Julien LEVY is product manager at SOTARG France in charge of
printers and related accessories. After reviewing his sales figures
for the past third quarter, Julien is worried that he might not hit
this year’s annual sales targets. As a consequence, he considers an
end-of-year promotion in cooperation with selected retailers in
Paris and the Greater Paris region.
Julien has been approached by Florent GASPARD, owner and
managing director of Promo Plus, a direct marketing firm in
Suresnes, outside Paris. Florent has offered his services in
developing and implementing a sales promotion campaign to help
boost SOTARG’s end-of-year sales. He suggests an in-store
promotional campaign in 10 hypermarkets: Carrefour (4 stores),
Auchan (3 stores), Leclerc (2 stores) and Hyper U (1 store).
Florent suggests placing one booth at the entrance of each
hypermarket during the four crucial Saturdays before Christmas.
Promo Plus’s price quote is €250/day/booth including promotional
material and remuneration of a sales promotion specialist.
Julien has to make a decision. Is Florent’s proposal
interesting? The details are as follows:
a while to more sophisticated laserjet printers. After the
second year, only half of the remaining customers continue. In
other words, two customers out of four defect after year two. After
year three, the remaining customers also stop using their printer.
Thus, the maximum lifetime of a customer is three years.
Consumers typically print 200 pages with a SOTARG 100 ink
cartridge. In a consumer household, cartridges thus generally last
for 3 months before they need replacing. SOTARG does not capture
all replacement cartridge purchases. In reality, 15% of all
customers buy SOTARG-compatible low-cost and/or recycled cartridges
from specialists or over the internet from vendors such as
www.123consommables.com. Thus, at a rather conservative estimate,
an average household typically buys every seventh replacement
cartridge from other sources.
To boost sales, Julien plans to sell a promotional bundle
during the holiday season at a retail price of €50.43. The bundle
consists of one SOTARG Inkjet Printer (€33.45/unit), one
Mediabridge Hi-Speed cable (€3.99/unit) and one SOTARG 100 Black
Ink cartridge (€12.99). SOTARG achieves higher margins on
cartridges (85% profit margin) and cables (80% profit margin) than
on printers, which are sold at a loss (-40% profit margin).
SOTARG forecasts annual price increases for its products of 2%
per year. SOTARG price increases come into effect on January 1 each
year. The company uses a corporate-wide discount rate of 10%. To
know whether he should move forward regarding Florent’s proposal,
Julien asks himself the following questions:
b) Florent’s proposal seems quite expensive. Julien would like
to put some pressure on Florent to commit to a result to be
achieved by the end of the promotional campaign just before
Christmas. Is this an interesting proposition? How many promotional
SOTARG printer packages should Florent’s in-store promotions crew
sell in the 10 hypermarkets in order to make this promotional
campaign interesting for SOTARG?