Practice Problems/Case Discussions – Flashcards

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Astor Lodge & Suites, Inc. has recently experienced a leadership change due to the sudden resignation of their CEO and President. Joseph James, a seasoned financial executive within the firm, is the newly appointed CEO and President. Joseph James immediately met with the company's four senior vice presidents and asked for reports in an attempt to *better construct a budget for fiscal year 2006*. Additionally, James demanded the company now *switch from revenue driven to profit driven*. These actions were put in place because Astor Lodge & Suites, Inc. has not been profitable over the past five consecutive years. James understands that the company needs to generate profit in order to compete in the industry and has set high goals for Astor Lodge. The GOAL is to obtain a 7% annual increase in EBITDA over the next two fiscal years, the company must become profitable in that time frame. However, Astor Lodge & Suites is limited by a $12.5-$12.9 million media budget and $4.85-$5 million sales budget. The company's positioning as a limited-service hotel restricts the customers it can efficiently target. Success over these next two years will be measured by Astor Lodge & Suites ability to turn in a profit.

In order to boost profits, Astor Lodge & Suites must change strategically allocate costs and promote new and old marketing strategies. They should allocate *80% of media advertising expenses to business travelers and the other 20% to leisure/vacation travelers.* Continuing their Frontier Strategy will also allow Astor Lodge & Suites to continue to advertise to *new customers and gain more first time guests*.

decision to shift focus to profit, not revenue. ; "Lastly, they should continue to use the price and promotion strategy from the summer of 2005 with a slight price increase *because business travelers are not sensitive to price* and will continue to stay at Astor Lodge & Suites."

Useful in assessing relationships among costs, prices & volumes of products with respect to profit. CONTRIBUTION ANALYSIS & PERFORMANCE MEASUREMENT Comparing net profit of different products in your company's product offering It's important to consider which products contribute most heavily to the organization's total fixed costs and THEN to total profit.

According to Google: Comparing Alternative A against B, C, D, etc. using measurements like Revenue, expenses, and consequent net income. Incremental analysis ignores sunk costs and costs that are the same between the two alternatives to look only at the remaining costs.

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Although Pate Memorial Hospital's Downtown Health Clinic is successful, the potential of a competitive clinic opening nearby poses a threat to the hospital in meeting its objectives. Determining and analyzing the internal options the clinic can make, as well as the effect a competing clinic may add, will go a long way in adequately evaluating the DHC's future success.

--> 70% of visits were made by women & almost all were under 35 years of age (to justify gynecological services)

They often encounter problems such as uneven demand, fixed capacity and high operating leverage.

"Therefore PHC should add a gynecological services because it is the most financially beneficial option, whether or not a competitive clinic is added. Plus the decision better meets the needs of the community by serving our women patients who make up a majority of PHC's patient mix."

Looks specifically @ females

Uneven flow of demand, fixed capacity and high operating leverage

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The senior marketing executives of Janmar must decide where and how to deploy corporate marketing efforts among the various architectural paint markets.

geographic (inside/outside Dallas); psychographic (DIY vs. professional)

The first solution would be the best option because it would increase brand awareness by 30%. The increase in $350,000 worth of advertising costs would help Janmar target a specific audience they want to market to. The advertising costs would be used for television ads targeted to the DIY market (those interested in architectural coatings) in the Dallas Fort Worth area as well as 15 counties outside of the area. In conclusion, solution 1 would help Janmar *protect its profit margin*. Customers can stay top of mind with the targeted advertisements. The advertisements can also introduce new customers to Janmar.

The other solutions each have several cons. Solution 2 would not be a good option because the 20% price cut requires too high of a sales increase. Sales would have to be $12 million for Janmar to breakeven. Due to the price cut, Janmar will have lower profit margins and customers may perceive a lower paint quality due to the decrease in price. Even though solution 3 may seem like a good option to consider, the sales force may not guarantee market penetration. The Dallas Fort Worth area would also not be focused, which means that some continuing customers would be lost. Solution 4 is a safe option, but does not make Janmar competitive in the market. Sales and overall profit would not be increased.

Segmenting markets based on multiple segmenting criteria. Evaluating profit potential in segmented markets. Evaluating channel decisions in different target markets.

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In order to properly analyze the best solution for Pyramid Door, Inc., we need to first clearly define the problem that they are facing. With their *current* distribution strategy, Pyramid Door, Inc. is making sales of $9.4 million for the year, and yielding positive profits of $460,000. A *destabilizing event* has occurred in that Pyramid Door, Inc. executives are concerned that their current distribution strategy will not allow them to reach their sales *goal* for 2006 of $12.5 million - a requirement largely driven by the need to maintain good buyer standing with their current suppliers. The garage door industry has predicted sales growth for 2006 of 2.4%, however, this increase alone will not get Pyramid Door, Inc. to their target sales number. Additionally, there are a number of *restraints* that must be accounted for in defining the problem including: (1) dealers may not be able to handle that large of a sales increase, (2) a relatively small number of Pyramid Doors, Inc. sales reps, and (3) a competitive market. For this problem, *success will be measured* by meeting the $12.5 million sales goal and maintaining good standing and buying position with suppliers. Problem Statement: With their current distribution strategy, Pyramid Door, Inc. is making sales of $9.4 million for the 2005 year, and yielding positive profits of $460,000. For the 2006 year, Pyramid Door, Inc. needs to achieve sales of $12.5 million to maintain their good standing and buying position with suppliers. What is the best distribution and dealer strategy for Pyramid Door, Inc. to meet their year goal?

intensive: mass market selling; convenience goods; many intermediaries (groceries, household products) (con: limited channel control) selective: work with selected intermediaries; shopping and some specialty goods (furniture, clothing, watches) (con: may be difficult to carve out a niche) exclusive: work with a single intermediary; specialty goods and industrial equipment (cars, designer clothes) (con: limited sales potential)

The best choice for Pyramid Door is the second alternative. This option brings the company closest to its sales goal of $12.5 million by developing a formal exclusive franchise program. During the last year, 27 nonexclusive dealers posed a possibility for franchising. The company will gain exclusivity in 27 new markets, growing the amount of total markets to 77. These new markets were expected to have a high potential, and are candidates to the new advertising and promotional program. The dealers will sell Pyramid Door exclusively at a specific franchise fee. After adding the new dealers, the projected sales for 2006 are $12,367,600.

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Currently, Southwest Airlines is the leader in the low-cost, short-haul airline industry, but the competitive landscape is changing. Shuttle By United—Southwest's top competitor in this niche market—has recently upped its prices by $10 and dropped its Oakland to Ontario route. Southwest needs to decide whether or not to match Shuttle's prices and reassess the efficiency of its routes, keeping in mind the importance of maintaining its low-cost, great-service brand image. To decide how to respond, Southwest can use daily operating income as a measure of success.

I'm guessing he's referring to whether or not we're actually "the" low-fare airline

We recommend that Southwest proceed with Option 4, which consists of maintaining fares on all routes except for San Francisco to San Diego and Oakland to Ontario where fares will increase by $10, and discontinuing the Oakland to Seattle route. These actions will lead Southwest to an overall daily operating income of $242,740.33. This option provides the greatest increase in daily operating income and least amount of loss. To justify this recommendation, we calculated Shuttle By United's revenue as if they were to imitate Southwest on all changes. By doing so, we found that Shuttle By United's daily operating income is only $8986.65, and they would operate at a loss on four different routes: Oakland to Burbank, Oakland to Seattle, Los Angeles to Phoenix, and San Diego to Sacramento. Shuttle By United does not operate efficiently enough to imitate the Southwest model with success, leaving Southwest to outperform Shuttle By United.

Southwest will increase their market share in the Oakland to Ontario solely due to Shuttle By United's discontinuation of this route. However, we recommend that Southwest pursue a market penetration strategy to convert previous Shuttle By United customers and maintain their current customers by creatively marketing existing products in an existing market. Southwest has always used clever marketing to differentiate themselves in the market, so we recommend that they continue to emphasize service, convenience and price in their advertising. Though fares have increased on two routes, Southwest maintains their position as "THE low fare airline" by being the lowest in the industry on the majority of their routes.

Southwest should continue to highlight that they are still the low fare leader in their advertising to speak to their target market of cost-conscious consumers, remaining true to the Southwest brand. Southwest should celebrate their success in the intra California market by re-painting a plane to reflect the state, as they have previously done in Texas and with major partnerships like Seaworld. This is a low cost way to update their fleet and instill a sense of pride and excitement in California travelers.

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In the mid 1990s Daewoo was introduced to European market by Daewoo Motor Company of Korea. However in 2003, General Motors took part ownership and management control of the automobile business and decided to market GM Daewoo under the "Chevrolet" brand in Asia (excluding South Korea), South America, and North America. General Motors is now presented with a mission, named Project Midas, to replace GM Daewoo under the Chevrolet brand in the European market with the existing product line. General Motors will be rebranding GM Daewoo to Chevrolet by developing a new positioning statement that considers the difference in buying behaviors, cultural attitudes, and perceptions of the European demographic. General Motors aims for the Chevrolet brand to attain a 1% market share within the European passenger car market by 2005.

The team has decided to implement Option 2 , where Chevrolet will align its positioning in the taste of European culture and values aiming towards a Blue Collar target market. In addition, within this market, the team will focus its positioning statement oriented around the "smart" and "challenger" concepts, positioning identities that the European population most identified with. Lastly, General Motors will focus its strategy in the six countries where GM Daewoo already has the highest market share in order to build upon an already strong base but with the new Chevrolet brand. These six countries are Denmark, Greece, Italy, Netherlands, Sweden, and the UK. General Motors will divide most of its marketing budget proportionally between the six countries, leaving $15 million as discretionary funds. Chevrolet will be advertised in accordance to customers perceptions of GM Daewoo's. Chevrolet will continue position itself in accordance to these current perceptions yet make it stronger and bolder through creative advertising and enticing re-branded cars.

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European perception of Americans?

The percentage of advertising activities for one brand within the total advertising activity for an entire sector or product type. The measurement indicates frequency, reach and ad ratings.