Assessment 2

  • Category:
    Marketing
  • Document type:
    Assignment
  • Level:
    Undergraduate
  • Page:
    1
  • Words:
    725

6Market analysis

Market Analysis

Introduction

This reports gives explanation on three market condition which an investor wish to choose which one is the best. The conditions are;

  1. Manufacture and sell own brand

  2. Sell products through e-commerce

  3. Sell products at bargain prices

Using profitability index, we find the following indexes for the three option

Profitability index figures for calculation

Own Brand

E-commerce

Bargain market

Cash flow 2012/2013

$ 7,084,800

$ 8,234,700

$ 13,100,000

Opportunity cost

Present value of future cash flow

$6,560,000.00

$7,624,722.22

$12,129,629.63

Present value of initial investment

$ 7,000,000.00

$ 1,100,000.00

$ 500,000.00

profitability index

0.937142857

6.931565657

24.25925926

Using profitability index we can rank the projects as follows

Bargain market

24.25925926

E-commerce

6.931565657

Own Brand

0.937142857

The rank is done as which one is the most viable

Bargain market presents the best option due to its high profitability index as shown above. Using the profitability index rule, always take the project with the highest PI and it is advisable to take one with PI>1 hence Bargain market option gives the best option to be undertaken by the investor. It shows the profitability level of either project in long term, and Bargain market option gives the highest profit in future.

In line with the company objectives of maximizing sales and profitability, the Bargain market is the still best option. E-commerce and own branding will results into high cost which include additional store cost, production machineries, depreciation cost, lease cost which result into high cost of goods and services which will be passed over to consumer resulting to high prices causing low demand. Therefore, as per the company demand of high sales, low prices will be encouraged and this can be achieved if the total overhead cost is reduced and this can be achieved by the Bargain market option.

Using the principles of marketing and the marketing mix, since this option is does not command the highest market share, it should take an option with the lowest overhead and production cost. The market bargain presents this option and it can reduced price per unit to attract more customer. With this, the option is flexible enough to allow for market penetration through sales increase.

Using the sales data, it shows the number of units sold in each category

Own Brand

E-commerce

Bargain market

Sales volume in units

Furniture

Accessories

From the sales data, it is clear that the bargain option gives the highest sales per unit on the market. This can further be illustrated in the graphs below

assessment 2

The three options shows the sales units by product. The figure aboves shows that the bargain options gives the highest number of units sold hence supports the company objectives of increasing sales. Therefore using sales data, the options which is good for the company is the Bargain option.

The analyst further looked at the gross profit of each company and this is given below

Own brand

E-commerce

Bargain Market

$ 3,600,000

$ 4,471,500

$ 8,000,000

Furniture

$ 1,872,000

$ 3,066,442

$ 4,400,000

Accessories

$ 1,612,800

$ 696,758

$ 700,000

The gross profit also shows that bargain market gives the highest gross profit indicating that is the best option among three. It is followed by E-commerce and lastly own brand. In selecting the option to chose, the bargain market option will still be given first priority followed by E-commerce and lastly own brand. The own brand gives low gross income due to the fact that there are many production overhead as compared to the other two option.

Using the net profit in each option, this given be given in the table below;

Own brand

E-commerce

Bargain Market

Total net profit

$ 584,800.00

$ 7,634,700.00

$13,100,000.00

The same result is found in this case and the bargain market option is the best among the three option.

Conclusion of the report

Using the results from the calculation amd ranking matrix, the bargain option is the best option among the three option. It gives low overhead cost and increases market share of the company. I would advise the management and any other person who is interested in investing among the three options to consider the third option which is the Baragin option as the first viable option with higher return then followed by E-commerce. This decision is based on the market sales data, profitability index and the gross and net profit.

Appendix