BUSS 517 Managerial Economics

1. BUSS 517 Managerial Economics PBL No. 2 25 November, 2002

2. Problem Based Learning - 2 Members: Group E1: Chan Tak Kuen, Benedick 02716359G Lau Wai Kei, Patrick 02438750G Wong Yun Wah, Wallace 02409600G Yee Chun Fank, Ben 00433665G Group E2: Chan Kar Sing, Brian 02707989G Wong Yau Ki, Kitty 02725393G Lee Siu Ka, Sarah 02708427G Cheng Ting, Ting 02428884G

3. Presupposition • As Farris and Reibsein (1991) point out, “Companies which properly coordinate price and advertising strategies can achieve relatively high profits” (p. 37). • We agree to launch a promotional campaign for improving profitability and advertising is one of the elements in the campaign.

4. Product Classification -Heterogeneous Shopping Products • Pride and Ferrell (1997) notes that shopping products are items for which buyers are willing to expend considerable effort in planning and making the purchase (p. 208). • Well-trained salespeople are required to advise customers (Kotler, 2000, p. 397). • People need to test software before they purchase. • Our software is a voice-recognition type and people always want to test the accuracy and effectiveness of this kind software.

5. Marketing Objectives • To increase sales by 50% • To increase 10% of market share in Hong Kong • To create brand equity by • Increasing the familiarity of our brand through repeated exposure • Establishing a positive brand image • More inelastic consumer response to price increases • More elastic consumer response to price decreases

6. Budget Setting – Theoretical Issue (I) • We assume the S-shaped response curve, which projects an S-shaped response function to the budget outlay against measured in sales. • Initial outlays of the advertising budget have little impact (as indicated by the essentially flat sale curve in range A). • After a certain budget level has been reached (the beginning of range B), advertising and promotional efforts begin to have an effect, as additional increments of expenditures result in increased sales.

7. Budget Setting – Theoretical Issue (II) • This incremental gain continues only to a point, however, because at the beginning of range C additional expenditures begin to return little or nothing in the way of sales. • This model suggests a small promotional budget is likely to have no impact beyond the sales that may have been generated through other means. • At the other extreme, more does not necessarily mean better: Additional dollars spent beyond range B have no additional impact on sales and for the most part can be considered wasted.

8. The S-Shaped Response Function Incremental sales Range A Range B Range C Advertising expenditures

9. Budgeting Approach -Straight Percentage of Sales Total dollar sales $5,000,000* Straight % of sales at 20% $1,000,000 Advertising budget $1,000,000 * According to the amount in error stated in the question

10. Integrated Marketing Communications Mix

11. Advertising • Advertising Elasticity • Market Share: HIGH Ea • Market share is limited; although no other company offers features of our product, many similar software in the market. • Nature of Product: HIGH Ea • Relatively new product • Non-necessity • Occasional purchase • Durable • The structure of the industry and the behavior of rivals: HIGH Ea • Rivals very unlikely react to our advertising • The General State of the Economy: LOW Ea • Economic recession Advertising Elasticity: HIGH

12. Advertising Objectives • To drive sales all over Hong Kong in general with focus on residential areas in NT • To uphold image and educate target audience and inform them of special features and promotions • Target audience: Home-users

13. Tools / Media (I) PC Magazine Advertising • A high reach media for potential buyers (home users esp. students) gathering latest information of PC market. • Effective media at an affordable price compared with TV commercial and newspaper advertisement. • Allow to give detail product descriptions to potential buyers.

14. Tools / Media (II) • Allow to tie-in with roadshow / exhibition by delivering promotional message. • Good for brand / image building. • 3 most popular magazines are selected: • PC Weekly, PC3 & E-Zone • Other support to gain more media exposure: • Press release, good relationship with media, PR function.

15. Tools / Media (III) Web Advertising • Objectives: • Let the customer become more involved because they initiate most of the action. • It is able to attract the customer enter homepages. • Set up the company homepage • It is able to delivers multiple sales messages • It can also provide detail product information. • Put trial version of the software on homepage • It is able to attract the target customer by trial version. • The customer can try differential features on this software. • Let the software more familiar • Make banners on the famous local portals such as HongKong.com, MSN, Yahoo.

16. Personal Selling • The sale force is a major part of the IMC mix • Our software requiring customer application assistance • Features and performance of our software requiring personal demonstration and trial by the customer • Pushing our software through channel • Information needed by customers cannot be provided entirely through advertising

17. Combining Personal Selling and Advertising • Objectives • Improve reach • Reduce costs • Increase probability of a sale

18. Personal Selling – B to CRoad show (I) • Roadshow • Do demonstration at specific areas in different districts to illustrate the key advantages of our software by showing it in actual use • Play a role as a Problem Solver • Customers need to diagnose the effectiveness of our software • Salespeople solve the customer-stated problems

19. Personal Selling – B to CRoad show (II) • Site • Hong Kong Island • Wanchai Computer City • 298 Computer Plaza • Kowloon • Golden Computer Arcade • Mongkok Computer Centre • Stars Computer City • New Territories • Metro City • Tuen Mun Town Plaza • New Town Plaza • Nan Fung Centre

20. Personal Selling – B to CRoad show (III) Frequency • Two times a year • Stage demonstrations in Saturday and Sunday

21. Personal Selling – B to B • Play a role as a Provider • Accepting orders and delivering to retailers • Educating retailers about the strengths of our software

22. Trade Show/Exhibition (I) • A temporary forum • Typically lasting for several days. • To exhibit and demonstrate the product to present and prospective buyers. • E.g. computer show / technology exhibition in HK Convention & Exhibition Centre.

23. Trade Show/Exhibition (II) Advantages • Product can be demonstrated and customers enquiry can be addressed at a time when he or she are actively soliciting information. • This allow companies to gather useful feedback. • Positive information can be used in subsequent sales presentations and advertising efforts • negative information can guide product improvement or changes in the marketing program. • Provide a ideal occasion to recruit dealers, distributors.

24. Trade Show/Exhibition (III) Advantages • Identifying prospects • Taking product orders. • Enhancing the company’s image.

25. Sales Promotion (I) • Objectives • Encourage prospective customers to use the software • Motivate salespeople to aggressively sell the software

26. Sales Promotion (II) • Consumer-Oriented Promotions • Bonus Pack • ($200/pack and grammar checking software included) • Coupon • (Trial users download coupon from our website and purchase the software with discount) • Trade-Oriented Promotions • Trade allowances • Point-of-purchase displays

27. Allocation of Promotional Budget

28. PC Magazine Advertising • - Advertising & Production cost for a full • Color page/ insertion : $15,000 • Advertise in July & August (target at • students during summer holidays • Total costs : • $15,000 x 3 (magazines) x 9 weeks • = $405,000 • Web Advertising & Maintenance • - Maintenance fee for homepage & trial • version per month: $7,000 • * One year = $7,000 x 12: $84,000 • Advertising fee for banner: $30,000 • Home Page Design: $8,000 • Total cost : • $84,000 + $30,000 + $8,000= $122,000 Budget: $1,000,000 Personal Selling – Exhibition - Rent a 9 sq. meter’s booth Current price is about $35,000 - Other Miss. expenses: $15,000 Total cost: $35,000 + 15,000 = $50,000 • Personal Selling – Road Show • HK Island • $5,000 x 2 days x 3 sites x 2 times: $60,000 • Kowloon • $5,000 x 2 days x 3 sites x 2 times: $60,000 • N.T. • $12,000 x 2 days x 3 sites x 2 times: $120,000 • Total cost : • $60000 + $60,000 + $120,000 = $240,000 Sales Promotion Total cost: = $183,000

29. Mainland China ?? • Give up the 10 % China Market. • In China Market, the General Literature of Chinese is higher than that in Hong Kong. • They are skillful in typing Chinese character input. • They have high standard of grammar and Chinese Character input skills.

30. Mainland China ?? … • The product’s grammar checking function may not be useful to them. • Software piracy rate is high in China Market. • Target segment is small in China, with similar purchase power, as comparable to Hong Kong.

31. The End !!

32. List of References Davies, Howard & Lam, Pun-lee. (2001). Managerial economics: An analysis of business issues. Great Britain: Financial Times Prentice Hall. Farris, Paul W. & Reibstein, David J. (1991). How price, ad expenditures, and profits are linked. How to price your products and services (pp. 37 – 48). Boston, MA: Harvard Business School. Kotler, Philip. (2000). Marketing management: Analysis, planning, implementation, and control. Upper Saddle River, NJ: Prentice-Hall. Nagle, Thomas T. & Holden, Reed K. (1995). The strategy and tactics of pricing: guide to profitable decision making. Englewood Cliffs, NJ: Prentice-Hall. Pride, William M. & Ferrell, O. C. (1997). Marketing: Concepts and strategies. Boston, MA: Houghton Mifflin. O’Guinn, Thomas, Allen, Chris & Semenik, Richard J. (2002). Advertising and integrated brand promotion. Cincinnati: OH: South-Western.