Exercise 1. What information would you like to have when planning advertising sp
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Question
Exercise
1. What information would you like to have when planning advertising spending?
2. Offer examples of attribute-based product differentiation and information-based product differentiation.
3. Two physical therapy firms want to merge. The price elasticity of demand for physical therapy is 0.40. Firm A has a volume of 10,400, fixed costs of $50,000, marginal costs of $20, and a market share of 8 percent. Firm B has a volume of 15,600, fixed costs of $60,000, marginal costs of $20, and a market share of 12 percent. The merged firm has a volume of 26,000, fixed costs of $100,000, marginal costs of $20, and a market share of 20 percent.
a. What are the total costs, prices, revenues, and profits for each firm and for the merged firm?
b. How does the merger affect markups and profits?
4. A local hospital offered to buy Firm A in Exercise 5 for $5,000, and the offer was refused. However, many observers now perceive that Firm A is “in play” and may be sold if the right offer comes along.
a. In successful transactions, purchasers have typically paid 10 times current profits. How much would Firm A be worth to a buyer from outside the industry?
b. Would you expect that Firm B would be willing to pay more or less than an outside buyer?c. What is the most Firm B would be willing to pay for Firm A?
5. Two clinics want to merge. The price elasticity of demand is 0.20, and each clinic has fixed costs of $60,000. One clinic has a volume of 7,200, marginal costs of $60, and a market share of 2 percent. The other clinic has a volume of 10,800, marginal costs of $60, and a market share of 4 percent. The merged firm would have a volume of 18,000, fixed costs of $80,000, marginal costs of $60, and a market share of 6 percent.
a. What are the total costs, revenues, and profits for each clinic and for the merged firm?
b. How does the merger affect markups and profits?
6. What would each of the clinics in Exercise 5 be worth to an outside buyer (using the guideline of 10 times annual profits)? What would each of the clinics be worth to each other?
Explanation / Answer
Answer
Answer 1
What information would you like to have when planning advertising spending?
When planning for advertising, you need to consider:
These elements are a key part of your marketing plan. You should regularly review your marketing plan to ensure that your advertising strategies are helping to achieve your marketing goals.
Determine goals
It's important to set clear goals when considering advertising. What measurable results do you want to achieve in the market this year and in the longer term must be decided. Targeting your advertising will make it easier to decide how and where to advertise. You may want to increase the sales of a particular product, make your customers aware of a new service, or attract regular customers away from your competitors. This goal identifies what is to be advertised, to whom, and when. Knowing what you are trying to achieve is essential when planning your advertising.
Budget planning
Consider your costs and cash flow as well as your goals in deciding how much to spend on advertising. While spending too much on advertising is risky, spending too little can also cause problems. If your advertising is not professional or frequent enough to generate results, competing with other businesses may be difficult. Sometimes you need to see advertising as an investment in your business to build awareness over the longer term. Knowing how much other businesses spend on advertising can be invaluable when setting your budget. Benchmarking is the best way to compare your business with other similar-sized businesses in the same industry.
Analyse competitors and customers
Where do your competitors advertise and what do they say about themselves? How do they position their business? You may decide to follow their strategy, or do something completely different. Either way, it's important that you know how your competitors advertise their products or services. Market research involves finding out as much as you can about your competitors and customers. You may find that your target market reads a particular magazine, and your competitors advertise in every issue then it might be a good strategy for you to advertise in this publication as well. You may find out that your customers are in need of a particular service which you could easily establish and offer as a competitive advantage.
Statistical Research
The more people who read a newspaper, watch a television show or drive past a billboard each day, the more expensive it is to advertise. But this also means that more potential customers will see your products and services. When comparing readership figures, television ratings or the average number of cars that drive past a billboard each day, always check that the numbers have been verified by a reputable independent body.
Strategy Selection
Every type of advertising has advantages and disadvantages. For example, print advertising can cost more than its online equivalent but a carefully targeted leaflet through a door may have more impact than an advertisement on the internet, where competition for customers' attention is high. The type of advertising you choose will depend on the target audience you are trying to reach and your budget and by determining the most cost-effective way to reach your audience as many times as possible.
Professional’s assistance
It is advisable to ask for help when planning your advertising. If you want professionals to handle your advertising campaign from start to finish, ask your business adviser or networking contacts to recommend advertising agencies. Make sure to thoroughly research agencies to find the one with the skills and fees to suit your goals and budget.
Action plan
Develop an action plan and a timetable will give you plenty of time to meet advertising deadlines.
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