Surfside: Marketing and Gross Profit Calculation

Topics: Marketing, Sales, Customer service Pages: 15 (4522 words) Published: June 15, 2013
Surfside Leisurescapes
This report is consistent with my signed Academic Integrity form on file with the instructor.

May 23, 2013

Surfside Leisurescapes|Page 1

Critical Issues
Surfside Leisurescape (SL) lacks a marketing strategy in place to thrive and to differentiate itself in the competitive hot tub market of Newmarket, which has resulted to a continual decline of sales in the company’s hot tub division.

Situation Analysis
SL’s hot tub division must develop a comprehensive marketing strategy in order to differentiate their products and company brand amongst the competitive hot tub market in Newmarket, Ontario. SL’s lack of marketing strategy has caused the hot tub division to decline in sales by losing potential customers to its new competitors. The average profit margin for SL’s hot tub division is 37.56%, with a 55.04% profit margin for Jacuzzi and a 39.30% profit margin for Pacific (Over the last 6 years from 1999-2005)(see Exhibit 6 – Jacuzzi Sales Breakdown 2004 & Exhibit 7 – Pacific Sales Breakdown 2004). SL’s weakness is its lack of marketing strategy; and its strength is that they had the first mover advantage in the hot tub market, which has given them a respected reputation in the community (see Exhibit 5 – Competitor Assessment). SL should focus their resources on targeting the “quality-conscious” and “dealer/brand loyalty” customers due to the company’s decent reputation in the community. The entry barrier to enter the hot tub market is low and there are three direct competitors that sell a similar product to the same target customers (see Exhibit 3 – Porter’s Five Forces Model). Management needs to reposition their product lines and use the most effective promotional medium in order to differentiate itself from their competitors and increase its sales in the hot tub division.

Decision Criteria


Implement a strategic marketing campaign that will increase the gross profit of the hot tub division by 3.75%1 in one year (January 2006)

Option Analysis
Option 1 – Advertise in the food and home magazine
According to the case, the food and home magazine circulates approximately 42,000 homes and businesses within the Newmarket and surrounding area. This is approximately 55.925%2 of the population.

1

The annual sales growth is 15% to 20% without competition and the hot tub division is 25% of total revenue. To be conservative along with competition, an annual sales growth rate of 15% is chosen. Since sales increase does not necessary mean an increase in gross profit. Therefore, we used gross profit as our decision criteria.

2

Population of Newmarket = 75,100 ; 42,000/75,1000 = 55.925% of Newmarket Population

Surfside Leisurescapes|Page 2

According to PPA Marketing, magazine advertising can increase sales by an average of 10%. (PPA Marketing, 2005). If magazine advertisement can generate an average of 10% increase in sales, this option will meet our decision criteria which is to have a 3.75% increase in gross profit within one year. (see Exhibit 9 – Gross Profit Calculation for Option 3). This will give the company a 5.75% cushion if the effectiveness of the company’s magazine advertisement is below average. To incorporate a magazine advertisement, it will cost the company $800 per month for a half-page color advertisement or $1,100 per month for a full-page color advertisement. Therefore, it will cost the company a total of $9,600 per year for a half-page color magazine advertisement and $13,200 per year for a full-page magazine advertisement. According to “How Magazine Advertisement Works,” a full-page color advertisement has a 28% higher recall index than a half-page color advertisement. (Consterdine, 2005). It also states that right hand pages have a higher recall index than left hand pages. (Consterdine, 2005). According to the break-even analysis, it requires an average sale of 2.47 units to breakeven for a half-page color magazine advertisement and 3.40 units for a...


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