Business Analysis

After management develops the product concept and marketing strategy, it can evaluate the proposals on business attractiveness. Management needs to prepare sales, cost, and profit projections to determine whether they satisfy company objectives. If they do, the concept can move to the development stage. As new information comes in, the business analysis will undergo revision and expansion.

Estimating total sales:

Total estimated sales are the sum of estimated first time sales, replacement sales, and repeat sales. Sales estimation methods depend on whether the product is a one time purchase, an infrequently purchased product, or a frequently purchased product. For one time purchased products, sales rise at the beginning, peak, and later approach zero as the number of the potential buyers is exhausted. If new buyers keep entering the market, the curve will not go down to zero.

Infrequently purchased products such as automobiles, toasters, and industrial equipment exhibit replacement cycles dictated by physical wearing out or by obsolescence associated with changing styles, features, and performance. Sales forecasting for this product category calls for estimating first time sales and replacement sales separately.

Frequently purchased products, such as consumer and industrial non-durables have product life-cycle sales where the number of first time buyers initially increase and then decrease as fewer buyers are left. Repeat purchases occur soon, providing that the product satisfies some buyers. The sale curve eventually falls to a plateau representing a level of steady repeat- purchase volume and by this time, the product is no longer a new product.
In estimating sales, the manager’s first task is to estimate first-time purchases of the new product in each period. To estimate replacement sales, management has to research product’s survival age distribution that is, the number of units that fail in year one, two three, and so on. The low end of the distribution indicates when the first replacement sales will take place. The actual timing will be influenced by a variety of factors. Replacement sales are difficult to estimate before the product sales, solely on the estimate of first time sales.

For a frequently purchased new product, the seller has to estimate repeat sales as well as first time sales. A high rate of repeat purchasing means that customers are satisfied; sales are likely to stay high even after all first time purchases take place. The seller should note the percentage of repeat purchases that take place in each repeat- purchase class: those who buy once, twice, three times, and so on. Some products and brands are bought a few times and dropped.

Following a successful concept test, the new product manager will develop a preliminary strategy plan for introducing the new product into the market. The plan consists of three parts. The first part describes the target market’s size, structure, and behavior; the planned parts. The first part describes the target market’s size, structure, and behavior; the planned positioning; and the sales, market share, and profit goals sought in the first few years.
The target market for the instant breakfast drink is families with children who are receptive to a new brand will be positioned at the higher price, higher price, and higher quality end of the instant breakfast drink category.

Let us consider a breakfast drink category. The company will aim initially to sell 500,000 cases or 10 percent of the market, with a loss in the first year not exceeding $1.3 million. The second year will aim for 700,000 cases or 14 percent of the market, with a planned profit of $2.2 million.

The second part outlines the planned price, distribution strategy and marketing budget for the first year:
the product will be offered in chocolate, vanilla, and strawberry, in individual packets of six to a box, at a retail price of $2.49 a box. There will be 48 boxes per case, and the case price to distributors will be $24. For the first two months, dealers will be offered one case free for every four cases bought, plus cooperative advertising allowances. Free samples will be distributed door to door. Coupons for 20 cents off will appear in newspapers. The total sales promotional budget will be $2.9 million. An advertising budget of $6 million will be split 50:50 between national and local. Two thirds will go into television and one third into newspapers. Advertising copy will emphasize the benefit concepts of nutrition and convenience. The advertising execution concept will revel over around a small boy who drinks instant breakfast and grows strong. During the first year $ I00,000 will be spent on marketing research to buy store audit.

The third part of the marketing strategy plan where the company intents to win a 25% market share and realize an after tax return on the investment of 12%. To achieve this return product quality will start high. Price will be settled at high level and total promotion budget each year will be about 20 %. Marketing research will be reduced to $60,000 per year after the first year.