Do The Math Workbook(1).pdf

This workbook belongs to _________________ Record # _____

Team # ____

"Do the Math" Student Workbook

By Karen Sinotte Summer 2017

1 Do the Math Workbook for Marketing by Karen Sinotte Summer 2017

Table of contents Table of contents ........................................................................................................................................... 2 Your Grade Tracker: ..................................................................................................................................... 2 Introduction..................................................................................................................................................... 3 Weekly Reflections........................................................................................................................................ 4 Worksheet 1: Marketing Management Review ......................................................................................... 5 Worksheet 2: Reviewing Financial Statements ........................................................................................ 8 Worksheet 3: Financial Situational Analysis ...........................................................................................12 Worksheet 4: Forecasting and Budgeting ...............................................................................................14 Worksheet 5: Breakevens and Pro-formas .............................................................................................17 Worksheet 6: Tough Guy Sports Case ....................................................................................................20 Part I: Defining the Business Problem................ 20 Part II: Tough Guy Sports Case, Setting Goals and Considering Alternatives 24 Part III: Tough Guy Sports Case Selling the Plan 26 Worksheet 7: Pricing Decisions ................................................................................................................27 Worksheet 8: Financial Analysis to Inform Decisions ............................................................................31 Week 10: Practice Case Worksheet.........................................................................................................37 Week 11: Case 1 Worksheet .....................................................................................................................39 Week 12: Case 2 Worksheet .....................................................................................................................41 Week 13: Case 3 Worksheet .....................................................................................................................43 Week 14: Exam Review .............................................................................................................................45 Getting Ready Checklist? ..........................................................................................................................45

Your Grade Tracker: Assessment Tool:

Description:

Midterm and Final Exams

Multiple choice, Short Answer and Case incidence Need to pass combined total of BOTH to pass the course. 8 weeks of individual and group learning activities weighted totalling 4% each week. Only 2% in week 1. Announced in Weeks 1-7 and week 10

Assignments/ participation

Students can earn up to 1 mark for missed classes weeks 1 to 10 if homework is submitted BEFORE class or team meeting.

% of Final Grade:

Your Grade Wk

9 15

40

Week

30

Group Case Analysis Three group case analyses weighted at 10% each. Announced in Weeks 11, 12 and 13

1 2 3 4 5 6 7 10 Week

30 For case work, students can earn up to 2 marks for missed class if individual case work is submitted BEFORE class or team meeting.

11 12 13

/10 /30 Act/Quiz /2 /4 /4 /4 /4 /4 /4 /4 Activity /10 /10 /10

100%

2 Do the Math Workbook for Marketing by Karen Sinotte Summer 2017

Introduction By the end of this course you will be able to evaluate the financial impacts of marketing recommendations and present these recommendations in a persuasive manner to sell your ideas. Topics Work sheet Starting Topic level

1. Marketing Frameworks and how to use them to make marketing mix decisions 2. Calculating market share and market growth to be used in forecasting and financial analysis 3. Financial Statements: The math and components of Balance Sheet and Income statement 4. Financial Analysis of Statements: The math and drivers of financial ratios including Liquidity, Solvency, Efficiency/Profitability, Effectiveness overall, marketing effectiveness in particular 5. By understanding the drivers of ratios, assess the relative values of different industry benchmarks. 6. Assess the strengths and weaknesses of company’s financial performance, using trend in financial ratios and benchmarks. 7. Calculate change in Gross Margin when price or product changes, especially when you don't have quantity, selling price or VC per unit. 8. Describe the pros and cons of different forecasting methods. 9. Describe the pros and cons of different budgeting methods. 10. Complete an estimation question using market factors using the chain ratio analysis format. 11. Estimate the profit impact of a marketing strategy given a sales target and a change in marketing mix. Report in Proforma Income statement format. 12. Estimate the profit impact of a pricing strategy. Report in Pro-forma Income statement format. 13. Assess the risk of a marketing strategy using breakeven and Margin of Safety. 14. Names the five Cs of pricing and use these to inform pricing decisions.

Market share

1 1

Financial Statements Financial Ratios

2 3, 6

3, 6 3, 6 3, 4, 5, 6

Forecasting and Budgeting

4 4 4

Pro-formas and breakeven

5,6,7, 8

7 5, 6, 7, 8

Pricing

7

15. Assess the likely elasticity of demand for a given product category.

7

16. Describe various pricing strategies and the objective that might be achieved by using these pricing strategies 17. Describe and implement the 5 step case process

7

Cases Process

Case worksheets

3 Do the Math Workbook for Marketing by Karen Sinotte Summer 2017

Weekly Reflections We ek

Weekly Thoughts (What did you learn, what challenges did you overcome, What still worries you, what questions do you have, any AHA moments)

1

2

3

4

5

6

7

9

10

11

12

13

14

15

4 Do the Math Workbook for Marketing by Karen Sinotte Summer 2017

Worksheet 1: Marketing Management Review Part A: Terminology 1. The Terminology of Marketing Planning and Measuring Marketing Success Define these key terms and be able to apply them appropriately in the marketing planning process. [TIP: Resources to help with terminology include your MARK 1027 textbook and the internet]. Throughout this course, we will be using the following marketing frameworks that can be used to help assess marketing strategy decisions.

1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20.

Marketing Frameworks AIDA Model BCG Matrix Brand Consumer Decision Process Diffusion of Innovation Macro Strategies for Sustainable Competitive Advantage Marketing Mix (4Ps vs. 7Ps) Perceptual Map PEST Analysis Porters 5 Forces Model Positioning (3 Cs) Price Quality model Pricing Strategies (5 C's) Product Life Cycle Product Market Growth (Ansoff) Model Profit Drivers (Cost/Revenue Framework) Promotional Planning STP Process Strategic Marketing Planning Process SWOT Analysis

These Key Performance Indicators are used to measure the success of these marketing decisions. There are measures of Efficiency (doing things right) and Effectiveness (doing the right things)

1. 2. 3.

Marketing Measures of Success Advertising as Percentage of Sales (%) Average sale per customer ($ or #) Brand Awareness

4.

Brand Development Index (BDI)

5.

Brand Value

6. 7. 8. 9. 10. 11. 12.

Conversion Rate (%) Cost per Sale ($) Cross Sell Customer Equity Customer Acquisition Customer Profitability Customer Retention (or Attrition Rates)

13.

Customer Satisfaction

14.

Gross Rating Point (GRP)

15.

Lifetime value of customer (LTV or CLV)

16.

Market Development Index (MDI)

17.

Market Growth (%∆)

18.

Market Share (SOM or M/S)

19.

Net Promoter Score (NPS)

20.

Recency Frequency Monetary Score (RFM)

21.

Repeat Purchase Ratio

22. 23.

Response Rate (RR) Return on Marketing Investment (ROMI)

24.

Sales Growth (%∆)

25.

Share of Voice (SOV)

26. 27. 28.

Share of Customer (SOC) Share of Wallet (SOW) Social Return on Investment

2. Describe how marketing success is measured?

5 Do the Math Workbook for Marketing by Karen Sinotte Summer 2017

3. Give at least 4 ways to grow market share?

4. Pros and Cons of growing market share, Give 4 of each. Pros Cons

PART B: Practicing the Math Sales Growth and Market Share (Show your work) 1. From your Job Aid to fill in the equations that you need: Calculating New Sales ($)

Calculating Sales Growth Rate (%)

Calculating Market Share

2. In 2012, total market is $1,000,000 with three competitors - Acme, Beta and Delta. The market grows

to $1,200,000 in 2013. By 2014, the market has grown to $1,500,000 which attracted a fourth competitor to the market. In 2014, Blue Nose generated $100,000 in sales, both Delta and Beta grew at the same rate in 2014 as they did in the previous year.

a. Fill out the chart below. ($000) 2012 Company Acme Beta Delta Blue Nose Industry Total

Sales

$ 500 $ 300 $ 200 n/a $ 1,000

2013

Market Share%

Sales

Market Share

2014 % Sales Change

Sales

Market Share %

% Sales Change

23% 30%

$ 345

n/a n/a 100% $ 1,200

n/a 100%

20% n/a

$100 $1,500

20% n/a 100%

b. Answer the following questions from the chart above i. What does this analysis tell you about the companies in this market? ii. Compare the advantages and disadvantages of large vs. small market share. iii. How might a company grow market share? Consider the financial impacts of changes in marketing mix.

6 Do the Math Workbook for Marketing by Karen Sinotte Summer 2017

3. Bottled water, consisting of still and sparking unflavoured and flavoured waters, is a hot industry - sales grew by 8.8% between 2001 and 2006 and are expected to grow another 8.5% by 2011. The bottled water industry in North America totalled 32.4 Billion litres valued at US $15.6 B in 2006 - that's an average of $0.48 in revenue per litre. Big players in this industry include Nestle, PepsiCo, and Coca Cola. Nestle is the market leader, selling 9.58 B litres, followed by PepsiCo's 4.3 B litres and Coca-Cola's 3.74 B litres a. Calculate 2006 market share for each of the three major players.

b.

How much revenue did one market share point represent in 2006? How much will 1% market share represent in 2011?

4. The manager of Haliburton Highlands Golf Course understands from industry data that the courses in the market area together host 30,000 rounds of golf a year. Of these rounds. Haliburton Highlands Golf Course hosts 3,500 rounds which represents an 8% increase over last year. From www.ngf.org found out that the rounds up 6.1% through November 2012 and is expected to increase by 6% next year. a. Calculate market share this year. b.

c.

d.

Calculate next year's market share if Haliburton Highlands Golf Course was to project a 7% increase in sales next year, while the market is growing by 6% next year. How might Haliburton Highlands Golf Course grow their business next year? How might you compare your performance relative to other players in the market place?

5. The owners of Molly Maid Housekeeping services serves houses and condominiums on Toronto's Harbourfront. This area includes approximately 5,500 homes. However, it is estimated that only 35% are potential customers because they currently engage maid services in their homes or may do so in the future. The company currently cleans 225 homes. Toronto's Harbourfront is currently experiencing a building boom. There will be 2,500 additional units built in the next 3 years. a. Calculate market share this year.

b.

How might you forecast what will happen to Molly Maid's business in the next three years?

7 Do the Math Workbook for Marketing by Karen Sinotte Summer 2017

Worksheet 2: Reviewing Financial Statements Part A: Terminology of Financial Statements: Define these key terms and identify them on a financial statement. For each item, indicate which statement they belong to: Balance sheet (BS) or Income Statement (IS) and Item Type: Fixed Assets = FA, Current Assets = CA, Intangible Assets = IA, Current Liabilities =CL, Long Term Liabilities = FL, Equity = EQU, Revenue = R, Variable Expenses = VC or Fixed Expenses = FC.

1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21. 22. 23. 24. 25. 26. 27. 28. 29. 30. 31. 32. 33. 34. 35.

Item Accounts Payable Accounts Receivable Accumulated Depreciation Administrative salaries and benefits Advertising Costs for GroupOn Offer Advertising Expenses Bank Charges/Fees Brand Value Cash Closing Inventory Cost of Goods Sold Depreciation Expense Equipment Goodwill Hourly labour for factory line workers HST Paid Insurance Interest Income Inventory Merchant credit card processing Miscellaneous Expenses Mortgage Owed Mortgage Payment Notes Payable Office rent Opening Inventory Outbound Telemarketing Owners’ equity Package design Packaging materials Plant electricity Premium Costs for Gift with Purchase Pre-Paid expenses PST Collected but not yet paid Purchases

Statement

Item Type

8 Do the Math Workbook for Marketing by Karen Sinotte Summer 2017

36. 37. 38. 39. 40. 41. 42. 43. 44. 45. 46. 47. 48. 49.

Item Retained Earnings Revenues Salaries Expenses Sales Salesmen commission Shareholder's Equity Stocking Fee Telephone Expenses Transportation Costs Travel Costs TV media Expenses Variable Expenses

Statement

Item Type

Be able to sort these items in Liquidity order on the Balance sheet and separate Variable vs. Fixed expenses on the income statement Assets Liabilities Equity Variable Fixed Expenses (Thing that you OWN) (What you OWE to (expenses PAID that Expenses (Things that you OWE to creditors)

shareholders/ owners)

(expenses PAID that change proportionate to change in sales)

don't change proportionate to change in sales)

9 Do the Math Workbook for Marketing by Karen Sinotte Summer 2017

Part B: Practicing the Math (Show your work) 1. (A) Create financial statements in correct format from the list of items provided. Record on blank sheet of paper. (a) Sort items by statement type, then by category, then by liquidity. (b) Verify that Assets = Liabilities + Equity. If not, something wrong. (B) Answer the following questions from the completed statements: a. Calculate Total Current Assets b. Calculate Total Fixed Assets c. Calculate Total Assets

d. Calculate Total Current Liabilities e. Calculate Cost of Goods Sold f. Calculate Gross Profit

g. Calculate Total Operating Expenses h. Calculate Net Profit

i. j.

Which Fixed Asset is likely the “newest” What adjustments to incomes statement needed to reflect cash flow

1 Accounts Payable 2 Accounts Receivable 3 Accum Depn (Building) 4 Accum Depn (Equipment) 5 Accum Depn (Fixtures) 6 Advertising Promotion 7 Beginning Inventory 8 Buildings 9 Cash 10 Contracts Payable 11 Depreciation Expense 12 Ending Inventory 13 Equipment 14 Fixtures 15 Insurance Expense 16 Long Term Note 17 Merchandise Inventory 18 Miscellaneous Expense 19 Notes Payable 20 Owners Equity 21 Payment on Building note 22 Prepaid Expenses 23 Purchases during the year 24 Salaries Expense 25 Salaries Payable 26 Sales 27 Suppliers Expenses 28 Utilities Expense

$ 3,000 $ 13,400 $ 7,800 $ $ 3,600 $ 3,000 $ 18,000 $ 77,000 $ 6,120 $ 6,000 $ 2,000 $ 18,200 $ 8,000 $ 17,800 $ 18,000 $ 75,000 $ 19,200 $ 4,000 $ 4,000 $ 39,160 $ 34,000 $ 2,040 $ 22,000 $ 68,000 $ 5,000 $ 178,000 $ 7,460 $ 8,000

Record Financial Statement Equations from your job aid: Income Statement

Cost of Goods Sold

Balance Sheet

10 Do the Math Workbook for Marketing by Karen Sinotte Summer 2017

2. Pro-forma to evaluate financial impact of marketing strategies: At 10,000 units, Total Fixed Costs are $200,000 and Total Variable Costs are $50,000. Costs and profit vary with output. The item currently sells for $38. The company is considering how to double output to 20,000. Option 1 is doing nothing. Option 2 is reducing price to $28. Option 3 is increasing advertising by $50,000. a. Complete the following chart.

Assumptions Output Units Unit Price Variable Costs/Unit Contribution per Unit

Base

Option 1 Option 2 Option 3 10,000 20,000 20,000 20,000 $38 $38 $28 $38

Proforma Income Statement Total Revenue -Total Variable Costs Gross Profit -Total Fixed Costs Net Profit Analysis Gross Margin Net Profit Margin Break Even Units (Week 5) Margin of Safety (Week 5) b. Describe the relationship between Sales and Variable Costs? Sales and Fixed costs? Sales and Gross Profit? Sales and Net Profit?

c. What is the difference between fixed and variable costs?

d. In order to double quantity of sales, is it better to reduce price or increase advertising? Explain how you would decide the best marketing strategy?

e. Would your recommendation change if you considered breakeven units and Margin of Safety?

11 Do the Math Workbook for Marketing Metrics, by Karen Sinotte, Summer 2017

Worksheet 3: Financial Situational Analysis Part A: Terminology 1. Explain these THREE types of analysis. a.

Vertical Analysis

b.

Horizontal Analysis

c.

Ratio Analysis

2. Describe the ratios used to assess these FIVE aspects of financial performance. a.

Liquidity

b.

Solvency

c.

Efficiency

d.

Overall Effectiveness

e.

Marketing Effectiveness

3. Demonstrate your understanding of how to impact ratios (three examples) a.

Give 8 ways a business might improve gross margin.

b.

Give 8 ways a business might improve Net Profit

c.

Give 8 reasons a company might decide to spend more than benchmark on advertising as % of sales .enchmark.

12 Do the Math Workbook for Marketing Metrics, by Karen Sinotte, Summer 2017

Part B: Practicing the Math 1. Fill in the missing values in Chart 1, Part ❶ (Income Statement with COGS). 2. Complete Chart 1, Part ❷, selected vertical, horizontal and ratio analysis. Then analyze the data to assess company performance. Record your analysis in Chart 2. Is this company performing good or bad? Be prepared to explain your answer.

3. Using Historical performance data, make determine a sales forecast and market strategy changes that would be needed to achieve this sales target. Present this “plan” in a Pro-forma Income Statement using Chart 1, Part ❸. Chart 1: Income Statement with COGS 2006 ❶ Income Statement Sales 37,000 Opening Inventory 6,000 Purchases 10,000 Goods Available Closing Inventory 2,000 COGS

2007

2008

2009

2010

53,000

71,000

98,000

125,500 8,500

15,000 17,000 6,000

$40,000

$40,000

2011 F 1 2 3

43,000 32,000 8,500

Gross Profit Fixed Costs

❸

$40,000

4

79,000 28,500

5

43,000

6

55,000

7

$40,000

8

$40,000

9

Net profit

❷ Analysis

2006

2007

2008

2009

❸ 2011 F

2010

Gross Margin %

10

Net Margin %

11

Average Inventory

12

Inventory Turnover

13

% Change in Sales

14

% Change in Gross Profit % Change in Net Profit

15

Chart 2: Strengths and Weaknesses Chart Strengths ❷ Analysis

16

Weaknesses

From Income Statement From Vertical Analysis From Horizontal Analysis From Ratio Analysis Overall Assessment

13 Do the Math Workbook for Marketing Metrics, by Karen Sinotte, Summer 2017

Worksheet 4: Forecasting and Budgeting Part A: Terminology of Forecasting and Budgeting

1. From your reading assignments, explain market demand and the THREE levels of forecasting a.

Market Demand

b.

Market Potential

c.

Sales Potential

d.

Sales Forecast

2. From your reading assignments, define chain ratio analysis for estimations and these EIGHT Forecasting Methods a.

Chain Ratio Analysis

b.

Market Test

c.

Trend Analysis

d.

Market Factor Analysis

e.

Exponential Smoothing

f.

Jury of Executive Opinion

g.

Delphi Technique

h.

Sales Force Composite

i.

Survey of Buyer Intentions

3. From your reading assignments, define these SIX Budgeting Methods: a.

Objective and Task Method

b.

Compared with Previous Year

c.

Competitive Parity Method

d.

Percentage of Sales Method

e.

Unit of Sales Method

f.

Affordable Budget Method

14 Do the Math Workbook for Marketing Metrics, by Karen Sinotte, Summer 2017

Part B: Practicing the Math (show your work)

A variety of methods are used, often in combination, to identify the factors affecting demand in various situations (primary or secondary research, historical trend data, heuristics1, marketing experiences and common sense). When forecasting be sure to state any assumptions and show all your calculations. 1

Statistics Canada provided demographic information about Canadian Population. a. Give five unique observations or insights about Canadian Population. Graphically present this data. b. How does national Canada data compare to your "home" town. c. How might you use this information to estimate market potential for Holiday Caribbean in Toronto? Population estimates by sex and age group as of July 1, 2011, Canada (Source: Statistics Canada). http://www.statcan.gc.ca/daily-quotidien/110928/t110928a4-eng.htm Age group Total

Total

Male

Female

34,482,779

17,104,098

17,378,681

0 to 4 years

1,921,203

982,889

938,314

5 to 9 years

1,823,983

938,803

885,180

10 to 14 years

1,899,661

975,748

923,913

15 to 19 years

2,196,437

1,123,767

1,072,670

20 to 24 years

2,402,234

1,234,223

1,168,011

25 to 29 years

2,419,280

1,227,544

1,191,736

30 to 34 years

2,348,086

1,173,463

1,174,623

35 to 39 years

2,290,396

1,149,025

1,141,371

40 to 44 years

2,396,726

1,206,180

1,190,546

45 to 49 years

2,750,685

1,384,979

1,365,706

50 to 54 years

2,668,169

1,333,326

1,334,843

55 to 59 years

2,354,191

1,161,120

1,193,071

60 to 64 years

2,038,290

998,378

1,039,912

65 to 69 years

1,534,466

744,151

790,315

70 to 74 years

1,142,574

538,828

603,746

75 to 79 years

918,295

415,433

502,862

80 to 84 years

703,048

293,347

409,701

85 to 89 years

439,034

157,271

281,763

90 to 94 years

179,895

52,717

127,178

95 to 99 years

48,557

11,338

37,219

7,569

1,568

6,001

100 years +

1

Heuristics: Pertaining to the use of the general knowledge gained by experience to solve problems. Examples of this method include using a rule of thumb, an educated guess, an intuitive judgment, or common sense

15 Do the Math Workbook for Marketing Metrics, by Karen Sinotte, Summer 2017

2

Forecast the demand in retail dollars for the new “Bongo Bumpers” toy in Canada for its first year of launch. Use the market research data provided below and you will need to look up target population at the Statistics Canada site. Spin Master Toys would like to introduce a new battery powered adventure toy called “Bongo Bumpers” targeted to boys aged 5-9 in Canada. It is a unique new toy that is expected to be a Christmas season hit this year. The toy will sell for $25.  A Spin Master survey estimated that 80% of boys who saw the toy in action would ask their parents to purchase it for them.  Past experience with their marketing campaigns estimates that 65 % of boys in Canada would either see advertising or learn about the toy from friends within its first year of launch.  Spin Master have learned that in general 50 % of parents or others in the family will purchase a Spin Master toy that their child requests within a year, as Spin Master has an excellent reputation for making toys that have lasting play value Factors to consider % Assumption Calculations

Sources: 3.

Estimate the size of dog food market in Winnipeg, Manitoba. Use Statistics Canada and market research information that might be available on the interest to determine appropriate market factors and % assumptions. Cite Sources. Factors to consider % Assumption Calculations

Sources: 4.

Estimate the number of red sports cars on the road in Toronto right now. For this one, use guestimates rather than use internet sources. Factors to consider % Assumption Calculations

Sources:

16 Do the Math Workbook for Marketing Metrics, by Karen Sinotte, Summer 2017

Worksheet 5: Breakevens and Pro-formas Part A: Terminology of Breakevens and Pro-formas 1. For each of the following terms, define the term, be able to calculate it, and explain how marketers use this information in evaluating the financial impact of marketing decisions. 1. Breakeven as percentage of sales 2. Breakeven with profit target 3. Contribution Margin 4. Contribution per unit 5. Fixed Costs 6. Gross Margin 7. Margin of Safety (BE as % of Sales Forecast) 8. Pro-forma Income Statement

2. Give 5 business decisions that are informed using Breakeven analysis. 1. 2. 3. 4. 5.

17 Do the Math Workbook for Marketing Metrics, by Karen Sinotte, Summer 2017

Part B: Practicing the Math (show your work) 1. The WeRNuts Manufacturing company, ModelB product. Selling price $5.00 per unit, variable cost $4.25 per unit, , Total fixed operating costs $750,000. In addition, they plan to increase advertising by $80,000 and a profit goal of $70,000. a. Calculate contribution per unit? b.

Calculate total fixed costs?

c.

How many units must be sold to reach breakeven?

d.

How many units must be sold to reach profit target?

2. David Company has Fixed costs $200,000, Selling price $250, Variable Cost per unit $200. Sales in 2003 are forecasted to be $1,250,000 a. Calculate contribution per unit? b.

Calculate total fixed costs?

c.

How many units must be sold to reach breakeven? How many units do they plan to sell?

d. e. f. g. h.

What is the expected Profit at $1,250,000 in sales? What is the Net Margin? What is Contribution Margin? How many units do they need to sell if they wanted to make profit of 5% of sales?

3. International Conventions overhead costs to produce the 3 day Marketing Conference is $90,000 and their advertising costs are $50,000. They estimate that the variable costs for each attendee including meals and materials are $350. They are charging a registration price per attendee of $1,500. a. Calculate contribution per unit? b.

Calculate total fixed costs?

c.

What is the break even number of attendees? If the Target Profit or return is $50,000, what are the contribution target break even numbers of attendees? If the international Conventions raised their prices per attendee to $2000 what would their new break even attendance be? How might forecasted demand be affected with change in price?

d.

e.

f.

18 Do the Math Workbook for Marketing Metrics, by Karen Sinotte, Summer 2017

4. Currently a business sells 20,000 units at a selling price of $40. Total Fixed Costs are $500,000 which includes $80,000 (or 10% of sales $) in marketing costs. Total Variable Costs are $100,000 at output of 20,000 units. The business is looking to double their sales volumes to 40,000 units. A financial analysis will allow you to recommend whether they should drop their price to $35.00 or increase their advertising spend to 10% of sales in order to achieve their sales volume goals. Create pro-forma income statements and breakeven analysis for the options described above and answer these questions: Answer the following questions. Show your work. a. What is the current variable cost per unit based on total variable costs of $100,000 at 20,000 units? b.

What is breakeven in units, based on current sales of 20,000 units at selling price of $40 and total fixed costs of $500,000 and total variable costs of $100,000?

c.

What will happen to breakeven if sales increase to 40,000 units, but price reduced to $35 and fixed costs remain unchanged

d.

What happen to break even if sales increase to 40,000, price remains unchanged at $40 and fixed costs increase because total marketing costs increased to 10% of sales?

e.

As units sold increase, what will happen to unit costs?

f.

As units sold increase, what will happen to fixed costs?

g.

As units sold increase, what will happen to Total Variable Costs?

h.

What observations do you make about the relationship between price, gross margin, breakeven and net profit?

i.

What observations to you make about relationship between sales volumes, variable costs and breakeven?

j.

What observations to you make about relationship between fixed costs and volumes?

k.

Is it better to sell product at $35 (no change in fixed costs) or $40 (and increase marketing to 10% of $sales)? Explain your answer.

19 Do the Math Workbook for Marketing Metrics, by Karen Sinotte, Summer 2017

Worksheet 6: Tough Guy Sports Case Tough Guy Sports is a full line sporting goods retailer. In 2016, market sales are forecasted to be $3,429,000 up from $3,175,000 in 2015. Market sales information is provided so that you can calculate market share and compare company sales growth with market growth. Also provided are the company's Income Statement and Balance Sheet

Part I: Defining the Business Problem A. Complete the three steps to complete financial situational assessment to define the business Problem. Show your work. 1. Do the Math. Vertical, Horizontal and Ratio analysis of the 3 years of financial statements for the company. See Financial Analysis Worksheet. 2. Look up the appropriate benchmark data for key ratios and other performance indicators for this industry/market. Cite sources for industry benchmarks. 3. Analyze the data using a financial SWOT Complete the Financial Situational Assessment Worksheet to determine if the company is doing "good" or "bad". Draw conclusions from this data and consider the implications from this analysis for next year's Business Planning. Here is a check list for your financial situational assessment  Look at both the income statement and balance sheet  Look at costs and profit relative to sales and assets using vertical analysis  Look at trends using horizontal analysis  Consider liquidity, solvency, profitability and efficiency using ratios.  Compare company performance against industry benchmarks  Compare market growth against sales growth and market share for Tough Guy Sports. B.

Answer the following questions using information provided in the financial statements. 1. If Tough Guy sports was to decide to decrease their prices by 10% next year, calculate the new gross margin. 2. If Tough Guy Sports learned that the cost of their products were going to increase by 10% next year, calculate the new gross margin. 3

4

If Tough Guy Sports was to increase their advertising spend again next year, what happens to Gross Margin? Calculate the new net profit if sales grow next year by 10%.

20 Do the Math Workbook for Marketing Metrics, by Karen Sinotte, Summer 2017

Tough Guy Sports Financial Statements Market Sales and financial Statements (Income Statement and Balance Sheet for Tough Guy Sports.

On Income Statement, Sales are reported as a Net Number here, but includes 3% of sales for Returns and Allowances in 2014, which has been increasing each year.

On Balance Sheet, Fixed Assets are reported net of Accumulated Depreciation.

Tough Guys Sporting goods 2013 Market Sales for Sporting Goods 2,800 Income Statement as of Dec 31 ($000) Sales Beginning Inventory Purchases Cost of Goods Available for Sale

$ $ $ $

2013 714.000 167.000 483.000 650.000

LESS ending Inventory Cost of Goods Sold Gross Profit Owners Salary Employees Wages Delivery Expense Legal Fees Advertising Miscellaneous Rent Utilities Telephone Repairs and Maintenance Insurance Interest Deprecation Total Operating Expenses Net Profit before Tax

$ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $

174.000 476.000 238.000 40.000 71.300 5.700 4.200 20.700 46.100 11.424 8.140 3.570 3.570 8.568 7.140 230.412 7.588

Balance Sheet as of Dec 31 ($000) Current Assets Cash Net Accounts Receivable Inventory Other current Assets total Current Assets Fixed Assets, Net TOTAL ASSETS LIABILITIES current Liabilities Accounts Payable Notes Payable - Bank Taxes Payable Accrued Expenses Total current liabilities Long Term Liabilities TOTAL LIABILITIES EQUITY Common Stock Retained Earnings Total Equity TOTAL LIABILITIES and EQUITY

2014 2,940

2015 3,175

$ $ $

2014 728.280 174.000 492.000 666.000

$ $ $ $

2015 764.694 187.000 510.000 697.000

$ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $

187.000 479.000 249.280 41.200 73.439 5.814 4.200 22.000 47.000 11.538 8.140 4.500 3.570 8.804 7.140 237.345 11.935

$ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $

192.000 505.000 259.694 42.436 75.642 6.200 4.200 25.000 48.000 11.654 8.140 4.500 3.570 8.611 7.140 245.093 14.601

2013

2014

10.000 30.000 174.000 30.000 244.000 116.000 360.000

18.000 28.000 187.000 32.000 265.000 108.000 373.000

$ $ $ $ $ $ $

11.000 32.000 192.000 31.231 266.231 100.000 366.231

87.000 39.000 1.500 0.000 127.500

109.540 32.000 2.000 0.000 143.540

$ $ $ $ $

98.000 40.000 2.000 140.000

218.000 345.500

211.460 $ 355.000 $

207.231 347.231

1.000 13.500 14.500 360.000

1.000 17.000 18.000 373.000

1.000 18.000 19.000 366.231

2015

$ $ $ $

Financial Analysis Worksheet - Doing the Math 21 Do the Math Workbook for Marketing Metrics, by Karen Sinotte, Summer 2017

Market Share (% 0f market sales) Total Market Total Market

2013

2014

2015

2016 F

Market Growth (% Change) 2014-13

Vertical Analysis (% 0f sales) Income Statement Sales Cost of goods Sold Gross Profit *Wages+Salaries * Rent * Advertising Expense Total Operating Expenses Net Operating Profit

2013

Balance Sheet Current Assets Fixed Assets Total Assets Current Liabilities Long Term Liabilities Total Liabilities Equity

2013

100.0%

2014

100.0%

2015

Ratio Analysis Liquidity Ratios Current Ratio Quick Ratio Solvency Ratios Debt Ratio Debt to Equity Ratio Profitability Return on Assets Return on Equity Gross Margin Net Profit Margin Efficiency Inventory Turnover Total Asset Turnover Advertising as % of Sales

100.0%

100.0%

2015-13

2016-15

Horizontal Analysis (% Change) 2014-13

2015-14

2015-13

100.0%

Vertical Analysis (% of Total Assets) 2014

2015-14

2015

Horizontal Analysis (% Change) 2014-13

2015-14

2015-13

100.0%

2013

2014

2015

Benchmark**

2013

2014

2015

Benchmark

2013

2014

2015

Benchmark

2013

2014

2015

Benchmark

* For Analysis, focus on the largest expense line items instead of doing horizontal and vertical analysis for all of the expense line items. For Retail, this will typically be Salaries, Rent and Advertising. ** For Benchmark data, check out BB>Additional Resources posting that provides Internet Sources for benchmark data. Be sure to cite sources.

22 Do the Math Workbook for Marketing Metrics, by Karen Sinotte, Summer 2017

Good or Bad

Marketing Effectiveness

Effectiveness Overall

Efficiency

Solvency

Liquidity

Overall

Financial Situational Assessment Worksheet, Analyzing the numbers Strengths Weaknesses

23 Do the Math Workbook for Marketing Metrics, by Karen Sinotte, Summer 2017

Part II: Tough Guy Sports Case, Setting Goals and Considering Alternatives When planning for next year, you need to set goals and consider alternative strategies to achieve these goals. Use these three steps (1)Brainstorm, (2) Shortlist for SMART considerations (3) Compare financial impacts of alternatives. Step 1: Brainstorm: Based on the past performance of Tough Guy Sports, identify SEVEN possible forecasted sales options for next year (using trend analysis based on "eyeball patterns seen in historical data). For each option explain why you picked that number, provide $ Sales Estimate, forecasted market share and % Change in Sales vs. 2015. Possible Sales Forecasts (Based on Patterns seen in historical data)

Sales Estimate

Market Share

% Chg Vs 2015

1 2 3 4 5 6 7

Step 2: Get Real. Shortlist four forecast alternatives and identify marketing to achieve these four sales forecasts. In particular, identify how the Marketing Mix might change. Strategy Assumptions Option Description 1 2 3 4

24 Do the Math Workbook for Marketing Metrics, by Karen Sinotte, Summer 2017

Step 3: Do the Math: Compare financial impact of alternative forecasts and strategies. Step 3a: Estimate Profit and show your work in a Pro-forma Income Statement format. Step 3b: Calculate key ratios that you will need to compare alternatives. Step 3c: Assess risk by calculating Breakeven + Profit Target Sales and Margin of Safety

2015 Base (from Part I) A. Pro-forma Income Statement

2016 F Option 1

2016 F Option 2

2016 F Option 3

2016 F Option 4

Line #

Sales

764.7

1

COGS

505.0

2

Gross Profit Advertising Other Fixed Cots Total Fixed Cost

259.7 25.0 220.1 245.1

3

Net Profit B Analysis and Key Ratios

14.6

5

Gross Margin

34%

6

Profit Margin

1.9%

7

Adv as % Sales

3.3%

8

Sales Growth

5.0%

9

COGS Growth

5.4%

10

Advertising Growth

13.6%

11

Net Profit Growth

22.3%

12

Market Share Market Sales C Risk Analysis Breakeven Margin of Safety BE w/2006 Profit Target Margin of Safety

24.1 3175

13

4

3,429

3,429

3,429

3,429

14

15

16

25 Do the Math Workbook for Marketing Metrics, by Karen Sinotte, Summer 2017

Part III: Tough Guy Sports Case Selling the Plan Step 4: Sell your ideas: Which option would you recommend for Tough Guy Sports in 2015. Support your recommendation with at least FIVE financial facts from the situational assessment and the comparison completed above. Use your numbers to earn marks. Ratios are better than absolute numbers. Must include both Risk and Reward. Recommendation (Forecast and Strategy):

5 Reasons why 1

2

3

4

5

26 Do the Math Workbook for Marketing Metrics, by Karen Sinotte, Summer 2017

Worksheet 7: Pricing Decisions Heinz Case Part A: Pricing Terminology 1. Based on your reading assignments, explain the following terms. a. 5 C's of Pricing b. c. d. e. f.

Markups vs. Mark downs vs. Gross Margin Manufacturers Selling Price vs. Retailers Selling Price Drivers of Elasticity How Market Structure affects pricing strategies Cannibalization

2. Based on your reading assignments and "heuristics", be able to apply pricing methods, objectives and strategies in case situations. Pricing Methods Pricing Objectives Pricing Strategies Maximizing Profit

Maximizing Sales Volume

Establishing a competitive position

1.

Cash Flow Objective

2.

Contribution Pricing

3.

Market Penetration

4.

Market Share Objective

5.

Partial Cost Recovery

6.

Profit Margin Maximization

7.

Profit Maximization

8.

Quality Leadership

9.

Quantity Maximization

10. Revenue Maximization 11. Skimming 12. Status Quo 13. Survival Pricing 14. Target Profit Pricing 15. Target rate of return

Be able to match Strategies to Objectives

1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21. 22. 23. 24. 25. 26. 27. 28. 29. 30. 31. 32. 33. 34. 35. 36. 37. 38.

Absorption Cost Pricing Accessible Premium Pricing Bundle Pricing Captive Product Pricing Capitation Pricing Cost Plus Pricing Competitive Based pricing Differentiation Discount Pricing Dynamic Pricing Economy Pricing Every Day Low Pricing (EDLP) Geographical Pricing Going Rate (Price Leadership) Good Better Best High Low Pricing Loss Leader Marginal Cost Pricing Multiple Pricing Odd Even Pricing On or Off Peak Pricing Optional pricing Penetration pricing Predatory Pricing Pre-emptive Pricing Premium pricing Prestige Pricing Price Discrimination Price Stabilization Pricing Variations Product Line Pricing Promotional pricing Psychological pricing Reference Pricing Relationship Pricing Skimming Time Based Pricing Value Pricing

27 Do the Math Workbook for Marketing Metrics, by Karen Sinotte, Summer 2017

Part B Practicing the Math of Gross Profit, Mark-ups and Mark –Downs

1.

A local clothing store buys a shipment of Oakley sunglasses for $79 per pair, and then resells them for $115 per pair. Later in the season, the clothing store will put the glasses on sale for $99. a. b. c. d. e.

2.

Sports Chek2 buys a pair of roller blades for $75 and prices them to realize a mark-up of $50. The average operating cost to run a Sports Chek store is $1.1MM annually and roller blades represents 2% of total store sales, and is allocated 2% of overhead costs as a result ($22,000). a. b. c. d. e. f.

3.

What is selling price? What is mark up ($)? What is Mark Up % (on cost)? Calculate Gross Margin (Mark up on Selling Price)? How does this compare with Sporting Goods industry average gross margin? How many roller blades does Sports Check store need to sell to make contribution of 3% net profit margin?

A convenience store buys 4 litre poly bags of milk for $4.99 and sells them for $5.29. a.

What is mark up ($)?

b.

What is Mark Up % (on cost)?

c.

Calculate Gross Margin (Mark up on Selling Price)?

d.

How does mark-up for milk compare with the average mark up for convenience store (hint: convert gross margin benchmark to markup) Why do convenience stores sell milk if it has such a low gross margin compared to their other products? (TIP: Use breakeven with profit target)

e.

4.

What is mark up ($)? What is Mark Up % (on cost)? Calculate Gross Margin (Mark up on Selling Price)? What is Markdown $? What is Markdown %?

A cat food manufacturer sells through wholesalers to retailers. A 10kg bag retails for $16.95. Retail mark-ups are 35% and wholesaler mark-ups are 10%. What is the manufacturers selling price? HINT: Two step process, first calculate Retailers cost, then Wholesalers cost = Manufacturers Selling Price Retail Selling Price Retail Cost = Wholesaler Selling Price Wholesaler Cost =Manufacturer Selling Price Manufacturer Cost

2

In May 2011, Canadian Tire bought Sports Chek stores in Canada owned by Forzari Group for $771 MM (500 stores, total $1.4B in sales annually. [With that information that means about $2.8MM in sales per store. Sporting goods retailers benchmarks suggest they earn about 38% GM and 1.5% net profit on average (Retailer Owners Institute, 2008), so operating costs per store about $1.1MM.

28 Do the Math Workbook for Marketing Metrics, by Karen Sinotte, Summer 2017

PART C HEINZ KETCHUP PRICING CASE The Business Situation: Heinz Ketchup developed a new line of spicy ketchup targeted to adult tastes. It had a benefit not available in any other Ketchup on the market- its taste was a gourmet herb and spice blend with the original smooth thick tomato texture of original ketchup. The marketing plan is developed and price is the only thing yet to be decided. Research: Consumer research showed that the product had superior taste to the original and competitors. There was 85% intent to purchase among adult ketchup users who represent about 15 % of the ketchup market volume. Total Canadian Market is estimated at 5 million units. The costs have been estimated.

Competitive Comparisons with consumer perception Competitive Comparisons

Costs for producing Spicy Ketchup

Brand

Retail price 1L

Market share

Consumer perceptions Texture Taste Value

Raw materials

$.48

Packaging

$.50

Heinz original

2.99

50 %

High

High

High

Direct Labour

$.27

PC Brand

2.79

25%

Med

High

High

Production overhead

$ 100,000

No name

2.49

15 %

Med

Low

Low

Administrative expenses

$ 120,000

Hunts

2.79

10 %

Med

High

Med

Advertising and promotion Retail and Wholesale margin

$ 500,000 20%

Total

2.851

100%

Spicy Ketchup

tbd

tbd

High

High

High

1

Average Retail Price (weighted average)

Your task: Compare financial impact of four pricing strategies and make a pricing recommendation supported by financial facts.

When selecting pricing options, consider the following 1. 2.

1. Select 4 pricing options that Heinz might consider for this new product. For each pricing option, provide sales forecasts and marketing mix assumptions. 2. Create and compare pro-forma income statements, ratio and breakeven analysis for first year. Use Pro-forma template provided. 3. Which retail price do you recommend for this product? Justify your recommendation using at least five financial facts from your pro-forma and analysis. Hint: Recommendations will depend on the business objective that you assume.

3. 4. 5. 6. 7.

8.

What factors might Heinz consider in setting the price for this new product? (Hint: 5 C’s of marketing) How helpful is the market research provided in this case to evaluate alternative pricing strategies? How elastic is the product category? Explain your answer providing at least 4 drivers of elasticity. How might market share forecasts be impacted by various pricing strategies? How might Marketing Budget Estimates be impacted by various pricing strategies? How might other elements of marketing mix be affected by pricing decisions? This case is for the product manufacturer, so you need to be able to calculate manufacturer selling price from the retail selling price provided in the research. How significant do you think that cannibalization of existing product might be (i.e. impact on Sales and Gross Profit on Heinz Original product sales)?

29 Do the Math Workbook for Marketing Metrics, by Karen Sinotte, Summer 2017

Part B Pro-forma template

Assumptions

Option 1

Option 2

Option 3

Option 4

Line Item

Notes

Price Strategy

1

Retail Price

2

Manufacture Price Manufacturers' VC per Unit Contribution per unit Market Share assumption

3

Forecasted units Pro-forma Income statement

7

Sales Revenue

8

COGS Gross Profit/Contribution

9 10

Advertising Costs

11

Other Fixed Costs

12

Total Fixed Costs

13

Net Profit Analysis

14

Gross Margin

15

Net Profit Margin

16

Breakeven (in units)

17

BE Market Share Margin of Safety

18

4 5 6

19

Advertising as % of Sales Forecast Cannibalization(high, medium or low)

20

21

30 Do the Math Workbook for Marketing Metrics, by Karen Sinotte, Summer 2017

Worksheet 8: Financial Analysis to Inform Decisions 1.

Flags are Us is a small company producing flags. They are considering entering into this new market where the maximum market size is estimated at 6,000 flags. The following are the costs for the company, fixed costs are $4,000 and the variable costs are 8 cents per flag. The company feels they can sell a flag for $3.00 each. Show your work in a Pro-forma income statement format

a.

Calculate contribution per unit?

b.

Calculate total fixed costs?

c.

How many flags will need to be sold to reach breakeven? What is market share at breakeven?

d. e. f. g.

How much profit would Flags are US make at 50% market share? Do you think that there will be a lot of competitors or only a few in this market? Should this opportunity be pursued? In order to answer this question, create proforma's for a minimum and maximum sales potential as well and compare forecasts against breakeven.

Market Share Estimate Unit Sales Sales Variable Costs Fixed Costs Net Profit Profit Margin Breakeven Margin of Safety

Option 1 BE____

Option 2 50%

Option 3 10%

31 Do the Math Workbook for Marketing Metrics, by Karen Sinotte, Summer 2017

2.

Madeleine’s Beauty Salon has been doing very well since it started 5 years ago. 2015 income statement is provided below. Madeleine is planning on expanding the business to a larger location. With the expansion she feels that the potential new revenue will increase by 15% .However expenses will also increase – rent will increase by $1,200 per month, one new employee at the cost of $2,000 per month, additional costs for utilities of $50.00 per month and she would like to pay herself $500.00 a month in salary for herself. Show your work in a Pro-forma income statement format

2015 (Base)

Sales COGS Gross Profit Fixed Expenses

$155,000 38,000 117,000 85,000

Net Profit

32,000

% of Sales

Expansion

% of Sales

% Change over Base

Breakeven Sales with Target Profit

a.

Calculate contribution per unit?

b.

Calculate total fixed costs after expansion What will net profit be for expanded business? How does percentage change in net profit compare with change in sales? Calculate % increase in $ sales needed to earn same preexpansion profit after the additional fixed expenses of expansion? Is this a feasible move for her to go through with her expansion plans? What other things would you suggest regarding this situation?

c. d.

e.

f.

g.

32 Do the Math Workbook for Marketing Metrics, by Karen Sinotte, Summer 2017

3

A retailer purchased 100 new release computer games at a cost of $79.00 each. He was hoping to be able to sell these during the pre-Christmas season at a 40% markup. He was targeting gamers that wanted to stay current on their games and using a premium price as a result. Show your work in a Pro-forma income statement format

a.

Sales were much lower than forecasted and he only sold 60 units at the full mark up of 40%. Because the next version of the game was scheduled for release in February, the retailer wanted to clear the balance of his inventory of this game, so he marked down the price by 40% and was able to clear all his merchandise by the end of the year. How much profit ($) did the retailer make on this product in the end? What was the gross margin? Price 1 Price 2 Total Selling Price Quantity Costs Contribution Per Unit Mark up Mark Down Sales COGS Gross Profit Gross Margin Note: Average Selling Price is NOT (P1+P2)/2

b.

Instead of pricing it at a 40% markup, how much profit would he have made if he has priced it more accessibly at a more modest 20% mark-up? And because of the price elasticity of the demand for the product, he would have been able to sell the full quantity of 95 units. Price 1 Price 2 Total Selling Price Quantity Costs Contribution Per Unit Mark up Mark Down Sales COGS Gross Profit Gross Margin Note: Average Selling Price is NOT (P1+P2)/2

c.

Which pricing strategy would be better?

33 Do the Math Workbook for Marketing Metrics, by Karen Sinotte, Summer 2017

4.

MARS, maker of M&M's candy, recently introduced M&M Premiums. The new candies include flavors such as mint chocolate, mocha, chocolate almond and raspberry almond with white chocolate. They are wrapped in indescent colors and sold in re-closable cartons. MARS also plans new offerings with its Snickers and Dove brands. Although the new M&M Premiums will be able to charge a higher wholesale price ($0.48 per ounce for the new product versus $0.30 per ounce for the original product), they also come with higher variable costs ($0.35 per ounce for the new product versus $0.15 per ounce for the original product. MARS is forecasting 300 million ounces of M&M Premium within the first year after introduction with an increase in fixed costs of $5 MM during the first year of production of the new product. Half of the forecasted M&M Premium sales will come from buyers who would normally purchase M&M regular candies (cannibalized sales). The sales of regular M&M Candies are normally 1 billion ounces per year. See Also: “Chocolate Confectionery in Canada” Euromonitor International, Oct 2014, Answer the following questions: What growth strategy is MARS undertaking? Will the launch of new product be successful? Give financial facts to support your answer. Show work using Pro-forma.

Before MARS ONLY

MARS

After Premium

Total

% Change

Quantity Price Contribution/unit Sales Total Contribution Fixed Costs Net Contribution $

-

34 Do the Math Workbook for Marketing Metrics, by Karen Sinotte, Summer 2017

5.

A retailer has $10,000 to spend on advertising and is deciding which product line to promote, deciding between Product A or Product B. With Product A, the manufacturer offers matching coop advertising 3 of $10,000. Product B is a private label and doesn’t have coop associated with it, but Product B is just now becoming very popular and will benefit significantly from the advertising. Which Product Line would you focus your marketing investment on? Give at least five financial facts to support your answer. Use the pro-forma chart below to present your analysis. Product A Before After

Product B Before

After

Sales 160,000 220,000 36,000 120,000 COGS 80,000 110,000 14,400 48,000 Gross Profit/Contribution 80,000 110,000 21,600 72,000 Advertising 10,000* 10,000 Net Contribution to Profit 80,000 100,000 21,600 62,000 *Manufacturer for Line A offers $10,000 in coop advertising $ change in Sales % Change in Sales Gross Margin % Increase in Net Contribution$ % Change in Contribution Return on Marketing Investment Breakeven ($)

3

Agreement between a manufacturer and a member of distribution chain (distributor, wholesaler, or retailer)

where the manufacturer shares the partner's advertising and promotion costs, either as a percentage of sales or as a fixed sum.

35 Do the Math Workbook for Marketing Metrics, by Karen Sinotte, Summer 2017

6. “City Hipsters” is a local clothing store specializing in cutting edge fashions for the 13-25 male and female

market. They have recently managed to get a great deal on a volume purchase of jeans. Each pair of jeans cost them only $48.65, and they can sell them for $115.00 at full retail. They intend to use a consumer promotion to sell all 500 pairs that they bought. Here are the two options they're considering:  Sweepstakes: They're considering giving away a weekend for four to Big White as the prize for a 'sweepstakes' promotion. Each purchaser of these jeans during the promotion would get one entry. The cost of the prize would be about $1000 and the cost of printing the entry forms about $40.  Premium: They're considering giving away a free belt with every pair of jeans sold. Their cost on the belts they sell averages $10 each. Use pro-forma income statement and breakeven analysis to compare the financial impacts of these two options against a "base case" without any promotions. [Make your own chart this time!] Answer these questions. 1. How much is their gross profit if they sell all 500 pairs of jeans without using a sales promotion? 2. Which of the two sales promotion options would make them the most gross profit if they sold all 500 pairs of jeans during the promotion? Explain. 3. Which of the types of sales promotion would allow them to make the most gross profit if they sold only 100 pairs of jeans during the promotion? Explain. 4. Which sales promotion type would you recommend to them? Explain your answer considering risk/reward tradeoffs. 5. Which one of these do you think would drive the highest consumer interest and hence sales? Explain.

36 Do the Math Workbook for Marketing Metrics, by Karen Sinotte, Summer 2017

Week 10: Practice Case Worksheet Read the assigned case (see Blackboard) and prepare individual case assessment for review with your team.

1. Situational Assessment/Problem

 Relevant Benchmarks. Cite sources.  Problem not symptom.

2. Objective

 Must be SMART

3. Alternatives

 Establish BASE and number of alternatives per case

5. Recommendation

 Give at least 5 financial facts. Cite any additional sources.

37 Do the Math Workbook for Marketing Metrics, by Karen Sinotte, Summer 2017

4. Financial Assessment of Alternatives Assumptions

Option 1

Option 2

Option 3

Option 4

Notes

Line

Quantity Selling Price

1

VC/Unit

3

Contribution/per unit

4

2

5

Pro-forma income statement Sales

6

COGS

7

Gross Profit

8

Advertising Costs Other Fixed costs Total Fixed Costs Net Profit

9 10 11 12

Analysis Gross Margin

13

Net Profit Margin

14

Advertising as % of sales % Change in Sales % Change in COGS % Change in Advertising % Change in Net Profit Breakeven

15

Margin of Safety

21

16 17 18 19 20

22 23

38 Do the Math Workbook for Marketing Metrics, by Karen Sinotte, Summer 2017

Week 11: Case 1 Worksheet Read the assigned case (see Blackboard) and prepare individual case assessment for review with your team.

1. Situational Assessment/Problem

 Relevant Benchmarks. Cite sources.  Problem not symptom.

2. Objective

 Must be SMART

3. Alternatives

 Establish BASE and number of alternatives per case

5. Recommendation

 Give at least 5 financial facts. Cite any additional sources.

39 Do the Math Workbook for Marketing Metrics, by Karen Sinotte, Summer 2017

4. Financial Assessment of Alternatives Assumptions

Option 1

Option 2

Option 3

Option 4

Notes

Line

Quantity Selling Price

1

VC/Unit

3

Contribution/per unit

4

2

5

Pro-forma income statement Sales

6

COGS

7

Gross Profit

8

Advertising Costs Other Fixed costs Total Fixed Costs Net Profit

9 10 11 12

Analysis Gross Margin

13

Net Profit Margin

14

Advertising as % of sales % Change in Sales % Change in COGS % Change in Advertising % Change in Net Profit Breakeven

15

Margin of Safety

21

16 17 18 19 20

22 23

40 Do the Math Workbook for Marketing Metrics, by Karen Sinotte, Summer 2017

Week 12: Case 2 Worksheet Read the assigned case (see Blackboard) and prepare individual case assessment for review with your team.

1. Situational Assessment/Problem

 Relevant Benchmarks. Cite sources.  Problem not symptom.

2. Objective

 Must be SMART

3. Alternatives

 Establish BASE and number of alternatives per case

5. Recommendation

 Give at least 5 financial facts. Cite any additional sources.

41 Do the Math Workbook for Marketing Metrics, by Karen Sinotte, Summer 2017

4. Financial Assessment of Alternatives Assumptions

Option 1

Option 2

Option 3

Option 4

Notes

Line

Quantity Selling Price

1

VC/Unit

3

Contribution/per unit

4

2

5

Pro-forma income statement Sales

6

COGS

7

Gross Profit

8

Advertising Costs Other Fixed costs Total Fixed Costs Net Profit

9 10 11 12

Analysis Gross Margin

13

Net Profit Margin

14

Advertising as % of sales % Change in Sales % Change in COGS % Change in Advertising % Change in Net Profit Breakeven

15

Margin of Safety

21

16 17 18 19 20

22 23

42 Do the Math Workbook for Marketing Metrics, by Karen Sinotte, Summer 2017

Week 13: Case 3 Worksheet Read the assigned case (see Blackboard) and prepare individual case assessment for review with your team.

1. Situational Assessment/Problem

 Relevant Benchmarks. Cite sources.  Problem not symptom.

2. Objective

 Must be SMART

3. Alternatives

 Establish BASE and number of alternatives per case

5. Recommendation

 Give at least 5 financial facts. Cite any additional sources.

43 Do the Math Workbook for Marketing Metrics, by Karen Sinotte, Summer 2017

4. Financial Assessment of Alternatives Assumptions

Option 1

Option 2

Option 3

Option 4

Notes

Line

Quantity Selling Price

1

VC/Unit

3

Contribution/per unit

4

2

5

Pro-forma income statement Sales

6

COGS

7

Gross Profit

8

Advertising Costs Other Fixed costs Total Fixed Costs Net Profit

9 10 11 12

Analysis Gross Margin

13

Net Profit Margin

14

Advertising as % of sales % Change in Sales % Change in COGS % Change in Advertising % Change in Net Profit Breakeven

15

Margin of Safety

21

16 17 18 19 20

22 23

44 Do the Math Workbook for Marketing Metrics, by Karen Sinotte, Summer 2017

Week 14: Exam Review Check out your grade so far on BB: What do you need to earn on Final to pass the course:

20−𝑀𝑇 𝐺𝑟𝑎𝑑𝑒 30

= ______% on your final exam

Getting Ready Checklist? Topic

Topics

18. Marketing Frameworks and how to use them to make marketing mix decisions 19. Calculating market share and market growth to be used in forecasting and financial analysis 20. Financial Statements: The math and components of Balance Sheet and Income statement

Market share

21. Financial Analysis of Statements: The math and drivers of financial ratios including Liquidity, Solvency, Efficiency/Profitability, Effectiveness overall, marketing effectiveness in particular 22. By understanding the drivers of ratios, assess the relative values of different industry benchmarks. 23. Assess the strengths and weaknesses of company’s financial performance, using trend in financial ratios and benchmarks. 24. Calculate change in Gross Margin when price or product changes, especially when you don't have quantity, selling price or VC per unit. 25. Describe the pros and cons of different forecasting methods. 26. Describe the pros and cons of different budgeting methods. 27. Complete an estimation question using market factors using the chain ratio analysis format. 28. Estimate the profit impact of a marketing strategy given a sales target and a change in marketing mix. Report in Pro-forma Income statement format. 29. Estimate the profit impact of a pricing strategy. Report in Pro-forma Income statement format. 30. Assess the risk of a marketing strategy using breakeven and Margin of Safety. 31. Names the five Cs of pricing and use these to inform pricing decisions.

Work sheet 1

Prepare dl

1 Financial Statement s Financial Ratios

2

3, 6

3, 6 3, 6 3, 4, 5, 6 Forecastin g and Budgeting

4 4 4

Proformas and breakeven

5,6,7, 8

7 5, 6, 7, 8

Pricing

7

32. Assess the likely elasticity of demand for a given product category.

7

33. Describe various pricing strategies and the objective that might be achieved by using these pricing strategies 34. Describe and implement the 5 step case process

7 Cases Process

Case workshe ets

45 Do the Math Workbook for Marketing Metrics, by Karen Sinotte, Summer 2017

Not sure

And one last practice assignment. Instructions to be announced. Financial Assessment of Alternatives Assumptions

Option 1

Option 2

Option 3

Option 4

Notes

Line

Quantity Selling Price

1

VC/Unit

3

Contribution/per unit

4

2

5

Pro-forma income statement Sales

6

COGS

7

Gross Profit

8

Advertising Costs Other Fixed costs Total Fixed Costs Net Profit

9 10 11 12

Analysis Gross Margin

13

Net Profit Margin

14

Advertising as % of sales % Change in Sales % Change in COGS % Change in Advertising % Change in Net Profit Breakeven

15

Margin of Safety

21

16 17 18 19 20

22 23

46 Do the Math Workbook for Marketing Metrics, by Karen Sinotte, Summer 2017

Now this is not the end. It is not even the beginning of the end. But it is, perhaps, the end of the beginning. Winston Churchill

47 Do the Math Workbook for Marketing Metrics, by Karen Sinotte, Summer 2017