This workbook belongs to _________________

Record # _____ Team # ____

"Do the Math"

Student
Workbook

By Karen Sinotte

Winter 2021

Do the Math Workbook for Marketing by Karen Sinotte, Winter 2021

 Table of Contents

Table of Contents .......................................................................................................................................... 2

Your Grade Tracker: ..................................................................................................................................... 3
Introduction..................................................................................................................................................... 4
Weekly Reflections........................................................................................................................................ 5
Worksheet 1: Marketing Management Review ......................................................................................... 6
Part A: Terminology ........................................... 6
Part B: Practicing the Math Sales Growth and Market Share 7
Worksheet 2: Reviewing Financial Statements ........................................................................................ 9
Part A: Terminology of Financial Statements: ... 9
Part B: Practicing the Math ................................ 11
Worksheet 3: Financial Situational Analysis ...........................................................................................13
Part A: Terminology ........................................... 13
Part B: Practicing the Math ................................ 14
Part C: Mini-Case: Financial Situational Analysis, Part I Ongoing Case Error! Bookmark
not defined.
Worksheet 4: Forecasting and Budgeting ...............................................................................................15
Part A: Terminology of Forecasting and Budgeting 15
Part B: Practicing the Math of forecasting and budgeting 16
Part C: Mini Case Part II of Ongoing Case Forecasting Alternatives Error! Bookmark
not defined.
Worksheet 5: Breakevens and Proformas...............................................................................................18
Part A: Terminology of Breakeven and Pro-forma 18
Part B: Practicing the Math of Breakevens ........ 19
Part C: Part III of Ongoing Case, Selling the Plan Error! Bookmark
not defined.
Worksheet 6: Pricing Decisions ................................................................................................................22
Part A: Pricing Terminology ............................... 22
Part B Practicing the Math of Gross Profit, Mark-ups and Mark –Downs 23
PART C Mini-Case: HEINZ KETCHUP PRICING CASE 24
Worksheet 7: Financial Analysis to Inform Decisions ............................................................................27
Ongoing Case: Tough Guy Sports Case .................................................... Error! Bookmark not defined.
Case Part I: Defining the Business Problem ....... Error! Bookmark
not defined.
Case Part II: Tough Guy Sports Case, Setting Goals and Considering Alternatives Error! Bookmark
not defined.
Case Part III: Tough Guy Sports Case Selling the Plan Error! Bookmark
not defined.
Exam Review ...............................................................................................................................................35
Getting Ready Checklist? ..........................................................................................................................35

Do the Math Workbook for Marketing by Karen Sinotte, Winter 2021

 Your Grade Tracker:
Assessment Tool: Description: % of Final Your Grade
Grade:
Midterm and Final Multiple choice, Short Answer and Case Wk
Exams incidence 9 /20
Need to pass combined total of 15 /30
BOTH to pass the course. 50

Assignments/ 7 weeks of individual and group learning Week Act/Quiz

participation activities weighted totalling 20%. Each 1/8 /2
assignment will account for 2% (6 2 /3
assignments in total) and participation 3 /3
(either in class or discussion boards) will 20 4 /3
account for 1% from week 1 through 5 /3
week 8 6 /3
7 /3
Group Case Analysis In weeks 11-14, students will work on Weeks 11-14
Cases as announced. Cases will account Case 1
for a total of 30% of your final course 30 Case 2
grade Case 3
TOTAL /30
100%

Do the Math Workbook for Marketing by Karen Sinotte, Winter 2021

 Introduction
By the end of this course you will be able to evaluate the financial impacts of marketing recommendations
and present these recommendations in a persuasive manner to sell your ideas.
Topic Topics Work sheet Starting
level
1. Marketing Frameworks and how to use them to make Market 1
marketing mix decisions share
2. Calculating market share and market growth to be used in 1
forecasting and financial analysis
3. Financial Statements: The math and components of Balance Financial 2
Sheet and Income statement Statements
4. Financial Analysis of Statements: The math and drivers of Financial 3
financial ratios including Liquidity, Solvency, Ratios
Efficiency/Profitability, Effectiveness overall, marketing
effectiveness in particular
5. By understanding the drivers of ratios, assess the relative 3
values of different industry benchmarks.
6. Assess the strengths and weaknesses of company’s financial 3
performance, using trend in financial ratios and benchmarks.
7. Calculate change in Gross Margin when price or product 3, 4, 5
changes, especially when you don't have quantity, selling
price or VC per unit.
8. Describe the pros and cons of different forecasting methods. Forecasting 4
and
9. Describe the pros and cons of different budgeting methods. Budgeting 4

10. Complete an estimation question using market factors using 4

the chain ratio analysis format.
11. Estimate the profit impact of a marketing strategy given a Proformas 5,6,7
sales target and a change in marketing mix. Report in and
Proforma Income statement format. breakeven
12. Estimate the profit impact of a pricing strategy. Report in 6
Proforma Income statement format.
13. Assess the risk of a marketing strategy using breakeven and 5, 6, 7
Margin of Safety.
14. Names the five Cs of pricing and use these to inform pricing Pricing 6
decisions.

15. Assess the likely elasticity of demand for a given product 6

category.

16. Describe various pricing strategies and the objective that 6

might be achieved by using these pricing strategies

Do the Math Workbook for Marketing by Karen Sinotte, Winter 2021

 Weekly Reflections
Week Weekly Thoughts (What did you learn, what challenges did you overcome, What still worries
you, what questions do you have, any AHA moments)
1

10

11

12

13

14

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Do the Math Workbook for Marketing by Karen Sinotte, Winter 2021

 Worksheet 1: Marketing Management Review
Part A: Terminology Review
1. The Terminology of Marketing Planning and Measuring Marketing Success
Define these key terms and be able to apply them appropriately in the marketing planning process.
[TIP: Resources to help with terminology are included in your MARK 1027 textbook and the internet].

Throughout this course, we will be using the These Key Performance Indicators are used to
following marketing concepts and frameworks measure the success of these marketing decisions.
that can be used to help assess marketing There are measures of Efficiency (doing things right)
strategy decisions. and Effectiveness (doing the right things)

Marketing Frameworks Business Metrics/Measures of Success

1. AIDA Model 1. Advertising as Percentage of Sales (%)
2. BCG Matrix 2. Average sale per customer ($ or #)
3. Brand 3. Brand Awareness
4. Consumer Decision Process 4. Brand Development Index (BDI)
5. Diffusion of Innovation
6. Macro Strategies for Sustainable 5. Brand Value
Competitive Advantage 6. Conversion Rate (%)
7. Marketing Mix (4Ps vs. 7Ps) 7. Cost per Sale ($)
8. Perceptual Map 8. Cross Sell
9. PEST Analysis 9. Customer Equity
10. Porters 5 Forces Model 10. Customer Acquisition
11. Positioning (3 Cs) 11. Customer Profitability
12. Price Quality model 12. Customer Retention (or Attrition Rates)
13. Pricing Strategies (5 C's)
14. Product Life Cycle 13. Customer Satisfaction
15. Product Market Growth (Ansoff) 14. Gross Rating Point (GRP)
Model 15. Lifetime value of customer (LTV or CLV)
16. Profit Drivers (Cost/Revenue
Framework) 16. Market Development Index (MDI)
17. Promotional Planning 17. Market Growth (%∆)
18. STP Process
18. Market Share (SOM or M/S)
19. Strategic Marketing Planning
Process 19. Net Promoter Score (NPS)
20. SWOT Analysis 20. Recency Frequency Monetary Score (RFM)
21. Repeat Purchase Ratio
22. Response Rate (RR)
23. Return on Marketing Investment (ROMI)
24. Sales Growth (%∆)
25. Share of Voice (SOV)
26. Share of Customer (SOC)
27. Share of Wallet (SOW)
28. Social Return on Investment

2. Concept review questions

a. Describe how to measure business success.
b. How is marketing success measured?
c. Give at least 4 ways to grow market share
d. Provide the pros and cons of growing market share (Give 4 of each)

Do the Math Workbook for Marketing by Karen Sinotte, Winter 2021

Part B: Practicing the Math Sales Growth and Market Share
1. From your Job Aid to fill in the equations that you need:
Calculating New Sales ($) Calculating Sales Growth Rate (%) Calculating Market Share

2. In 2012, total market is $1,000,000 with three competitors - Acme, Beta and Delta. The market grows
to $1,200,000 in 2013. By 2014, the market has grown to $1,500,000 which attracted a fourth
competitor to the market. In 2014, Blue Nose generated $100,000 in sales, both Delta and Beta grew
at the same rate in 2014 as they did in the previous year.
a. Fill out the chart below.
($000) 2012 2013 2014
Market Market % Sales Market % Sales
Company Sales Share% Sales Share Change Sales Share % Change
Acme $ 500 23%
Beta $ 300 30% $ 345
Delta $ 200 20% 20%
Blue Nose n/a n/a n/a n/a n/a $100 n/a
Industry Total $ 1,000 100% $ 1,200 100% $1,500 100%

b. Answer the following questions from the chart above

i. What does this analysis tell you about the
companies in this market?
ii. Compare the advantages and
disadvantages of large vs. small market
share.
iii. How might a company grow market share?
Consider the financial impacts of changes in
marketing mix.

3. Bottled water, consisting of still and sparking unflavoured and flavoured waters, is a hot industry - sales
grew by 8.8% between 2001 and 2006 and are expected to grow another 8.5% by 2011. The bottled
water industry in North America totalled 32.4 Billion litres valued at US $15.6 B in 2006 - that's an
average of $0.48 in revenue per litre. Big players in this industry include Nestle, PepsiCo, and Coca Cola.
Nestle is the market leader, selling 9.58 B litres, followed by PepsiCo's 4.3 B litres and Coca-Cola's 3.74 B
litres
a. Calculate 2006 litres market share for each of
the three major players.

b. How much revenue did one market share

point represent in 2006? How much will 1%
market share represent in 2011?

Do the Math Workbook for Marketing by Karen Sinotte, Winter 2021

4. The manager of Haliburton Highlands Golf Course understands from industry data that the courses in the
market area together host 30,000 rounds of golf a year. Of these rounds. Haliburton Highlands Golf
Course hosts 3,500 rounds which represents an 8% increase over last year. From www.ngf.org found
out that the number of golf rounds for next year is expected to increase by 6% next year.
a. Calculate market share this year.

b. Calculate next year's market share if

Haliburton Highlands Golf Course was to
project a 7% increase in sales next year, while
the market is growing by 6% next year.
c. How might Haliburton Highlands Golf Course
grow their business next year?

d. How might you compare your performance

relative to other players in the market place?

5. The owners of Molly Maid Housekeeping serves homes and condominiums on Toronto's Waterfront.
This area includes approximately 5,500 homes. However, it is estimated that only 35% are potential
customers because they currently engage maid services in their homes or may do so in the future. The
company currently cleans 225 homes. Toronto's Waterfront is currently experiencing a building boom.
There will be 2,500 additional units built in the next 3 years.
a. Calculate market share this year.

b. How might you forecast what will happen to

Molly Maid's business in the next three years?

Do the Math Workbook for Marketing by Karen Sinotte, Winter 2021

Worksheet 2: Reviewing Financial Statements
Part A: Terminology of Financial Statements:
Define these key terms and identify them on a financial statement. Be able to sort these items in
Liquidity order on the Balance sheet and separate Variable vs. Fixed expenses on the income statement.

Balance Sheet Income Statement Expenses

Assets Liabilities Equity Variable Expenses Fixed Expenses
(Thing that you (Things that you (What you OWE to (expenses PAID that (expenses PAID that don't
OWN) OWE to creditors) shareholders/ change proportionate to change proportionate to
owners) change in sales) change in sales)

For each item, indicate which statement they belong to: Balance sheet (BS) or Income Statement (IS)
and Item Type: Fixed Assets = FA, Current Assets = CA, Intangible Assets = IA, Current Liabilities =CL,
Long Term Liabilities = FL, Equity = EQU, Revenue = R, Variable Expenses = VC or Fixed Expenses = FC.

Item Statement Item Type

1. Accounts Payable
2. Accounts Receivable
3. Accumulated Depreciation
4. Administrative salaries and benefits
5. Advertising Costs for GroupOn Offer
6. Advertising Expenses
7. Bank Charges/Fees
8. Brand Value
9. Cash
10. Closing Inventory
11. Cost of Goods Sold
12. Depreciation Expense
13. Equipment
14. Goodwill
15. Hourly labour for factory line workers
16. HST Paid
17. Insurance
18. Interest Income
19. Inventory
20. Merchant credit card processing
21. Miscellaneous Expenses
22. Mortgage Owed
23. Mortgage Payment
24. Notes Payable
25. Office rent
26. Opening Inventory
27. Outbound Telemarketing
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 Item Statement Item Type
28. Owners’ equity
29. Package design
30. Packaging materials
31. Plant electricity
32. Premium Costs for Gift with Purchase
33. Pre-Paid expenses
34. PST Collected but not yet paid
35. Purchases
36. Retained Earnings
37. Revenues
38. Salaries Expenses
39. Sales
40. Salesmen commission
41. Shareholder's Equity
42. Stocking Fee
43. Telephone Expenses
44. Transportation Costs
45. Travel Costs
46. TV media Expenses
47. Variable Expenses
48.
49.

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Part B: Practicing the Math
1. (A) Create financial statements in correct format from the
list of items provided. Record on blank sheet of paper. (a) 1 Accounts Payable $ 3,000
Sort items by statement type, then by category, then by 2 Accounts Receivable $ 13,400
liquidity. (b) Verify that Assets = Liabilities + Equity. If not, 3 Accum Depn (Building) $ 7,800
something wrong. 4 Accum Depn (Equipment) $ -
(B) Answer the following questions from the completed 5 Accum Depn (Fixtures) $ 3,600
statements: 6 Advertising Promotion $ 3,000
7 Beginning Inventory $ 18,000
a. Calculate Total 8 Buildings $ 77,000
Current Assets 9 Cash $ 6,120
b. Calculate Total Fixed 10 Contracts Payable $ 6,000
Assets 11 Depreciation Expense $ 2,000
c. Calculate Total Assets 12 Ending Inventory $ 18,200
13 Equipment $ 8,000
14 Fixtures $ 17,800
d. Calculate Total 15 Insurance Expense $ 18,000
Current Liabilities 16 Long Term Note $ 75,000
e. Calculate Cost of 17 Merchandise Inventory $ 19,200
Goods Sold 18 Miscellaneous Expense $ 4,000
f. Calculate Gross Profit 19 Notes Payable $ 4,000
20 Owners Equity $ 39,160
21 Payment on Building note $ 34,000
g. Calculate Total 22 Prepaid Expenses $ 2,040
Operating Expenses 23 Purchases during the year $ 22,000
h. Calculate Net Profit 24 Salaries Expense $ 68,000
25 Salaries Payable $ 5,000
26 Sales $ 178,000
i. Which Fixed Asset is 27 Suppliers Expenses $ 7,460
likely the “newest” 28 Utilities Expense $ 8,000
j. What adjustments to
incomes statement
needed to reflect
cash flow

See Job Aid for essential Financial Statement Equations:

• Income Statement: Revenue – Variable Costs = Grosso Profit – Fixed Costs = Net Profit
• Cost of Goods Sold: Opening Inventory + Purchases – Ending Inventory = COGS
• Balance Sheet: Assets = Liabilities + Equities

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2. Pro-forma to evaluate financial impact of marketing strategies: At 10,000 units, Total Fixed
Costs are $200,000 and Total Variable Costs are $50,000. Costs and profit vary with output. The
item currently sells for $38. The company is considering how to double output to 20,000. Option 1 is
doing nothing. Option 2 is reducing price to $28. Option 3 is increasing advertising by $50,000.
a. Complete the following chart.

Assumptions Base Option 1 Option 2 Option 3

Output Units 10,000 20,000 20,000 20,000
Unit Price $38 $38 $28 $38
Variable Costs/Unit
Contribution per Unit
Proforma Income Statement
Total Revenue
-Total Variable Costs
Gross Profit
-Total Fixed Costs
Net Profit
Analysis
Gross Margin
Net Profit Margin
Break Even Units (Week 5)
Margin of Safety (Week 5)
b. Describe the relationship between Sales and Variable Costs? Sales and Fixed costs? Sales and
Gross Profit? Sales and Net Profit?

c. What is the difference between fixed and variable costs?

d. In order to double quantity of sales, is it better to reduce price or increase advertising? Explain
how you would decide the best marketing strategy?

e. Would your recommendation change if you considered breakeven units and Margin of Safety?

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 Worksheet 3: Financial Situational Analysis
Part A: Terminology
1. Explain these THREE types of analysis.
a. Vertical Analysis

b. Horizontal
Analysis

c. Ratio Analysis

2. Describe the ratios used to assess these FIVE aspects of financial performance.
a. Liquidity

b. Solvency

c. Efficiency

d. Overall
Effectiveness

e. Marketing
Effectiveness

3. Demonstrate your understanding of how to impact ratios (three examples)

a. Give 8 ways a
business might
improve gross
margin.

b. Give 8 ways a
business might
improve Net
Profit

c. Give 8 reasons a
company might
decide to spend
more than
benchmark on
advertising as %
of sales
.enchmark.
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Do the Math Workbook for Marketing by Karen Sinotte, Winter 2020

Part B: Practicing the Math
1. Fill in the missing values in Chart 1, Part ❶ Income Statement with COGS.
2. Complete Chart 1, Part ❷, selected vertical, horizontal and ratio analysis. Then analyze the data to
assess company performance. Record your analysis in Chart 2. Is this company performing good or
bad? Be prepared to explain your answer.
3. Using Historical performance data, make determine a sales forecast and market strategy changes
that would be needed to achieve this sales target. Present this “plan” in a Pro-forma Income
Statement using Chart 1, Part ❸.
Chart 1: Income Statement with COGS
❶ Income 2006 2007 2008 2009 2010 ❸ 2011 F
Statement
Sales 37,000 53,000 71,000 98,000 125,500 1
Opening Inventory 6,000 8,500 2
Purchases 10,000 15,000 43,000 3
Goods Available 17,000 32,000 79,000 4

Closing Inventory 2,000 6,000 8,500 28,500 5

COGS 43,000 6

Gross Profit 55,000 7

Fixed Costs $40,000 $40,000 $40,000 $40,000 $40,000 8

Net profit 9

❷ Analysis 2006 2007 2008 2009 2010 ❸ 2011 F

Gross Margin % 10

Net Margin % 11

Average Inventory 12

Inventory Turnover 13

% Change in Sales 14

% Change in Gross 15
Profit
% Change in Net Profit 16

Chart 2: Strengths and Weaknesses Chart

❷ Analysis Strengths Weaknesses
From Income
Statement
From Vertical
Analysis
From Horizontal
Analysis

From Ratio
Analysis
Overall
Assessment

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Do the Math Workbook for Marketing by Karen Sinotte, Winter 2020

Worksheet 4: Forecasting and
Budgeting
Part A: Terminology of Forecasting and Budgeting

1. From your reading assignments, explain market demand and the THREE levels of forecasting
a. Market Demand

b. Market Potential

c. Sales Potential

d. Sales Forecast

2. From your reading assignments, define chain ratio analysis for estimations and these
EIGHT Forecasting Methods
a. Chain Ratio Analysis

b. Market Test

c. Trend Analysis

d. Market Factor Analysis

e. Exponential Smoothing

f. Jury of Executive Opinion

g. Delphi Technique

h. Sales Force Composite

i. Survey of Buyer Intentions

3. From your reading assignments, define these four Budgeting Methods:

a. Objective and Task Method

b. Competitive Parity Method

c. Percentage of Sales Method

d. Affordable Budget Method

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Do the Math Workbook for Marketing by Karen Sinotte, Winter 2020

Part B: Practicing the Math of forecasting and budgeting

Forecasting might involve historical trend data, but for new products and in other situations when historical data
isn’t easily available, you can use market factors to estimate market potential. When estimating market potential,
cite sources (e.g. primary or secondary research, historical trend data, heuristics1, marketing experiences and
common sense), state any assumptions and show all your calculations.

1 Estimate the market potential for the new “Bongo Bumpers” toys in Halifax vs. Granby. If you could
hire one additional sales person for this product, which market would you select.
Forecast demand in retail dollars for the new “Bongo Bumpers” toy in Canada for its first year of
launch based on the market research data provided below and use Statistics Canada to look up
population in each city.
Marketing Research Results: Spin Master Toys would like to introduce a new battery powered
adventure toy called “Bongo Bumpers” targeted to boys aged 5-9 in Canada. It is a unique new toy that
is expected to be a Christmas season hit this year. The toy will sell for $25.
• A Spin Master survey estimated that 80% of boys who saw the toy in action would ask their
parents to purchase it for them.
• Past experience with their marketing campaigns estimates that 65 % of boys in Canada would
either see advertising or learn about the toy from friends within its first year of launch.
• Spin Master have learned that in general 50 % of parents or others in the family will purchase a
Spin Master toy that their child requests within a year, as Spin Master has an excellent reputation
for making toys that have lasting play value
Factors to consider (Assumptions/Calculations Halifax, Nova Scotia Granby Quebec

Sources:

2. Compare the cat food market in Winnipeg Manitoba vs. London Ontario. Use Statistics Canada and
secondary research that might be available to identify market factors to estimate the market size in
each market. Which market would be best to open a premium cat food store. Explain your answer.
Cite Sources.

Factors to consider (Assumptions/Calculations Winnipeg London

Sources:

1
Heuristics: Pertaining to the use of the general knowledge gained by experience to solve problems. Examples of
this method include using a rule of thumb, an educated guess, an intuitive judgment, or common sense
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Do the Math Workbook for Marketing by Karen Sinotte, Winter 2020

3 Estimate the number of red sports cars on the road in Toronto right now. For this one, use guestimates
rather than use internet sources.
Factors to consider % Assumption Calculations

Sources:

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Do the Math Workbook for Marketing by Karen Sinotte, Winter 2020

 Worksheet 5: Breakevens and Proformas

Part A: Terminology of Breakeven and Pro-forma

1. For each of the following terms, define the term, be able to calculate it, and explain how marketers
use this information in evaluating the financial impact of marketing decisions.

1. Breakeven as percentage of sales

2. Breakeven with profit target

3. Contribution Margin

4. Contribution per unit

5. Fixed Costs

6. Gross Margin

7. Margin of Safety (BE as % of Sales

Forecast)
8. Proforma Income Statement

2. Give 5 business decisions that are informed using Breakeven analysis.

1.

2.

3.

4.

5.

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Do the Math Workbook for Marketing by Karen Sinotte, Winter 2020

Part B: Practicing the Math of Breakevens

1. The WeRNuts Manufacturing company, ModelB product. Selling price $5.00 per unit, variable cost
$4.25 per unit, , Total fixed operating costs $750,000. In addition, they plan to increase advertising by
$80,000 and a profit goal of $70,000.

a. Calculate contribution per unit?

b. Calculate total fixed costs?

c. How many units must be sold to reach

breakeven?
d. How many units must be sold to reach
profit target?
2. David Company has Fixed costs $200,000, Selling price $250, Variable Cost per unit $200. Sales in
2003 are forecasted to be $1,250,000
a. Calculate contribution per unit?

b. Calculate total fixed costs?

c. How many units must be sold to reach

breakeven?
d. How many units do they plan to sell?

e. What is the expected Profit at

$1,250,000 in sales?
f. What is the Net Margin?
g. What is Contribution Margin?

h. How many units do they need to sell if

they wanted to make profit of 5% of
sales?

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Do the Math Workbook for Marketing by Karen Sinotte, Winter 2020

3. International Conventions overhead costs to produce the 3 day Marketing Conference is $90,000 and
their advertising costs are $50,000. They estimate that the variable costs for each attendee including
meals and materials are $350. They are charging a registration price per attendee of $1,500.
a. Calculate contribution per unit?

b. Calculate total fixed costs?

c. What is the break even number of

attendees?
d. If the Target Profit or return is $50,000,
what are the contribution target break
even numbers of attendees?
e. If the international Conventions raised
their prices per attendee to $2000 what
would their new break even attendance
be?
f. How might forecasted demand be
affected with change in price?

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Do the Math Workbook for Marketing by Karen Sinotte, Winter 2020

4. Currently a business sells 20,000 units at a selling price of $40. Total Fixed Costs are $500,000 which
includes $80,000 (or 10% of sales $) in marketing costs. Total Variable Costs are $100,000 at output of
20,000 units. The business is looking to double their sales volumes to 40,000 units. A financial analysis
will allow you to recommend whether they should drop their price to $35.00 or increase their
advertising spend to 10% of sales in order to achieve their sales volume goals. Create pro-forma
income statements and breakeven analysis for the options described above and answer these
questions:
a. What is the current variable cost per unit based on
total variable costs of $100,000 at 20,000 units?
b. What is breakeven in units, based on current sales
of 20,000 units at selling price of $40 and total
fixed costs of $500,000 and total variable costs of
$100,000.
c. What will happen to breakeven if sales increase to
40,000 units, but price reduced to $35 and fixed
costs remain unchanged
d. What happen to break even if sales increase to
40,000, price remains unchanged at $40 and fixed
costs increase because total marketing costs
increased to 10% of sales.
e. As units sold increase, what will happen to unit
costs?
f. As units sold increase, what will happen to fixed
costs?
g. As units sold increase, what will happen to Total
Variable Costs?
h. What observations do you make about the
relationship between price, gross margin,
breakeven and net profit?
i. What observations to you make about relationship
between sales volumes, variable costs and
breakeven?
j. What observations to you make about relationship
between fixed costs and volumes?
k. Is it better to sell product at $35 (no change in
fixed costs) or $40 (and increase marketing to 10%
of $sales)? Explain your answer.

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Do the Math Workbook for Marketing by Karen Sinotte, Winter 2020

 Worksheet 6: Pricing Decisions

Part A: Pricing Terminology

1. Based on your reading assignments, explain the following terms.
a. 5 C's of Pricing

b. Markups vs. Mark downs vs.

Gross Margin
c. Manufacturers Selling Price
vs. Retailers Selling Price
d. Drivers of Elasticity

e. How Market Structure affects

pricing strategies
f. Cannibalization

2. Be able to apply pricing methods, objectives and strategies in case situations.

Pricing Methods Pricing Objectives Pricing Strategies

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 1. Absorption Cost Pricing
Be able to 2. Accessible Premium Pricing
Maximizing Profit 1. Cash Flow Objective match 3. Bundle Pricing
4. Captive Product Pricing
2. Contribution Pricing Strategies to 5. Capitation Pricing
Objectives 6. Cost Plus Pricing
Maximizing Sales 3. Market Penetration 7. Competitive Based pricing
Volume 8. Differentiation
4. Market Share Objective 9. Discount Pricing
10. Dynamic Pricing
5. Partial Cost Recovery 11. Economy Pricing
Establishing a 12. Every Day Low Pricing (EDLP)
competitive position 6. Profit Margin Maximization 13. Geographical Pricing
14. Going Rate (Price Leadership)
7. Profit Maximization 15. Good Better Best
16. High Low Pricing
8. Quality Leadership 17. Loss Leader
18. Marginal Cost Pricing
9. Quantity Maximization 19. Multiple Pricing
20. Odd Even Pricing
10. Revenue Maximization 21. On or Off Peak Pricing
22. Optional pricing
11. Skimming 23. Penetration pricing
24. Predatory Pricing
12. Status Quo 25. Pre-emptive Pricing
26. Premium pricing
13. Survival Pricing 27. Prestige Pricing
28. Price Discrimination
14. Target Profit Pricing
29. Price Stabilization
30. Pricing Variations
15. Target rate of return
31. Product Line Pricing
32. Promotional pricing
33. Psychological pricing
34. Reference Pricing
35. Relationship Pricing
36. Skimming
37. Time Based Pricing
38. Value Pricing

Part B Practicing the Math of Gross Profit, Mark-ups and Mark –Downs
1. A local clothing store buys a shipment of Oakley sunglasses for $79 per pair, and then resells
them for $115 per pair. Later in the season, the clothing store will put the glasses on sale for
$99.
a. What is mark up ($)?
b. What is Mark Up % (on cost)?
c. Calculate Gross Margin (Mark up on Selling Price)?
d. What is Markdown $?
e. What is Markdown %?

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 2. Sports Chek2 buys a pair of roller blades for $75 and prices them to realize a mark-up of $50.
The average operating cost to run a Sports Chek store is $1.1MM annually and roller blades
represents 2% of total store sales, and is allocated 2% of overhead costs as a result ($22,000).
a. What is selling price?
b. What is mark up ($)?
c. What is Mark Up % (on cost)?
d. Calculate Gross Margin (Mark up on Selling Price)?
e. How does this compare with Sporting Goods industry average
gross margin?
f. How many roller blades does Sports Check store need to sell to
make contribution of 3% net profit margin?
3. A convenience store buys 4 litre poly bags of milk for $4.99 and sells them for $5.29.
a. What is mark up ($)?

b. What is Mark Up % (on cost)?

c. Calculate Gross Margin (Mark up on Selling Price)?

d. How does mark-up for milk compare with the average mark up for
convenience store (hint: convert gross margin benchmark to mark-
up)
e. Why do convenience stores sell milk if it has such a low gross
margin compared to their other products? (TIP: Use breakeven
with profit target)

4. A cat food manufacturer sells through wholesalers to retailers. A 10kg bag retails for $16.95.
Retail mark-ups are 35% and wholesaler mark-ups are 10%. What is the manufacturers selling
price? HINT: Two step process, first calculate Retailers cost, then Wholesalers cost =
Manufacturers Selling Price
Retail Selling Price
Retail Cost = Wholesaler Selling Price
Wholesaler Cost =Manufacturer Selling Price
Manufacturer Cost

PART C Mini-Case: HEINZ KETCHUP PRICING CASE

The Business Situation:

Heinz Ketchup developed a new line of spicy ketchup targeted to adult tastes. It had a benefit not available in any
other Ketchup on the market- its taste was a gourmet herb and spice blend with the original smooth thick tomato
texture of original ketchup.

The marketing plan is developed and price is the only thing yet to be decided.

2
In May 2011, Canadian Tire bought Sports Chek stores in Canada owned by Forzari Group for $771 MM (500 stores, total
$1.4B in sales annually. [With that information that means about $2.8MM in sales per store. Sporting goods retailers
benchmarks suggest they earn about 38% GM and 1.5% net profit on average (Retailer Owners Institute, 2008), so operating
costs per store about $1.1MM.

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Research:
Consumer research showed that the product had superior taste to the original and competitors. There was 85%
intent to purchase among adult ketchup users who represent about 15 % of the ketchup market volume. Total
Canadian Market is estimated at 5 million units.

The costs have been estimated. Competitive Comparisons with consumer perception
Competitive Comparisons
Costs for producing Spicy Ketchup Retail Market Consumer perceptions
Brand
price 1L share Texture Taste Value
Raw materials $.48 Heinz
2.99 50 % High High High
Packaging $.50 original

Direct Labour $.27 PC Brand 2.79 25% Med High High

Production overhead $ 100,000 No name 2.49 15 % Med Low Low

Administrative expenses $ 120,000 Hunts 2.79 10 % Med High Med

Advertising and promotion $ 500,000 Total 2.851 100%

Retail and Wholesale margin 20% Spicy

tbd tbd High High High
Ketchup
1
Average Retail Price (weighted average)

Your task:

Compare financial impact of four pricing strategies and make a When selecting pricing options, consider the following

pricing recommendation supported by financial facts. 1. What factors might Heinz consider in setting the price for this new
product? (Hint: 5 C’s of marketing)
2. How helpful is the market research provided in this case to evaluate
1. Select 4 pricing options that Heinz might consider for this 3.
alternative pricing strategies?
How elastic is the product category? Explain your answer providing
new product. For each pricing option, provide sales at least 4 drivers of elasticity.
4. How might market share forecasts be impacted by various pricing
forecasts and marketing mix assumptions. strategies?
2. Create and compare pro-forma income statements, ratio 5. How might Marketing Budget Estimates be impacted by various
pricing strategies?
and breakeven analysis for first year. Use Pro-forma 6. How might other elements of marketing mix be affected by pricing
decisions?
template provided. 7. This case is for the product manufacturer, so you need to be able to
3. Which retail price do you recommend for this product? calculate manufacturer selling price from the retail selling price
provided in the research.
Justify your recommendation using at least five financial 8. How significant do you think that cannibalization of existing product
might be (i.e. impact on Sales and Gross Profit on Heinz Original
facts from your pro-forma and analysis. Hint: product sales)?
Recommendations will depend on the business objective
that you assume.

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Part B Pro-forma template
Line
Assumptions Option 1 Option 2 Option 3 Option 4 Notes Item

Price Strategy 1

Retail Price 2

Manufacture Price 3
Manufacturers' VC
per Unit 4
Contribution per
unit 5
Market Share
assumption 6

Forecasted units 7
Proforma Income statement

Sales Revenue 8

COGS 9
Gross
Profit/Contribution 10

Advertising Costs 11

Other Fixed Costs 12

Total Fixed Costs 13

Net Profit 14
Analysis

Gross Margin 15

Net Profit Margin 16

Breakeven (in units) 17

BE Market Share 18

Margin of Safety 19
Advertising as % of
Sales Forecast 20
Cannibalization(high,
medium or low) 21

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 Worksheet 7: Financial Analysis to Inform Decisions

1. Flags are Us is a small company producing flags. They are considering entering into this new market
where the maximum market size is estimated at 6,000 flags. The following are the costs for the
company, fixed costs are $4,000 and the variable costs are 8 cents per flag. The company feels they
can sell a flag for $3.00 each.
Show your work in a Proforma income statement format

a. Calculate contribution per unit?

b. Calculate total fixed costs?

c. How many flags will need to be sold to

reach breakeven?
d. What is market share at breakeven?

e. How much profit would Flags are US make

at 50% market share?
f. Do you think that there will be a lot of
competitors or only a few in this market?
g. Should this opportunity be pursued? In
order to answer this question, create pro-
forma's for a minimum and maximum sales
potential as well and compare forecasts
against breakeven.

Option 1 Option 2 Option 3

Market Share Estimate BE____ 50% 10%
Unit Sales
Sales
Variable Costs
Fixed Costs
Net Profit
Profit Margin
Breakeven
Margin of Safety

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2. Madeleine’s Beauty Salon has been doing very well since it started 5 years ago. 2015 income
statement is provided below. Madeleine is planning on expanding the business to a larger location.
With the expansion she feels that the potential new revenue will increase by 15%. However, expenses
will also increase – rent will increase by $1,200 per month, one new employee at the cost of $2,000 per
month, additional costs for utilities of $50.00 per month and she would like to pay herself $500.00 a
month in salary for herself.
Show your work in a Pro-forma income statement format

2015 % of Expansion % of % Change over

(Base) Sales Sales Base
Sales $155,000
COGS 38,000
Gross Profit 117,000
Fixed Expenses 85,000
Net Profit 32,000
Breakeven Sales with
Target Profit

a. Calculate contribution per unit?

b. Calculate total fixed costs after
expansion
c. What will net profit be for
expanded business?
d. How does percentage change in
net profit compare with change in
sales?
e. Calculate % increase in $ sales
needed to earn same pre-
expansion profit after the
additional fixed expenses of
expansion?
f. Is this a feasible move for her to
go through with her expansion
plans?
g. What other things would you
suggest regarding this situation?

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3 A retailer purchased 100 new release computer games at a cost of $79.00 each. He was hoping to be able to sell
these during the pre-Christmas season at a 40% markup. He was targeting gamers that wanted to stay current
on their games and using a premium price as a result.

Show your work in a Pro-forma income statement format

a. Sales were much lower than forecasted and he only sold 60 units at the full mark up of 40%.
Because the next version of the game was scheduled for release in February, the retailer
wanted to clear the balance of his inventory of this game, so he marked down the price by
40% and was able to clear all his merchandise by the end of the year. How much profit ($)
did the retailer make on this product in the end? What was the gross margin?
Price 1 Price 2 Total
Selling Price
Quantity
Costs
Contribution Per Unit
Mark up
Mark Down
Sales
COGS
Gross Profit
Gross Margin
Note: Average Selling Price is NOT (P1+P2)/2

b. Instead of pricing it at a 40% markup, how much profit would he have made if he has priced
it more accessibly at a more modest 20% mark-up? And because of the price elasticity of the
demand for the product, he would have been able to sell the full quantity of 95 units.
Price 1 Price 2 Total
Selling Price
Quantity
Costs
Contribution Per Unit
Mark up
Mark Down
Sales
COGS
Gross Profit
Gross Margin
Note: Average Selling Price is NOT (P1+P2)/2

c. Which pricing strategy would be better?

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4. MARS, maker of M&M's candy, recently introduced M&M Premiums. The new candies include flavors such as
mint chocolate, mocha, chocolate almond and raspberry almond with white chocolate. They are wrapped in
incandescent colors and sold in re-closable cartons. MARS also plans new offerings with its Snickers and Dove
brands. Although the new M&M Premiums will be able to charge a higher wholesale price ($0.48 per ounce
for the new product versus $0.30 per ounce for the original product), they also come with higher variable
costs ($0.35 per ounce for the new product versus $0.15 per ounce for the original product.

MARS is forecasting 300 million ounces of M&M Premium within the first year after introduction with an
increase in fixed costs of $5 MM during the first year of production of the new product.

Half of the forecasted M&M Premium sales will come from buyers who would normally purchase M&M
regular candies (cannibalized sales). The sales of regular M&M Candies are normally 1 billion ounces per year.
See Also: “Chocolate Confectionery in Canada”,Euromonitor International, Oct 2014,

Answer the following questions:

What growth strategy is MARS undertaking?
Will the launch of new product be successful? Give financial facts to support your answer. Show work using
Pro-forma.
Before After
MARS ONLY MARS Premium Total % Change
Quantity
Price
Contribution/unit
Sales
Total Contribution
Fixed Costs
Net Contribution
$ -

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5. A retailer has $10,000 to spend on advertising and is deciding which product line to promote, deciding
between Product A or Product B.

With Product A, the manufacturer offers matching coop advertising 3 of $10,000.

Product B is a private label and doesn’t have coop associated with it, but Product B is just now becoming very
popular and will benefit significantly from the advertising.

Which Product Line would you focus your marketing investment on? Give at least five financial facts to
support your answer. Use the pro-forma chart below to present your analysis.

Product A Product B
Before After Before After
Sales 160,000 220,000 36,000 120,000
COGS 80,000 110,000 14,400 48,000
Gross Profit/Contribution 80,000 110,000 21,600 72,000
Advertising - 10,000* - 10,000
Net Contribution to Profit 80,000 100,000 21,600 62,000
*Manufacturer for Line A offers $10,000 in coop advertising
$ change in Sales
% Change in Sales
Gross Margin %
Increase in Net Contribution$
% Change in Contribution
Return on Marketing Investment
Breakeven ($)

3
Agreement between a manufacturer and a member of distribution chain (distributor, wholesaler, or retailer)
where the manufacturer shares the partner's advertising and promotion costs, either as a percentage of sales or
as a fixed sum.

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6. “City Hipsters” is a local clothing store specializing in cutting edge fashions for the 13-25 male and female
market. They have recently managed to get a great deal on a volume purchase of jeans. Each pair of jeans cost
them only $48.65, and they can sell them for $115.00 at full retail. They intend to use a consumer promotion to
sell all 500 pairs that they bought.

Here are the two options they're considering:

• Sweepstakes: They're considering giving away a weekend for four to Big White as the prize for a
'sweepstakes' promotion. Each purchaser of these jeans during the promotion would get one entry.
The cost of the prize would be about $1000 and the cost of printing the entry forms about $40.
• Premium: They're considering giving away a free belt with every pair of jeans sold. Their cost on the
belts they sell averages $10 each.

Use pro-forma income statement and breakeven analysis to compare the financial impacts of these two
options against a "base case" without any promotions. [Make your own chart this time!]

Answer these questions.

1. How much is their gross profit if they sell all 500 pairs of jeans without using a sales
promotion?
2. Which of the two sales promotion options would make them the most gross profit if they
sold all 500 pairs of jeans during the promotion? Explain.
3. Which of the types of sales promotion would allow them to make the most gross profit if
they sold only 100 pairs of jeans during the promotion? Explain.
4. Which sales promotion type would you recommend to them? Explain your answer
considering risk/reward trade-offs.
5. Which one of these do you think would drive the highest consumer interest and hence
sales? Explain.

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7. Games Galore

An analysis of the competition suggests that the average retail selling price of an electronic game is
$89.00. Games Galore store has an opportunity to purchase 5 dozen of these games at a delivered
price of $55.00 per unit. Their normal mark-up on games is 45%.

a. Should they make the purchase? Why or why not? (Give reasons to support your decision)
b. How does their normal markup and the “deal” mark-up compare against industry benchmark?
c. If you were the marketing manager for Games Galore, what pricing strategy would you
recommend? Explain your answer comparing the financial impact of alternatives. A template is
provided.

Current Option 1: Option 2: Option 3

Business At the Deal At the Deal Price reduction
(BASE) Keep Price Pass the saving to but maintain same
the same customer net profit
Quantity 60
Selling Price (Q*SP) $89 $89
Variable Cost/unit $55 $55 $55
Contribution
Total Sales
COGS
Gross Profit
Mark-up % 45% 45%
Gross Margin*
BE Profit Target
(units)
*Industry Hobby Toys and Games at 41.4% GM

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8. Widgets Manufacturing Ltd is now looking to the future and needs to make some adjustments to the
marketing mix and make some financial forecasting. Their widgets are currently selling for $7.65 and
100,000 units are being sold each year. They have asked you to help them make some decisions.

Scenario 1.

Widgets Manufacturing Ltd is thinking of investing $100,000 into R&D. This would lead to a new
product offering and would lead to 20,000 units being sold at $8.50 per unit in addition to existing
sales. The variable cost per unit of this new product is $3,00. This This would also increase
distribution costs by an estimated 5% to get the additional new product to market. Additional
advertising would be required for the new product and thus advertising expense would have to
increase by 20%. Should Widgets Manufacturing Ltd undertake the investment?

Scenario 2.

Widgets Manufacturing Ltd is thinking of investing $150,000 into R&D. This would lead to a new
product offering and would lead to 22,000 units being sold at $7.85 per unit in addition to existing
sales. The variable cost per unit of this new product is $3,00. This would also increase distribution
costs by an estimated 7% to get the additional new product to market. Additional advertising would
be required for the new product and thus advertising expense would have to increase by 25%.
Should Widgets Manufacturing Ltd undertake the investment?

NOTE:

Please use the attached Income and Expense Statement as your base.

2014
Sales 765,000
COGS 260,000
Gross Profit 505,000
Wages and Salaries 118,000
Delivery Costs 6,500
Legal fees 5,000
Advertising 25,000
Rent 12,000
R&D 50,000
Repairs and Maintenance 4,500
Insurance 2,300
Total Operating Expenses 223,300
Net Operating Profit 281,700
Depreciation 4,700
Tax 5,500
Net Profit 271,500

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 Exam Review
Check out your grade so far on BB:
20−𝑀𝑇 𝐺𝑟𝑎𝑑𝑒
What do you need to earn on Final to pass the course: 30
= ______% on your final exam

Getting Ready Checklist?

Topic Work Prepared Not
sheet sure
1. Marketing Frameworks and how to use them to make marketing mix 1
decisions
2. Calculating market share and market growth to be used in forecasting 1
and financial analysis
3. Financial Statements: The math and components of Balance Sheet 2
and Income statement
4. Financial Analysis of Statements: The math and drivers of financial 3
ratios including Liquidity, Solvency, Efficiency/Profitability,
Effectiveness overall, marketing effectiveness in particular
5. By understanding the drivers of ratios, assess the relative values of 3
different industry benchmarks.
6. Assess the strengths and weaknesses of company’s financial 3
performance, using trend in financial ratios and benchmarks.
7. Calculate change in Gross Margin when price or product changes, 3, 4, 5
especially when you don't have quantity, selling price or VC per unit.

8. Describe the pros and cons of different forecasting methods. 4

9. Describe the pros and cons of different budgeting methods. 4

10. Complete an estimation question using market factors using the chain 4
ratio analysis format.
11. Estimate the profit impact of a marketing strategy given a sales target 5,6,7
and a change in marketing mix. Report in Proforma Income statement
format.
12. Estimate the profit impact of a pricing strategy. Report in Proforma 6
Income statement format.
13. Assess the risk of a marketing strategy using breakeven and Margin of 5, 6, 7
Safety.
14. Names the five Cs of pricing and use these to inform pricing decisions. 6

15. Assess the likely elasticity of demand for a given product category. 6

16. Describe various pricing strategies and the objective that might be 6
achieved by using these pricing strategies
17. Describe and implement the 5 step case process Case
worksheets

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 36

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Ask your instructor for another practice case assignment.

Financial Assessment of Alternatives

Assumptions Option 1 Option 2 Option 3 Option 4 Notes Line

Quantity 1
Selling Price 2

VC/Unit 3

Contribution/per 4
unit
5

Pro-forma income statement

Sales 6

COGS 7

Gross Profit 8

Advertising 9
Costs
Other Fixed 10
costs
Total Fixed 11
Costs
Net Profit 12

Analysis
Gross Margin 13

Net Profit Margin 14

Advertising as % 15
of sales
% Change in 16
Sales
% Change in 17
COGS
% Change in 18
Advertising
% Change in 19
Net Profit
Breakeven 20

Margin of Safety 21

22
23

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 Now this is not the end. It is not even the beginning of
the end. But it is, perhaps, the end of the beginning.

Winston Churchill

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