Sales Promotion Break Even Analysis
due Wednesday, 16 APR, 11:59 PM
George and Jerry, brothers who have always been the best of friends, own a four bay automobile repair shop in a suburban neighborhood. Most of their business comes from repeat customers in the local neighborhood. Almost all of their business (revenue and profit) is for routine maintenance: annual (Texas) state inspections, oil changes, and component replacement of brake pads, water pumps, alternators, and such. Customers in their neighborhood own late model cars that rarely require major repairs such as cylinder head replacement or engine rebuilding.
Last month, George proposed an on-going, never ending special deal for customers: On every third oil change, the customer would get two of the quarts on that oil change for free. George had thought that this sales promotion might maintain repeat business and a lot of good will from loyal customers. But after the brothers thought about it for a few weeks, they agreed that this idea would create a never-ending unnecessary cost that probably would have no effect on future business volume. Jerry argued that their customers were already loyal, and that they would be giving free oil to customers who would have returned anyhow. George ultimately agreed, and so the brothers decided to quit being amateur marketers and stick to the business of maintaining cars for their already-loyal customers.
But then Jerry had an idea of his own. Since most of their business is from customers who are loyal repeat customers, perhaps they could do a promotion that would attract new first-time customers who might ultimately become repeat customers. He spoke with an ad specialty company that will sell USB charger adapters (for using cell phones, GPS devices, tablet computers, etc. in a car) for $5 each. They come with the repair shop name and phone number on the charger, with a minimum order of 1,000 units to get the $5 price.
This time George was furious. "I had wanted to reward our loyal customers and you thought it was a waste of money. But you think it's OK to spend thousands of dollars on customers who have never brought any business to us? Are you serious?" Then they broke out laughing at each other as Jerry said, "Let's go next door for a milk shake. I'm buying."
George and Jerry bring this latest promotion idea to you; what are the first questions you ask? Well, being well-trained in your marketing class, you immediately ask them a few questions:
Q: Who would be given this promotional item?
Q: Why do you want to do this; what is your objective?
Q: What is your cost of doing an oil change?
Q: How long would you do this?
Should George and Jerry go ahead with the sales promotion campaign? You must consider BOTH qualitative as well as quantitative issues, but your assessment must be made on whether or not this is ultimately a sound financial investment on the basis of break-even analysis. Your analysis is to use only the above information and commonly known information about the current marketing environment; you are not to conduct additional research.
Write a memo to George and Jerry to recommend whether or not they should invest in this sales promotion. Your memo must include the following format, not necessarily with any sort of headings:
If you have questions, be sure to post on the class discussion board (Blackboard). Before posting any questions or comments, however, be sure that you have studied relevant course reading assignments (e.g., sales promotion, break-even analysis).
I will open only ONE file for this assignment, no matter how many you attempt to upload. The file must be in MS Word (.doc or .docx) format and your document must print in portrait (not landscape) orientation on 8.5 x 11 inch paper. If you want to add an appendix to the end your report -- additional pages for tables, graphs, calculations, and such -- it must be part of the same, single MS Word file that you upload.
Length is expected to be about a page, single spaced. Be sure that your name is typed at the top of your report followed by a report name that identifies the project.
While you are encouraged to collaborate with other members of the class (on the Blackboard forum and on your own) when thinking about how to work through these case assignments, THE WRITTEN REPORT THAT YOU SUBMIT MUST BE YOUR OWN WORK. Note that this is a marketing report, so a report that focuses only on numeric calculations is inadequate.
HOW/WHERE TO MAKE YOUR SUBMISSION
Be sure that you have selected the correct file! One way to ensure hat you don't make any mistakes is to create a special directory on your computer that is used only for the final submission, and put only one file in it. That way, you won't accidentally click on the wrong draft of your submission or unintentionally submit a letter you had intended to send to your great aunt.