Marketing Analytics: Growth Stage Competition

Instructions:

Read the problem below and refer to the spreadsheet provided. The spreadsheet values highlighted in yellow can be manipulated in order to determine possible outcomes and answer the questions. You must answer the follow-up questions (ae) correctly to receive full credit.

Problem:

AgriChem, Inc., has introduced an innovative new producta combination fertilizer, weed killer, and insecticide that makes it much easier for soybean farmers to produce a profitable crop. The product introduction was quite successful, with 1 million units sold in the year of introduction. And AgriChems profits are increasing. Total market demand is expected to grow at a rate of 200,000 units a year for the next five years. Even so, AgriChems marketing managers are concerned about what will happen to sales and profits during this period.

Based on past experience with similar situations, they expect one new competitor to enter the market during each of the next five years. They think this competitive pressure will drive prices down about 6 percent a year. Further, although the total market is growing, they know that new competitors will chip away at AgriChems market shareeven with the 10 percent a year increase planned for the promotion budget. In spite of the competitive pressure, the marketing managers are sure that familiarity with AgriChems brand will help it hold a large share of the total market and give AgriChem greater economies of scale than competitors. In fact, they expect that the ratio of profit to dollar sales for AgriChem should be about 10 percent higher than for competitors.

AgriChems marketing managers have decided the best way to get a handle on the situation is to organize the data in a spreadsheet. They have set up the spreadsheet so they can change the years in the future value and see what is likely to happen to AgriChem and the rest of the industry. The starting spreadsheet shows the current situation with data from the first full year of production.

Spreadsheet

The spreadsheet values outlined in yellow can be changed in order to determine possible outcomes. You can find the initial values in the corresponding blue cells in column D. Start by entering the initial values into column B. Then review the questions below and adjust the values in column B to determine the correct answers.

Questions:

a. Compare AgriChems market share and profit for this year with what is expected next yeargiven the marketing managers current assumptions. Which of the following are they not expecting? (Hint: Set number of years in the future to 1.)

multiple choice 1

• Industry unit sales will be 1,200,000 units

• AgriChem's Total Revenue will be $11,976,088.80

• AgriChems Profit will be $5,865,928.80

• Total Industry Profit will be $7,050,822.00

• AgriChem's Total Cost will be $990,000.00

b. Prepare a table showing AgriChems expected profit, and the expected industry revenue and profit, for the current year (Year 0) and the next five years. In what year is Industry Revenue highest?

multiple choice 2

• Year 0

• Year 1

• Year 2

• Year 4

• Year 5

c. Using the table you created for question b above, in what year is Industry Profit highest?

multiple choice 3

• Year 0

• Year 1

• Year 2

• Year 4

• Year 5

d. If market demand grows faster than expectedsay, at 280,000 units a yearwhat will happen to AgriChems profits and the expected industry revenues and profits over the next five years? When will AgriChems profits be highest?

multiple choice 4

• Year 0

• Year 1

• Year 2

• Year 4

• Year 5

e. Using the table you created for question d above, in what year are Industry Profits highest?

multiple choice 5

• Year 0

• Year 1

• Year 2

• Year 4

• Year 5