Somerset Inc. has finished a new video game, Snowboard Challenge. Management is now considering its marketing strategies. The following information is available: Two managers, James Hamilton and Thomas Seymour, had the following discussion of ways to increase the profitability of this new offering: James: I think we need to think of some way to increase our profitability. Do you have any ideas? Thomas: Well, I think the best strategy would be to become aggressive on price. James: How aggressive? Thomas: If we drop the price to $60 per unit and maintain our advertising budget at $15,000,000, I think we will generate total sales of 2,000,000 units. James: I think that's the wrong way to go. You're giving up too much on price. Instead, I think we need to follow an aggressive advertising strategy. Thomas: How aggressive? James: If we increase our advertising to a total of $25,000,000, we should be able to increase sales volume to 1,400,000 units without any change in price. Thomas: I don't think that's reasonable. We'll never cover the increased advertising costs. Which strategy is best: Do nothing, follow the advice of Thomas Seymour, or follow James Hamilton's strategy?
Somerset Inc. has finished a new video game, Snowboard Challenge. Management is now considering its marketing strategies. The following information is available:
Two managers, James Hamilton and Thomas Seymour, had the following discussion of ways to increase the profitability of this new offering:
I think we need to think of some way to increase our profitability. Do you have any ideas?
Well, I think the best strategy would be to become aggressive on price.
How aggressive?
If we drop the price to $60 per unit and maintain our advertising budget at $15,000,000, I think we will generate total sales of 2,000,000 units.
I think that's the wrong way to go. You're giving up too much on price. Instead, I think we need to follow an aggressive advertising strategy.
How aggressive?
If we increase our advertising to a total of $25,000,000, we should be able to increase sales volume to 1,400,000 units without any change in price.
I don't think that's reasonable. We'll never cover the increased advertising costs.
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Which strategy is best: Do nothing, follow the advice of Thomas Seymour, or follow James Hamilton's strategy?
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