Archana Vyas

euid

Individual Case Report for:

Zoëcon Corporation
Insect Growth Regulators

MKTG 5150
Marketing Management
Fall 2022 8W1
 The Problem

Should Zoëcon commercialize the Strike Roach Ender brand by expanding distribution to the 19-city
market area in the Southeast United States?

Recommendation

Zoëcon should not commercialize the Strike Roach Ender brand by expanding distribution to the 19-
city market area. The following analysis provides the rationale for this recommendation.

Economic Analysis

The following paragraphs examine the results from Zoëcon’s Stike Roach-Ender test market and
extrapolates those results to the 19-city area targeted for commercialization.

Test market results.  The test market with a geographic scope of four cities "representative
of the 19-city market area, where 80 percent of roach insecticides were sold. 5.3 percent of 22
million households were in that market area. 57% of households were aware of the product, 6% in
the test cities had tried the product, and 30% of households repurchased the product during the test
period
Test market sales results.  Table 1 presents the sales mix 66% of purchases were aerosol
sprays, and 34% were foggers. The weighted average price for aerosol sprays and foggers is 3.02,
with an individual unit contribution of $1.73 and $1.53. Table 2 illustrates unit and dollar sales
estimates from initial product trials and repeat purchases. The average trial household purchased 1.3
units, while the repeat household purchased 3.5 units.

Test market income statement. In the test market income statement, as shown in Table 3,
the total sale amount was $498,209, and COGS was $224,358, yielding a gross margin of $273,850.
The income statement also highlights marketing expenses of $1,478,000. The ‘blitz’ strategy was
unsuccessful as it only resulted in 6% of households trying the product and 30% repurchasing the
product. The calculations show a loss of $1,204,149.

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 Test market break-even Analysis Table 4 presents break-even estimates for the test market
in units, dollars, and market share. It shows that for SRE to achieve a break-even status, sales of
890361 units equating to $2,688,892 break-even dollars and a market share of 102% are required.

Sales projections for commercialization. The process of making the projections for
commercialization takes the factors used in the chain ratio method of the 4-City test market to
predict sales, expenses, and break-even for the more significant 19-City estimates, as shown in
Tables 5 and 6.

Sales projections. Table 5 shows test market sales data results of the 19-city market area.
The chain ratio method was used to calculate sales and profit by factoring in 22 million households.
It reflects the projected sale of $9,368,040.

Pro forma income statement. the income statement for the 19-city projection, Table 6,
together with the break-even analysis, gives the best picture for analyzing profitability and whether
to move forward. Option A assumes expenditures based on a per capita approach, with test cities
containing 5.3% of the household population. Option B assumes expenditures based on a per-city
approach and spending in 5 of 19 cities with a fixed cost of $4,064,000. Option C assumes that $10
million is necessary to launch a new product. Option A with fixed cost of $20,320,000 incurred a
loss of $15,170,388. Option A with a good amount of marketing, would potentially build consumer
awareness, but by 1985 SRE only had an 18% market share. Option B yielded a positive net income
of $1,085,612. However, achieving sales with a fixed marketing budget would be challenging. and
option C incurred a loss $4,850,388.

Break-even analysis. The lower portion of Table 6 presents the break-even analysis for
commercialization. Break-even estimates are in units sold, dollar sales, and market share. Figure 1 is
a graphic representation of the break-even market share estimates for all three fixed cost scenarios.
Option A requires a market share of 68% to break-even, resulting in sales of $36,965,618 for
12,240,964 units. Option B requires a market share of 14% to break-even resulting in sales of
$7,389,091 for a total of 2,448,193 units. Option C requires a market share of 33% to break-even,
resulting in sales of $18,191,741 for 6,024,097 units. Option C's break-even of 33% is less than

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option A; However, it would be challenging for Zoecon, considering the difficulty of FLEA
ENDER's historical attempts.

Zoecon Marketing Efforts

The "blitz" strategy marketing efforts (table 4) were ineffective. It created awareness but was
ineffective in creating and simulating the results that Zoecon was expecting. The test market
geographic scope contained only 5.3 percent of the 22 million households in the potential 19-city
market area. And of these households, only about 57 percent were aware of the Strike Roach Ender
product by the end of the test. Only 6 percent of those aware of the product tried the product, with an
average purchase of 1.3 units. Of that 6 percent, only 30 percent repurchased the product with an
average of 3.5 units during the trial. Even with an expensive marketing campaign, gaining market
share has been challenging.

Brand Analysis & Strengths.

One of the strengths and competitive advantages of Zoecon is that their products are less harmful to
pets and children. Zoëcon’s investment in R&D enabled the company to synthesize over 1,250 IGRs
and 175 patents issued successfully. IGRs are highly effective against insects that are problems as
adults, such as cockroaches. They carry bacteria and viruses that can cause diseases like diarrhea,
hepatitis B, and polio. IGRs are effective in eliminating insect populations.
With this competitive advantage, Zoecon should focus on trying to enter a new market without
adjusting its marketing strategy.

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 Table 1
4-City Sales Mix and Margin Analysis
Aerosol Fogger
Unit Price 3.14 2.79
Unit Cost 1.41 1.26
Unit Contribution 1.73 1.53
Sales Mix 66% 34%

Weighted Avg. Price 1 $ 3.02

Weighted Avg. Unit Contribution 2 $ 1.66
Contribution Margin 3 55%

1
Weighted Avg. Unit Price = (aerosol unit price * sales mix) + (fogger unit price * sales mix)

(3.14 * .66) + (2.79 * .34).

2
Weighted Avg. Unit Contribution = (aerosol unit contribution * sales mix) + (fogger unit
contribution * sales mix) (1.41 * .66) + (1.26 * .66).
3
Contribution Margin = weighted avg. unit contribution / weighted avg. unit price
(1.66/3.02).

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 Table 2
4-City Trial Financial Analysis

Estimation of Dollars and Units Sold

Initial Trial Repeat Total

Households 1,170,000 21060 1
3.0
Purchase Rate 6% 30%
Units per Household 1.3 3.5
Manufacturer's Weighted Average Price $3.02 $3.02
Unit Sales 2 91260 73710 164970
Dollar Sales 3 $275,605.2 $226,04.2 $498,209.4

1
Repeat household are 30% of the number that made an initial purchase.
2
1st time units are 6% of the total’s household x an average of 1.3 purchases per household.
Repeat units are the number of households x an average of 3.5 purchases per household.
3
Dollars are the number of units x the manufacturer's price.

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 Table 3
Zoëcon Corporation
Income Statement
For the 6-Month Period Ending October 31, 1985
(Representing the 4-city test market)

Sales 1
Aerosol $328,818
Fogger $169,391 $498209
Cost of goods sold 2
$224359
Gross margin $273850
Marketing expenses 3
Promotion & Advertising $1,016,000
Setup/Auditing $377,000
Marketing Research $65,000
Miscellaneous 20,000 $1,478,000
Net income before tax $1,204,149

1
See Table 2 for the computation of sales dollars and units.
2
Cost of goods sold = units from Table 2 * unit cost.
3
See the case Exhibit 4 for marketing expenses details.

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 Table 4
4-City Break-Even Analysis

Break-Even Item Estimates

Expenses 1 $1,478,000
Break-Even Dollars 2 $2,685,655
Break-Even Units 3 890,361
Break-Even Market Share 4 102%

1
Expenses in the first column reflect actual expenses; however, in the second column, only the expense not
considered to be one-time expenses are included, and still, the break-even market share is 70.13%.
2
Break-Even Dollars = Breakeven units*Wt Av Unit Price (see Table 2)
= ???
3
Break-Even Units = total fixed costs / (weighted avg. unit price – weighted avg. unit contribution)
147800/1.66
4
Break-Even Market Share = break-even dollars / relevant market dollar [see Table 2 for details].

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Table 5
Zoëcon Corporation
Pro Forma Income Statement
For the 12-Month Period Ending December 31, 1986
(Representing the 19-city projections)

Sales 1 $9368040

Cost of goods sold 2 $4218428

Gross margin $5149612

Marketing expenses 3

A-Promotion & Advertising (per capita) $ 20,320,000

B-Promotion & Advertising (per city) $ 4,064000

C-Promotion & Advertising (Flat) $ 10,000,000

Net income before tax $ 15,170,388 $1,085,612 $ 4,850,388

1
See Table 5 for the computation of sales dollars and units.
2
Cost of goods sold = units from Table 5 * unit cost.
3
Marketing Expense A (per capita) was derived by …...
Marketing Expense B (per city) was derived by …..

Break-Even Analysis

Fixed Cost Alternatives

Break-Even Metric Per Capita Per City Flat
Break-Even Units $ 12,240,963.86 $ 2,448,192.77 $ 6024096.39
Break-Even Dollars 36,945,455 7,389091 18181818
Break-Even Market Share 1 68% 14 % 33 %

1
Total Market is $xxx,xxx,xxx.
2
Relevant Market is $xxx,xxx,xxx, derived using the chain rule method
Relevant Market = $xxMil (total) * 40% (ant & roach %) * 80% (19 cities) * 70% (supermarket %) * 75%
(may-oct %) * 74% (aerosol & fogger %).

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 Figure 1
Market Share and Break-Even Projection 1

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