Basic Marketing: A Global Managerial Approach

Perreault−McCarthy: Basic
Marketing: A
Global−Managerial
Approach, 14/e

10. Product Management
    and New−Product
    Development

Text © The McGraw−Hill

Companies, 2002

Product Management and New-Product Development 301

Computer-Aided Problem

10.Growth Stage Competition

AgriChem, Inc., has introduced an innovative new

product—a combination fertilizer, weed killer, and in-

secticide that makes it much easier for soybean farmers

to produce a profitable crop. The product introduction

was quite successful, with 1 million units sold in the year

of introduction. And AgriChem’s profits are increasing.

Total market demand is expected to grow at a rate of

200,000 units a year for the next five years. Even so,

AgriChem’s marketing managers are concerned about

what will happen to sales and profits during this period.

Based on past experience with similar situations, they

expect one new competitor to enter the market during

each of the next five years. They think this competitive

pressure will drive prices down about 6 percent a year.

Further, although the total market is growing, they know

that new competitors will chip away at AgriChem’s mar-

ket share—even with the 10 percent a year increase

planned for the promotion budget. In spite of the com-

petitive pressure, the marketing managers are sure that

familiarity with AgriChem’s brand will help it hold a large

share of thetotal market and give AgriChem greater

economies of scale than competitors. In fact, they expect

that the ratio of profit to dollar sales for AgriChem

should be about 10 percent higher than for competitors.

AgriChem’s marketing managers have decided the

best way to get a handle on the situation is to organize

the data in a spreadsheet. They have set up the spread-

sheet so they can change the “years in the future” value

and see what is likely to happen to AgriChem and the

rest of the industry. The starting spreadsheet shows the

current situation with data from the first full year of pro-

duction.

a. Compare AgriChem’s market share and profit for

this year with what is expected next year—given the

marketing managers’ current assumptions. What

are they expecting? (Hint: Set number of years in

the future to 1.)

b. Prepare a table showing AgriChem’s expected profit,

and the expected industry revenue and profit, for the

current year and the next five years. Briefly explain

what happens to industry sales and profits and why.

(Hint: Do an analysis to vary the number of years

in the future value in the spreadsheet from a mini-

mum of 0—the current year—to a maximum of 5.

Display the three values requested.)

c. If market demand grows faster than expected—say,

at 280,000 units a year—what will happen to

AgriChem’s profits and the expected industry rev-

enues and profits over the next five years? What are

the implications of this analysis?

For additional questions related to this problem, see

Exercise 10-3 in the Learning Aid for Use with Basic Mar-

keting,14th edition.