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Segmentation & Net Profit Contribution Analysis Sugo Robusto

This exercise is based on a Segmentation learning tool from Harvard Business School. The purpose of this tool is to determine how profitable different segments of a market can be for a company. This analysis helps the company to decide which (if any) segments to pursue.

http://hbsp.harvard.edu/multimedia/flashtools/segmentation/index.html

Read the introduction and the conceptual overview of segmentation (note: there is a scroll bar on those pages ( it's easy to miss it). You should already be familiar with these main concepts, as they are discussed in detail in Kotler & Keller.

The three additional concepts are

Net Marketing Contribution (NMC) shows company's profit after promotion or marketing expenses. NMC = Market (or Segment) Size * Market (or Segment) Share * Product Price * Product Margin " Marketing Expenses

Marketing Return on Sales (Marketing ROS) is an indicator of profitability and it used to compare different companies and industries. It shows how much of the sales get returned¬Ě to the company after all the related costs of activity are deducted. MRS = NMC/ Sales

Marketing Return on Investment (Marketing ROI) measures rates of return of marketing dollars invested in the segment. ROI = NMC for segment/marketing expenses for the segment

Review the sample problem of Sugo Robusto company and help Carlo decide if a marketing campaign tailored to a specific segment (upper class women with two or more children) is a good idea. Carlo wants the campaign to generate positive marketing ROI and ROS more than 10%.

Click on the Tool. The tool will have the numbers from the case pre-loaded. Note that total size of the segment is presented in $$ and is calculated as follows -- 80,000,000 units (total market size) * 25% (size of the segment under consideration) * $10 (price of one jar).

a) Briefly explain what company profit, company revenue, net marketing contribution, marketing return on sales, and marketing return on investment for this segment mean for Sugo Robusto? Do they satisfy the criteria that Carlo set?

Carlo was notified by the market research department that in addition to the upper class mothers segment, there is another one " middle class working mothers living in urban neighborhoods -- that might be promising. The size of that segment is larger " it is $300,000,000, so the company's goal can be to obtain 20% of that market. Profit margin can stay the same, at 40%. It will be more expensive to ?reach those consumers¬Ě so marketing expenses are also higher, at $17,000,000.

b) Enter the numbers from the paragraph above in the tool. The tool will calculate company's profit, company revenue, net marketing contribution, marketing return on sales and marketing for Sugo Robusto in that segment. Do they satisfy the criteria that Carlo set?

c) The company can't pursue both segments due to production and budget limitations. Compare the two segments and recommend one segment to pursue.

Solution Preview

Please see the attached Excel spreadsheet for analysis, figures and calculations. (Note, the Harvard tool was re-created in Excel).

You can also enter the figures into the Harvard tool and get the same figures.

(a.)
All figures below are lifted directly from the tool/analysis:
Company Profit- Carlo can expect a profit of $24 million in sales from the Upper Class Mother's ...

Solution Summary

This solution examines the profitability of several potential consumer segments. The solution includes an Excel spreadsheet, which computes profit, net profit contribution, marketing return on sales and return on investment.

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