Video Concepts Inc. (VCI) markets video equipment and films through retailers. P
ID: 2445757 • Letter: V
Question
Video Concepts Inc. (VCI) markets video equipment and films through retailers. Presently, VCI is planning an Intergrated Marketing Campaign (IMC) for a unreleased film entitled Touch of Orange. as to whether it should obtain the distribution rights to an unreleased film titled Touch of Orange. The film will be offered via a multi-channel distribution strategy by VCI both directly to customers online and to its network of retailers. VCI’s investment in the IMC campaign would be $150,000. VCI estimates that the total market for the film would be 100,000 units. Other data are as follows: Cost of distribution rights for film $125,000 Label design $5,000 Package design $10,000 Reproduction cost of videos (per 1,000) $4,000 Manufacture of labels and packaging (per 1,000) $500 Royalties (per 1,000) $500 VCI’s suggested retail price for the film is $20 per unit. The retailer’s margin is 40 percent. A. What is VCI's unit contribution when marketing online directly to final consumers? (state in dollars) B. What is VCI's unit contribution when marketing to its network of retail consumers? (state in dollars) C. What is the breakeven point in units when marketing to final consumers? D. What is the breakeven in units when marketing to its network of retail consumers? E. If VCI's IMC campaign only targets final consumers directly, what market share would the film have to achieve to earn a 20 percent return on advertising investment (ROAI)? F. If VCI’s IMC campaign only targets retail consumers, what market share would the film have to achieve to earn a 20 percent return on advertising investment (ROAI)?
Explanation / Answer
Calculation of Fixed Cost
Per Unit of Fixed cost is $2.9
A) Calculation of per Untit Contribution when marketing online directly
=$20 - $2.9
=$17.1
B)Calculation of per Untit Contribution when marketing to retail customers
= $20 - $2.9 -$ 4.5 (i.e.$4500/100)
= $12.6
C)Break even point of units when marketing online directly
=$290000/20
=14500 Units
D)Break even point of units when marketing to retail customers
=$290000/($20-$4.5)
=18710 Units
E)If VCI's IMC Campagn tragets only Final consumers directly then there is no requirement of incurring cost on Pacaging and designing
Advertising Expenditure = $150000+$125000 =$275000
Add: 20 % Margin =$55000
Total =$330000
Break even point of units to achieve $330000 is
=$330000/20
=16500 units
F)If VCI's IMC Campagn tragets only Final Retail consumers
Advertising Expenditure =$290000
Add: 20 % Margin =$58000
Total =$340000
Break even point of units to achieve $340000 is
=$340000/$20 - $4.5
=21935units
Fixed Cost Cost of Distribution Rights $125,000.00 IMC Campaign $150,000.00 Label Design $5,000.00 Package Design $10,000.00 Total. $290,000.00Related Questions
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