I am having problems trying to estimate profitiablity and identifying the problems with the company's policies and measurements.
The objective of this problem is to test if you understand simple market segmentation and how to make profit calculations for two segments. Segmentation is done by businesses because it allows them to concentrate better in the different segments. The other reason is that it allows the business to vary its marketing strategies in the different segments. For instance if a business has two segment in both the segments there will be different levels of service, different levels of distribution , different levels of promotional expediture and different prices. The economist apology for segmentation is that it allows profit maximization in each segment. Consequently, this gives scope to you to critique the policy of BFG. Has it optimally carried out segmentation or is this segmentation based on arbitrary considerations? This allows you to make a side-by-side comparison of the profitability of the two segments and compare it to the overall profitability. This is necessary so that the segment, which is more profitable, can be expanded and corrective action can be taken to make the other segments more profitable.
<br>The problem however makes several assumptions. First it omits mentioning how it has decided to segment its customers into two categories. There is no evidence to support this segmentation. It is possible that four segments could have been more profitable. Also the problem ...