ROXOR WATCH CO PTY LTD

SUGGESTED ANSWERS

DECISION 1

(a) The Generic need(s) of electronic watch consumers:

1. How are products bought?

· As fairly long-term investments.

· As a fairly small value item, but with a fair degree of thought behind it
(one may spend more on a dinner without that much consideration).

· Usually with much consideration of rival products and functions.

· Usually with careful inspection of product itself.

2. Who is doing the buying?

· Personal  the "point of sale"

customer, and the "buy"
· Parental  decider is most often one
and the same person.
· As Gifts  (except parental?)

· Usually between 12 to 45 years (Demographic).

3. Why do people buy?

· This is the great "black-box" of marketing.

· Basic Need to tell time accurately.

· Other Functional needs (USE).

· As an attractive accessory
· For status reasons }
(IMAGE)

· For price reasons.

· For being the "innovators" (state-of-art products).

P. 1
(b) Define "Target Segments" in the electronic watch market

Geographic Psychographic Demographic

1. Europe 1. Price (Economy)
1. 15-18 yrs
2. Australia 2. Use (functional capability) . Price, Image, Use.
2. 18-30 yrs
3. North America 3. Image (Brand Name; . Price, Use, Image.
Appearance) 3. 30-45 yrs
4. Far East Asia . Image, Use, Quality.
4. Quality (Longevity) 4. 45 onwards
5. Middle East . Use, Price.
5. Parents/Gifts
. Image, Price.
6. Professionals
. Use, Image

(c) Creating a "differential advantage" (initial brainstorming)

Code Product Target Differential Distribution

Type Segments Advantages Advertising MIX Methods

Q 15-45 years Image (with it) Radio, TV, Chain stores

Use (AM/FM Radio) Newspapers, Jewellery shops
Price? Demonstrations, Chemists
Mailbox

M Professionals Memory included Professional Chain stores

18-30 years Image, Price. Journals, Chemists Jewellery
Newspapers shops

N Adventurers Outdoor functions? Professional Special interest

Australian Life-Be- Journals stores
in-it Image.

R 15-30 years Low price for good Newspapers, Chain stores

Low income quality Mailbox, Posters, Discount stores
earners Competitions Chemists

P. 2
(d) Formulate the company's "Positioning Strategy" (choosing exactly what it hopes to
specialise in)

Code Product
Type Advantage Differential Decision

Q AM/FM Radio No competitor has it OK. (but competing against

cheap AM/FM Radios)

M 2 Memories in calculator Casio has similar Differential too small. Also

product but with no Casio model has high CV
memory (Appendix VI, Product E)

N Outdoor functions as Australians No competitor has it Advantage segment very

are very adventurous small, will not generate high
volume

R Low-priced watch from a No major name in the OK. (but may make the
leading Swiss watchmaker low-priced market ROXOR name associated
with cheap watches).

(e) Pricing Strategy (for the chosen products Q and R)

1. Code Product Type Q (Product; promotion and distribution looked at under part (c))
Price: Possible Strategies
($80.00) Skimming?
· Perhaps good if one wants to pull out of market quickly.
· Also high profits will attract competitors.
($50.00) Normal Profit?
· Innovation not adequately rewarded.
· But ROXOR able to further its brand name getting a little "penetration"
plus a little contribution towards fixed costs.
($45.00) Penetration?
· May not make adequate profits by the time the competition steps in.
· Also not enough margin-of-safety for price-cutting.

2. Code Product Type R

Possible Pricing Strategies
($20.00) Below Average
· May create the image that the Roxor brand is a "cheap" watch.
· Price may be taken an indicator of quality (cheap things no good ...)
($22.00) Average
· Again same problems as above.
· May affect the image segment of the other products.
($25.00) Above Average
· May be the best price to make optimum use of the advantage chosen in
the "positioning strategy" i.e., "low-priced quality watch from a
leading Swiss watchmakers".

P. 3
DECISION 2
(a) Product Life Cycle Stages of Present Products
Roxor Markets

Type B 84 85 86 Expected 87

(App. VII) Total Units 19,500 100% 20,400 100% 27,600 100% 29,700 100%

(App. VII) Roxor Market

Share 2,500 13% 3,700 18% 5,600 20% 5,700 19%

(App. VII) Largest

Competitor 15,000 77% 16,700 82% 22,000 80% 24,000 81%

Total Market Growth % - + 5% + 35% + 8%

Roxor Market Growth - + 48% + 51% + 2%

P.L.C. Stage Intro Growth Growth Maturity

Type D 84 85 86 Expected 87

(App. VII) Total Units 12,000 100% 16,000 100% 20,500 100% 22,000 100%

(App. VII) Roxor Market Share

5,000 42% 6,500 40% 9,000 46% 10,000 45%

(App. VII) Largest Competitor

7,000 58% 9,500 60% 11,000 54% 12,000 55%

Total Market Growth % - + 33% + 28% + 7%

Roxor Market Growth - + 30% + 46% + 5%

P.L.C. Stage Intro Growth Growth Maturity

2. Product Portfolio Matrix Stage of Present Products

Market Growth Rate

Wild Cat Star

(Cash Absorber) (Cash Generator
High "Problem Child" or Absorber)

Dog Cash
Low (Modest Cash Generator or Absorber) (Large Cash Generator)

Low High

Market Share Relative to Largest Competitor

Exp Market Exp %

Growth Rate Market Share Position

Type B + 2% 19% DOG

Type D + 5% 45% CASH COW

DOGS should be slaughtered unless they generate cash without drawing on critical resources (Yesterday's
breadwinners).

CASH COWS should be milked in order to finance the "Stars" of tomorrow (Tomorrow's breadwinners).

P. 4
3. Choosing the "Strategic Focus" of a 'product-market mission'

(a) Present Products (estimates for 1987)

B C D
App VI Expected Selling price p.u $26.00 $28.00 $40.00
Variable Product Related Costs (19.21) (20.34) (22.60)

 Product Contribution 6.79 7.66 17.40

(Note: See Appendix V ➔ Contribution per unit of all have fallen drastically)

B C D
App VII Expected Sales Units at above
Selling Price 5,700 1,600 10,00

 Total Product Contribution $38,703 $12,256 $174,000

Cash Flow Generation (above) Low V. Low High

also % market share (App VII) Low None Rel. High
also % market growth (App VII) Low Zero Growth Rel. Low

 Product Portfolio Type DOG DOG CASH COW

kill? already killed milk

(b) Future Products

Using Appendix VIII: Projected price and demand expected values for code
products Q and R.

Appendix IX: Incremental (product-related) cost information.

P. 5
 Q R
App VII
Expected Selling Prices 80.00 50.00 45.00 20.00 22.00 25.00
App IX
Variable Product Related Costs (30.00) (30.00) (30.00) (14.00) (14.00) (14.00)

 Product Contribution p.u. 50.00 20.00 15.00 6.00 8.00 11.00

App VIII
Expected Demand at above Selling
Price 2,400 6,000 7,900 5,500 5,200 4,000

 Total Product Contribution $120,000 $120,000 $118,500 $33,000 $41,600 $44,000

Demand Relative Risk (CV)

i.e. S.D. 0.25 0.233 0.26 0.036 0.036 0.035

Expected

Risk of not Selling Expected Lowest Lowest

Quantity. Risk Risk

 Pricing Policy x x

Points-to-Note

1. Product R is a low cash generator compared to Q. But it is generating more cash than
the present product B. Therefore, there might be a case for diverting resources from
selling B to selling R ...... but only if:

(i) R has a differential advantage over other sundry brands (name? Swiss made?)
(ii) The market for these basic watches are growing (no information given)
(iii) Killing product B would not affect the product-line.

2. Product Q could well become a STAR

 David's Product Portfolio for 1987

Exp. Demand Exp. Prod.
Price $ Units Cont. $ Type
Present Product D 40.00 10,000 174,000 Cash Cow
Future Product Q 50.00 6,000 120,000 Star
Future Product R 25.00 4,000 44,000 Wildcat

P. 6
DECISION 3

Notes

1. Total Sales Revenue

D_____ 40 x 10,000 = 400,000

Q_____ 50 x 6,000 = 300,000
R_____ 25 x 4,000 = 100,000
$800,000 = (Y2)

2. Sales Commissions = 4% x 800,000 = $32,000 (Appendix XI)

Budget Model

Product Related
Prod. D_____ C1X1 = 17.40 x 10,000 = 174,000
Prod. Q_____ C2Y2 = 20.00 x 6,000 = 120,000
Prod. R_____ C3Y3 = 11.00 x 4,000 = 44,000

Non-Product Related
Transport e1y1 = 0.80 x 80,000 = (64,000)
Debtors e2y2 = 0.015 x 800,000 = (12,000)
Invoice e3y3 = 0.12 x 18,000 = (2,160)
Fixed Costs FC = (25,500* + 1,000,000 x 18%) = (205,500)
Prom Costs PC = (40 + 15 + 60 + 32) = (147,000)
(92,660) Loss
Question to Ask
· Are Fixed Investment Values Realistic?
· Will David Smith be pleased with this Report?

"Attachable" Fixed Costs

Lease Cost of truck = 1,000 (Uncontrollable)

Driver's salary for period = 6,500 (Uncontrollable)
District Branch Fixed = 18,000 (Controllable)
 Total *
25,500

P. 7
DECISION 4

Roxor Ltd - Budgeting the Segmental Contribution (EVA)

D Q R Total

Revenue 400,000 300,000 100,000 800,000

Less:
Variable Assembly Costs (200,000) (168,000) (52,000) (420,000)
Assembly Contribution 200,000 132,000 48,000 380,000

Less:
Variable Non-Assembly Costs (26,000) (12,000) (4,000) (42,000)
174,000 120,000 44,000 338,000
Less:
Product Promotions (16,000) (76,000) (13,000) (105,000)

158,000 44,000 31,000 233,000

Less: Segmental Variables Costs
1. Transportation Costs (e1y1) 64,000
2. Debtor's Costs (e2y2) 12,000
3. Invoice Costs (e3y3) 2,160
4. Sales Commissions 32,000 (110,160)
122,840
Segment Contribution Margin

Less: Short-run Controllable Fixed

Costs
1. District Branch Fixed O/H's 18,000
2. Mail Box Advertising (all three) 6,000
3. Journal Advertising (all three) 4,000 (28,000)

Segment Controllable Margin 94,840

Less: Long-run Non-controllable

Costs 1,000
1. Lease Cost of Truck 6,500
2. Driver's Salary for Period
3. Cost of Capital Charge for Fixed 180,000 (187,500)
Investment (1,000,000 x 18%)

RESIDUAL SEGMENT MARGIN (92,660)

P. 8
DECISION 5: Budgeted Segmental Profit

D Q R Segment
REVENUE $400,000.00 $300,000.00 $100,000.00 $800,000.00
Variable Production
Costs ($200,000.00) ($168,000.00) ($52,000.00) ($420,000.00)
Production Contribution $200,000.00 $132,000.00 $48,000.00 $380,000.00
Non-Variable Production
Costs ($20,000.00) ($6,960.00) ($2,440.00) ($29,400.00)
PRODUCT
CONTRIBUTION $180,000.00 $125,040.00 $45,560.00 $350,600.00
Marketing Costs ($16,000.00) ($76,000.00) ($13,000.00) ($105,000.00)
$164,000.00 $49,040.00 $32,560.00 $245,600.00
Segment Variable Cost
Transport ($64,000.00)
Paperwork ($2,160.00)
Sales Commission ($32,000.00)
Marketing Common ($10,000.00)
Territory Fixed Costs ($25,500.00)
SEGMENT
PROFITABILITY $111,940.00

01JR280.sa

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