The group product manager for ointments at a corporation was reviewing price and promotion alternatives for two products Rash-Away and Red-Away. Strategic Marketing Chapter 2 Problem 3

The group product manager for ointments at a corporation was reviewing price and promotion alternatives for two products Rash-Away and Red-Away. Both products were designed to reduce skin irritation, but Red-Away was primarily a cosmetic treatment whereas Rash-Away also included a compound that eliminated to rash.

The price and promotion alternatives recommended for the two products by their respective brand managers included the possibility of using additional promotion or a price reduction to stimulate sales volume. A volume, price and cost summary for the two products follows:

Answer: Includes Detailed Steps and Calculation

Strategic Marketing Chapter 2 Problem 3

Rash-Away

Red-Away

Unit Price

$2.00 $1.00

Unit Variable costs

$1.40

$0.25

Unit Contribution $0.60

$0.75

Unit Volume 1,000,000 Units

1,500,000 Units

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Both brand managers included a recommendation to either reduce price by 10% or invest an incremental $150,000 in advertising.

  1. What absolute increase in the unit sales and dollar sales will be necessary to recoup the incremental increase in advertising expenditures for Rash-Away? For Red-Away?
  2. How many additional sales dollars must be produced to cover each $1.00 of incremental advertising for Rash-Away? For Red-Away?
  3. What absolute increase in unit sales and dollar sales will be necessary to maintain the level of total contribution dollars if the price of each product is reduced by 10%?

Course: MKT 450 Marketing Management
School: Grand Canyon University

  • 06/09/2017
  • 7
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