Evaluating Marketing Performance

Workshop 3 - Notes
In this workshop you will complete an exercise on channel pricing and break-even analysis.
You will calculate the margin and selling price of a specific distribution channel member, and
then calculate the channel member’s break-even volume and revenue (adapted from
Measuring Marketing, John Davis, 2007, Wiley).

Wallets produced by manufacturer Rawhide Pty Ltd are facing reduced demand as a result of
competition. Rawhide sells the wallets to its wholesalers who apply a 10% margin and in turn
sell it to retailers, whose margin is 50%. The wallets retail for $60. The marketing manager
for Rawhide is going to make a presentation to the Board about her solution for improving
the wallet sales and has asked you, her marketing analyst, to perform some key calculations.

The marketing manager provides you with the following information:

 The manufacturer pays $4 per piece of leather that is used to produce a single wallet
 Variable cost is $3 per wallet for manufacturing
 Wholesale margin is 10%
 Retail margin is 50%
 Retail price of a wallet is $60
 Total fixed costs are $2,100,000.

a) What is the manufacturer’s selling price?

b) Find the break-even volume.

c) Find the break-even revenue.

d) The marketing manager is considering cutting the manufacturer’s selling price by $9 to see
if that can stimulate sales. Under this scenario, find the following:

 Retail selling price

 Break-even volume
 Break-even revenue

e) In addition to cutting the margin by $9, the marketing manager is also considering hiring a
consulting firm to give focus to their marketing efforts. This is expected to cost $250,000.
Under this scenario, find the break-even volume and revenue.

f) In addition to cutting the margin by $9 and hiring the consultant for $250,000 the
marketing manager wants to set a profit target of $10,000,000. How many wallets must they
sell to wholesalers to achieve this target? How much revenue must they generate to meet this
profit target?

g) In addition to cutting the margin by $9 and hiring the consultant for $250,000, the
marketing manager wants to set a return on sales of 50.00%, instead of setting a profit target

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of $10,000,000. How much revenue must they generate in sales to reach their target return on
sales of 50.00%? How many wallets must they sell?