Using the information given in Figure 2-18 (page 60) and Figure 2-20 (page 61), what will the Marketing ROI for the Traditional Buyers segment become if the average selling price is changed from $180 to $200, while the unit cost remains at $54? (Read pages 59-63. You may use an excel sheet to do the calculations.) Compute Gross Profit using this formula:Gross Profit = Market Demand x Market Share x Gross Profit per Unit= Market Demand x Market Share x (Average Selling Price x [1 - Channel Discount%] - Unit Cost).

162%

465%

314%

34.9%

None of the numeric answers given in this question is the correct answer.

60 Part | Market Orientation and Marketing Performance FIGURE 2-18 MARKETING PROFITABILITY OF CUSTOMER SEGMENTS Santa Fe Sportswear Traditional Fashion Trend Company Performance Buyer Seeker Setter Total Market Demand (customers) 7,000,000 5,890,000 8,000,000 20,890,000 Market Share 9.0% 3.5% 6.0% 6.3% Customer Volume 630,000 206,150 480,000 1,316,150 Average Revenue per Customer $180.00 $360.00 $130.00 $189.96 Channel Discount 50.0% 50.0% 50.0% 50.0% Net Selling Price $90.00 $180.00 $65.00 $94.98 Sales Revenues (millions) $56.7 $37.1 $31.2 $125.0 Percent Margin 40.0% 35.9% 40.0% 38.8% Gross Profit (millions) $22.7 $13.3 $12.5 $48.5 Marketing & Sales Expenses (millions) $7.0 $6.5 $5.0 $18.5 Net Marketing Contribution (millions) $15.7 $6.8 $7.5 $30.0 G&A and Other Operating Expenses (millions) $8.0 $6.5 $5.5 $20.0 Net Profit (before taxes) $7.7 $0.3 $2.0 $10.0 Marketing ROS 27.7% 18.4% 24.0% 24.0% Marketing ROI 224% 105% 150% 162% will improve profit. The NMC of any proposed strategy must exceed the current NMC in order to increase a business's net profit, a fact that limits the number of fundamental mar- keting strategies a business can use. Consider Santa Fe Sportswear's performance among traditional buyers, as presented in Figure 2-18. Traditional buyers produced an NMC of $15.7 million, derived from net sales of $56.7 million, a 40 percent margin, and $7 million in marketing and sales expenses. Sales revenues were the result of a market demand of 7 million customers, a 9 percent mar- ket share, an average revenue per customer of $180, and a 50 percent channel discount. FIGURE 2-19 MARKETING STRATEGIES AND MARKETING PROFITABILITY Strategies to Strategies to Strategies to Grow Market Grow Market Increase Average Demand Share Selling Price Net Marketing Market Market Average X Channel X Percent Marketing Contribution Demand Share Selling Price Discount Margin Budget Strategies to Strategies to Strategies to Lower Increase Profit Improve Marketing Channel Costs Margin EfficiencyChapter 2 Marketing Metrics and Marketing Profitability 61 NMC 50% $7 million 7 million 9% $180 per 40% Traditional = X Channel X Marketing & Customers `Share Customer Buyer Discount Margin Sales Expenses $56.7 million Net Sales = $56.7 million x 0.4 - $7 million = $15.7 million Figure 2-20 illustrates how the different elements of the net marketing contribution equation fit together strategically for the traditional-buyer segment. A marketing strategy to grow the marketing profitability of traditional buyers could address market demand, market share, revenue per customer, channel discounts, the variable costs that affect mar- gin, marketing and sales expenses, or any combination of these factors. We are now ready to discuss the market-based strategies suggested in Figure 2-19 and assess how selected strategies in each area might affect the profits of Santa Fe Sportswear. FIGURE 2-20 MARKETING PROFITABILITY OF TRADITIONAL-BUYER SEGMENT Market Demand 7 million units Volume Sold 630,000 units Market Share 9.0% Net Sales $56.7 million Average Selling Price $180.00 Net Price $90.00 Gross Profit Channel $22.7 million Discount 50% Net Marketing Percent Contribution Unit Cost $54.00 Margin $15.7 million 40% Marketing & Sales Expenses $7.0 million