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Assessment Task 2 BSBMKG501B Identify and evaluate marketing opportunities Evaluate marketing opportunities Candidate’s name Phone number Email address Date submitted Performance objective The candidate will demonstrate skills and knowledge required to investigate marketing opportunities and evaluate required changes to current operations. Assessment description In response to the simulated business scenario, you will evaluate three marketing opportunities that have been identified for you, rank them in terms of viability and likely contribution to the business, and assess the impact of the top-ranked opportunity on operations. You will then prepare a report for a board of directors documenting identified marketing opportunities. Page numbers in BLUE denote the appropriate section of the Student Workbook which you should refer to when necessary. Page numbers in RED denote the appropriate section of the case study which you should refer to when necessary. © 2012 Innovation and Business Industry Skills Council Ltd Revised by MCI on 11 April 2014 1st edition version: 1 Page 1 of 14 Assessment Task 2 BSBMKG501B Identify and evaluate marketing opportunities Scenario In Assessment Task 1, each member of the marketing team (including you) presented potential marketing opportunities to the Marketing Manager, Sam Lee. He has chosen three separate marketing opportunities to further evaluate and rank before choosing one to proceed with. These three are 1. manufacture and sell own-brand of BBQfun barbeques (built in India and imported) 2. sell products through e-commerce (online) Australia-wide 3. sell products at bargain prices. The first opportunity is to manufacture and retail own-branded barbecues and products. Manufacture would take place at a leased plant in India as BBQfun has no manufacturing capability. Also, manufacture in Australia would be too expensive. The second opportunity is to make all products available in an online store. Existing warehouses would be reconfigured to store the extra stock. Customers would be required to cover extra delivery costs. The third opportunity is to aim to increase market share by cutting the cost of products and aiming at mass appeal. BBQfun would focus on selling lower priced products while eliminating the higher cost (differentiated and higher quality) products from the product line. Sam Lee has asked you to evaluate the three opportunities based on a variety of different factors, determine the financial viability of each opportunity, and then rank them. © 2012 Innovation and Business Industry Skills Council Ltd Revised by MCI on 11 April 2014 1st edition version: 1 Page 2 of 14 Assessment Task 2 BSBMKG501B Identify and evaluate marketing opportunities The first step is to consider if these are appropriate marketing opportunities that BBQfun should be looking to implement. Analyse each opportunity in terms of fit with organisational goals and capabilities (pages 44 – 52). Is the opportunity consistent with the BBQfun business plan (page 2)? Consider BBQ’s current capabilities and resources. Is the business capable of exploiting this opportunity? 1. Manufacture own brand 2. Sell through ecommerce (online) 3. Sell at bargain prices BBQfun’s marketing research found the following market needs and trends: Market needs Selection – a wide choice of options. Accessibility – the customer needs easy access to the store with minimal inconvenience. Online shopping is becoming increasingly popular. Customer service – the customer needs expert customer service to help sort through choices. Competitive pricing – the customer needs all products/services to be competitively priced relative to comparable high-end outdoor lifestyle options offered by competitors. Flexible payment – the customer needs easily managed payment plan. Quality guarantees – the customer requires three year product guarantees Market trends The market trend for outdoor lifestyle stores is headed toward a more sophisticated and informed customer. Outdoor lifestyles customers are becoming more sophisticated in a number of different ways: Item quality – the preference for high quality items is increasing as customers are learning to appreciate the quality differences. Unique – our patrons appreciate the opportunity to include outdoor lifestyles in their home that stand out from the mass-produced and low-quality items. Selection – people are demanding a larger selection of choices; they are no longer accepting a limited offer in outdoor lifestyles. © 2012 Innovation and Business Industry Skills Council Ltd Revised by MCI on 11 April 2014 1st edition version: 1 Page 3 of 14 Assessment Task 2 BSBMKG501B Identify and evaluate marketing opportunities Based on this research, analyse each opportunity to determine likely impact on current business and customer base. How will customers react to the implementation of the marketing opportunity? Is the market share likely to increase or decrease? Will this opportunity allow BBQfun to enter new markets? What will be the likely impact on sales volume? Consider consumer preferences (page 17). 1. Manufacture own brand 2. Sell through ecommerce (online) 3. Sell at bargain prices © 2012 Innovation and Business Industry Skills Council Ltd Revised by MCI on 11 April 2014 1st edition version: 1 Page 4 of 14 Assessment Task 2 BSBMKG501B Identify and evaluate marketing opportunities Outline any risks associated with the marketing opportunity (page 76). You may wish to consider ● ● ● ● risks in terms of implementing the opportunity risks associated with costs or sales external factors such as regulations and relevant legislation you may wish to refer to the SWOT analysis on pages 14 – 15 or the risk register on pages 11 – 12. 1. Manufacture own brand 2. Sell through ecommerce (online) 3. Sell at bargain prices Analyse the role of competitors in relation to each opportunity (page 15). ● Which businesses would likely be BBQfun’s direct competitors? ● Compare BBQfun to competitors in terms of target market, product offering, price etc. ● What might be the reaction of these competitors to implementation of the new opportunity? 1. Manufacture own brand 2. Sell through ecommerce (online) 3. Sell at bargain prices © 2012 Innovation and Business Industry Skills Council Ltd Revised by MCI on 11 April 2014 1st edition version: 1 Page 5 of 14 Assessment Task 2 BSBMKG501B Identify and evaluate marketing opportunities For each of the opportunities, you will do some calculations and statistical analysis in order to determine the impact on the business and customer base. Based on your analysis above, the marketing team has calculated some future estimates for each opportunity (such as future market size and future sales). Based on these estimates you will calculate gross and net profit and return on investment. As an example, the first opportunity (own-branded products) has been completed for you. 1. Manufacture own-branded products. For the financial year 2012/13, the marketing team has estimated future sales volume if BBQfun decides to sell own-branded products. Use the table below to calculate total revenue, unit contribution margin and total gross profit. You need to fill in the boxes shaded in pink. BBQs Outdoor Furniture BBQ Accessories Predicted sales volume (units) 7,200 3,120 21,000 Average selling price $600 $850 $50 Total revenue 7200 x $600 = 3,120 x $850 = 21,000 x $50 = sales volume x average selling price $4,320,000 $2,652,000 $1,050,000 Cost per unit $100 $250 $10 Unit contribution margin $600 - $100 = $850 - $250 = $50 - $10 = average selling price – cost per unit $500 $600 $40 Total gross profit 7200 x $500 = 3,120 x $600 = 21,000 x $40 = sales volume x unit contribution margin $3,600,000 $1,872,000 $856,000 Total revenue: $4,320,000 + $2,652,000 + $1,050,000 = $8,022,000 Total gross profit: $3,600,000 + $1,872,000 + $856,000 = $6,328,000 © 2012 Innovation and Business Industry Skills Council Ltd Revised by MCI on 11 April 2014 1st edition version: 1 Page 6 of 14 Assessment Task 2 BSBMKG501B Identify and evaluate marketing opportunities The marketing team has estimated additional fixed costs that would need to be considered when selling own-branded products. Use these to calculate total net profit for the year. You need to fill in the boxes shaded in pink. Current fixed costs: $4,884,714 Additional lease costs: $500,000 Additional labour costs: $250,000 Total fixed costs: $4,884,714 + $500,000 + $250,000 = current fixed costs + additional fixed costs $5,634,714 Total net profit: $6,328,000 - $5,634,714 = total gross profit – total fixed costs $693,286 Calculate the probable return on investment for this marketing opportunity. The formula you should use is Projected return on investment = (New 𝐠𝐫𝐨𝐬𝐬 profit projection − Original 𝐠𝐫𝐨𝐬𝐬 profit projection) x 100 Investment In the formula above: New gross profit is the net profit you found above. Original gross profit is the gross profit outlined in the case study (i.e. projected gross profit if the marketing opportunity is not undertaken) (page 5 of the case study shows gross profit of $6,677,000) Investment in this case is the sum of the additional costs (here, it would be $500,000 + $250,000) A larger (positive) number indicates a higher return on investment. Projected return on investment Return on Investment = [($6,328,000 - $6,677,000) / $750,000] x 100 = -46.53% © 2012 Innovation and Business Industry Skills Council Ltd Revised by MCI on 11 April 2014 1st edition version: 1 Page 7 of 14 Assessment Task 2 BSBMKG501B Identify and evaluate marketing opportunities 2. Sell products through e-commerce (online) Australia-wide. For the financial year 2012/13, the marketing team has estimated future sales volume if BBQfun decides to sell stock online (as well as in its two existing stores). Use the table below to calculate total revenue, unit contribution margin and total gross profit. You need to fill in the boxes shaded in pink. BBQs Outdoor Furniture BBQ Accessories Predicted sales volume (units) 17,000 7,000 30,000 Average selling price $640 $880 $55 Total revenue Total revenue: sales volume x average selling price Cost per unit $340 $460 $30 Unit contribution margin average selling price – cost per unit Total gross profit sales volume x unit contribution margin © 2012 Innovation and Business Industry Skills Council Ltd Revised by MCI on 11 April 2014 Total gross profit: 1st edition version: 1 Page 8 of 14 Assessment Task 2 BSBMKG501B Identify and evaluate marketing opportunities The marketing team has estimated additional fixed costs that would need to be considered when selling own-branded products. Use these to calculate total net profit for the year. You need to fill in the boxes shaded in pink. Current fixed costs: $4,884,714 Additional training costs: $100,000 Additional website costs: $300,000 Additional reconfiguring or warehouse costs: Additional labour costs: $300,000 $300,000 Total fixed costs: current fixed costs + additional fixed costs Total net profit: total gross profit – total fixed costs Calculate the probable return on investment for this marketing opportunity. The formula you should use is Projected return on investment = (New 𝐠𝐫𝐨𝐬𝐬 profit projection − Original 𝐠𝐫𝐨𝐬𝐬 profit projection) x 100 Investment In the formula above: New gross profit is the net profit you found above. Original gross profit is the gross profit outlined in the case study (i.e. projected gross profit if the marketing opportunity is not undertaken) (page 5 of the case study shows gross profit of $6,677,000) Investment in this case is the sum of the additional costs (in this case $100,000 + $300,000 + $300,000 + $300,000) A larger (positive) number indicates a higher return on investment. Projected return on investment © 2012 Innovation and Business Industry Skills Council Ltd Revised by MCI on 11 April 2014 1st edition version: 1 Page 9 of 14 Assessment Task 2 BSBMKG501B Identify and evaluate marketing opportunities 3. Sell products at bargain prices. For the financial year 2012/13, the marketing team has estimated future sales volume if BBQfun decides to sell products at bargain prices. Use the table below to calculate total revenue, unit contribution margin and total gross profit. You need to fill in the boxes shaded in pink. BBQs Outdoor Furniture BBQ Accessories Predicted sales volume (units) 10,000 6,000 35,000 Average selling price $400 $500 $30 Total revenue Total revenue: sales volume x average selling price Cost per unit $200 $250 $10 Unit contribution margin average selling price – cost per unit Total gross profit sales volume x unit contribution margin © 2012 Innovation and Business Industry Skills Council Ltd Revised by MCI on 11 April 2014 Total gross profit: 1st edition version: 1 Page 10 of 14 Assessment Task 2 BSBMKG501B Identify and evaluate marketing opportunities The marketing team has estimated additional fixed costs that would need to be considered when selling products at bargain prices. Use these to calculate total net profit for the year. You need to fill in the boxes shaded in pink. Current fixed costs: $4,884,714 Additional restructuring costs: $50,000 Additional re-training costs: $50,000 Total fixed costs: current fixed costs + additional fixed costs Total net profit: total gross profit – total fixed costs Calculate the probable return on investment for this marketing opportunity. The formula you should use is: Projected return on investment = (New 𝐠𝐫𝐨𝐬𝐬 profit projection − Original 𝐠𝐫𝐨𝐬𝐬 profit projection) x 100 Investment In the formula above: New gross profit is the net profit you found above. Original gross profit is the gross profit outlined in the case study (i.e. projected gross profit if the marketing opportunity is not undertaken) (page 5 of the case study shows gross profit of $6,677,000) Investment in this case is the sum of the additional costs (in this case $50,000 + $50,000) A larger (positive) number indicates a higher return on investment. Projected return on investment © 2012 Innovation and Business Industry Skills Council Ltd Revised by MCI on 11 April 2014 1st edition version: 1 Page 11 of 14 Assessment Task 2 BSBMKG501B Identify and evaluate marketing opportunities Rank the three marketing opportunities in order, with 1 being the most desirable opportunity and 3 being the least desirable opportunity. Provide reasons for your ranking. You may consider factors such as ● ● ● ● ● financial indicators including profit, return on investment etc. viability, risks and likelihood of success potential competitors fit with organisational goals and capabilities customer and market trends Rank Marketing Opportunity Reason for ranking 1. 2. 3. © 2012 Innovation and Business Industry Skills Council Ltd Revised by MCI on 11 April 2014 1st edition version: 1 Page 12 of 14 Assessment Task 2 BSBMKG501B Identify and evaluate marketing opportunities Part B: Implementing Marketing Opportunity The Marketing Manager has decided to implement the number one ranked marketing opportunity which you identified above. In order to take advantage of this marketing opportunity, he’d like you to identify and document required changes to current operations and to estimate resource requirements for these changes. Do this by using the template below. In the template Identify the marketing opportunity that is being implemented Identify at least two required changes to operations. This will depend on the marketing opportunity you are implementing. Examples of changes to operations could include building a new store, developing a website, hiring/firing staff, changing product type etc. Estimate resource requirements involved in implementing the new opportunity. For each category, estimate the cost and justify the cost (page 91) Changes to current operations Marketing Opportunity: Required changes to current operations (at least 2) 1. 2. 3. 4. (Estimated) Resource requirements Category Estimated cost (and reason for cost) Staff Training Infrastructure & Equipment Information Technology Marketing © 2012 Innovation and Business Industry Skills Council Ltd Revised by MCI on 11 April 2014 1st edition version: 1 Page 13 of 14 Assessment Task 2 BSBMKG501B Identify and evaluate marketing opportunities The Marketing Manager wants to ensure that the quality of service to existing customers doesn’t decrease, despite the new marketing opportunity targeting a new customer base. What steps could be taken to ensure that the quality of service to existing customers remains consistent? (page 88) You have been asked to attend a meeting with the Board of Directors and CEO, Chief Financial Officer, Operations General Manger and the Marketing Manager. They want you to discuss the viability of implementing the marketing opportunity. Briefly outline (dot-points are acceptable) points you would present during the meeting (page 93). You may wish to discuss Is the marketing opportunity viable? What will the financial impact of the opportunity be? What are the necessary changes to operations? What risks are associated with the opportunity? Are there any legal issues associated with the opportunity? © 2012 Innovation and Business Industry Skills Council Ltd Revised by MCI on 11 April 2014 1st edition version: 1 Page 14 of 14