so well recognized, that David
thought that Roxor would have to sell at about $20.00 less than the Seiko model in order to
compete. The most probable pricing structure for the fourth coming year(Year3) is given in
Appendix VI. David obtained the following product costings, at Year3 expected prices, from the
Cost Accountant at the Melbourne assembly plant:
Product Type:
1
10.00
10.50
12.00
6.00
6.50
7.00
1.00
1.00
1.00
17.00
18.00
20.00
0.50
0.50
0.50
0.90
1.00
1.15
0.30
0.30
0.35
1.70
1.80
2.00
0.51
0.54
0.60
19.21
20.34
22.60
Other Costs
(a) Variable Non-product Related
(i)
Transport Costs:
Petrol and oil
Drivers overtime
Insurance of consignment
Consignment handling
(ii)
Base
per kilometre
per overtime hours
per consignment value
per weight of consignment
Paper Costs:
Data processing
Secretarial
Invoicing
It was considered that the transport costs should, for convenience, have a common base of
the costs of a gram weight transported per kilometre. The Cost Accountant derived the the
varriable transport overhead standard recovery rate was $.80 per gram-kilometre.
Further, the order-processing paperwork costs were given a common base of invoice
equivalents. It was seen that such costs cannot be meaning fully isolated by product or
customer attributes. The invoice equivalent becomes the measuring unit for paperwork costs
caused by sales and is defined in terms of the time taken to prepare the invoice. The cost per
invoice equivalent was calculated as $.12. The debtors of the district take one month on
average to pay and the Divisional Manager is responsible for all debtor collections. The cost of
capital charge is 18% per annum. David also commissioned CAFM(Consultant Analysts for
Management) an external marketing research firm to provide him with historical estimates of
the units sold by the main competitors and to provide him with expected values and standard
deviations of future sales units (given the expected prices as in Appendix VI) by Roxor and its
competitors. After much research, CAFM (who had an excellent track record for accurate
forecasts) submitted a report which is summarized in Appendix VII.
Decisions Required:
1. The Research and Development area of Roxor International informed Ronald Tan, the head
office marketing manager, of the following developments late in Year2:
a. The development of AM/FM Radio watch (with micro-speakers on strap) that can be
produced for $17.00 per unit. It will have all the functions of a product D type watch
and include the radio (Code Name: Q).
b. A product E type calculator-watch that includes 2 memories, and could be produced for
$30.00 (Code Name:M).
c. A product D type watch that would include, in addition to the regular functions, sensors
to tell temperature, pressure, and humidity. It will also incorporate a compass. The unit
could be produced for $29.00 (Code Name: N).
d. Due to technological advances a product A type watch that could be produced in high
strength plastic for only $6.00 (Code Name: R).
Give your views about the marketing strategy of the above new products. Take all
elements of the marketing mix (product; price; promotion and distribution) into
account.
2. Ronald Tan decided to introduce Code Q and Code R products in Year3. He then asked his
district managers to state if they felt that they would be able to market these products for
the advantage of the company as a whole. David Smith, being one of the district managers
asked CAFM (the marketing research consultants) to project the possible price and demand
expected values for Year3. Their report is summarized in Appendix VIII. David also asked his
cost accountant to provide cost information regarding the assembly and other costs
involved in having to market their code products (in addition to the regular lines). This
information is summarized I in Appendix IX. The Cost Accountant warned that in total the
number of units handled by District 1 should not exceed 21,000 units, because beyond this
point the fixed costs will increase due to exceeding the relevant range.
Give your views on what products, with what prices, and in what quantities (if any, should
David Smith market in the Year3 period.
3. David decided to market the following types and quantities of products in Year3:
Expected Value of
Demand
Product Type:
Price $
40.00
10,000
units
50.00
6,000
units
25.00
4,000
units
Since the CAFM report indicated that certain specific promotional efforts were needed to
achieve the expected demand levels (see Apendix XI on details for product types D,Q, & R),
David wished to know the likely financial results of his decision. David asked the Cost
Account to compute this. The following cost information was used in the calculation:
(a) That between the activity levels of 19,600 and 20,000 units, the following non-product
related activities would be required: (i)
(ii)
(b) The Fixed Costs of the Australian Territory and its divisions were as given in Appendix
X.
(c) That the market value of the Fixed Assests specific to the segment equals $1,000,000.
Use the Budget Model and compete the expected segmental contribution for District 1,
for Year3.
4. District 1, having the previously developed budget model, was then given the following
report by the CAFM, the marketing research consultants:
We see an opportunity in your segment. It is forecast that if $5,000 were spent on
advertising the superior quality of the product Q, 2,000 additional units would be sold.
However, 1,000 fewer units of D would then be sold. The change in segment sales would
add 2,000 more Gram-Kilometres of transportation and 1,000 added invoice equivalents.
This opportunity has arisen due to the improved transmitting capabilities of radio stations
in District 1.
Using the budget model calculate how much incremental net-contribution the district
would receive for every dollar of additional promotional costs spent Year3.
5. David was not happy with the expected financial results computation in part (3) and
informed the Marketing Accountant that he wants to know how the various customer
segments contributed to district contribution, and what part of the district contribution
was controllable by him. (Assume that the market value of the Fixed Assets in the
segment equals $1,000,000)
As the Marketing Accountant, provide David with the information he requires.
Appendix I.
Roxor International
(Europe)
North
America
Middle East
Appendix II:
(A)
Functions
1. Time
2. Day, Date
3. Stop watch; lap time
4. Dual Time
5. Alarm, buzzer
6. Solar powered
7. Finger-push
calculator
8. Language Translator
or
Emergency call
Basic
x
x
Far-East Asia
Australia
Popular
x
x
x
x
Advanced
x
x
x
x
x
x
Superior
x
x
x
x
x
x
x
( F)
State of Art
x
x
x
x
x
x
x
x
Appendix III:
Product Type
B (standard)
Year0
2,500
Year1
3,700
C (popular)
D (advanced)
2,000
5,000
500
6,500
Appendix IV:
Product Brand
SEIKO
CASIO
ROXOR
Appendix V:
Product Type
Year2
5,600
9,500
Year0
Year1
Year2
50.00
75.00
70.00
50.00
120.00
80.00
75.00
35.00
30.00
45.00
40.00
35.00
65.00
65.00
45.00
150.00
110.00
90.00
200.00
180.00
100.00
40.00
40.00
35.00
50.00
45.00
80.00
65.00
55.00
Year1
Year2
B (standard)
16.00
14.00
15.79
C (popular)
29.00
24.00
D (advanced)
40.00
29.88
32.40
Appendix VI:
Product Type
Sundry Brands
CASIO
ROXOR
ROXOR
B
C
30.00
60.00
80.00
95.00
Appendix VII:
Brand Product
Name
Type
SEIKO
CASIO
-
27.00
30.00
26.00
( if assembled)28.00
40.00
Year3
S.D
2,000
10,000
11,000
12,000
13,000
506
7,000
9,500
11,000
12,000
700
6,000
5,500
15,000
16,700
22,000
24,000
857
8,000
8,500
8,500
7,500
301
2,000
2,500
3,000
3,200
1,000
1,500
1,800
1,900
1,800
600
2,500
3,700
2,000
500
5,000
6,500
5,600
9,500
5,700
200
1,600
68
10,000
575
Appendix VIII:
Projected Price and Demand Expected Values for Code Products Q and R
Price
Code Product
Q
Code Product
R
S.D
80.00
50.00
45.00
2,400 units
6,000 units
7,900 units
600
1,400
2,050
20.00
22.00
25.00
5,500 units
5,200 units
4,000 units
200
190
140
Appendix IX:
18.00
8.00
2.00
28.00
7.00
5.00
1.00
13.00
0.50
0.16
0.50
1.16
0.50
0.11
0.61
0.84
0.39
Appendix X:
Appendix XI:
District 1
District 2
5,000
1,500
15,000
2,500
1,000
6,500
2,500
500
8,500
4,000
38,000
63,500
2,000
18,000
30,000
2,000
20,000
33,500
Product Type
10,000
6,000
4,000
20,000
20,000
4,000
28,000
2,000
6,000
40,000
2,000
8,000
1,000
4,000
15,000
10,000
40,000
10,000
60,000
All Three
Total