Explain why a product or service’s contribution (selling price minus variable cost) is an important element in developing a marketing strategy, giving examples to illustrate your answer.
part 1
Explain why a product or service’s contribution (selling price minus variable cost) is an important element in developing a marketing strategy, giving examples to illustrate your answer. You can use any example including those covered in the module such as the Strategist Simulation or any of the other case studies examined.
part 2.
Imogen, the brand manager for ‘Skinsoft’, was reviewing price and promotion alternatives for her brand. She wanted to increase market share, but was unsure whether she should ask for an increase in advertising budget or consider a price promotion.
The current volume, price, and cost summary for ‘Skinsoft’ follows:
| Skinsoft | |
| Unit Price | £2.00 |
| Unit Variable Cost | £1.40 |
| Unit Volume | 1,000,000 |
Imogen thought she might be able to negotiate with her boss and secure either a temporary 10 percent price reduction, or an investment of an incremental £150,000 in advertising.
a. What absolute increase in unit sales and revenue would be necessary to recoup the incremental increase in advertising expenditure?
b. What increase in absolute unit sales and revenue would be necessary to maintain the level of total contribution if the price is reduced by 10 percent?
c. Which alternative would you recommend to Imogen? Explain your choice.
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