Problem: Target Marketing T-Bar, Inc., has developed a new T-shaped ski-boot carrier. T-Bar's marketing managers arc comparing the potential profitability of wing a target marketing strategy with a mass marketing "strategy." The target marketing strategy would focus on buyers of new ski-boots. People who buy new boots are often interested in carriers because they keep the boots from being scratched. The plan calls for producing the T-Bar carriers in different colors-to match different boot colors. This would increase production costs slightly over making them all the same color. But T-Bar's marketing managers think the color-matched carriers will attract a larger share of the market-and command a higher price. Alternatively, T-Bar's mass marketing effort would be directed to all skiers-a much larger number of people. But a smaller percent of the consumers in this group will actually buy this product. Some skiers rent their equipment and won't buy any type of carrier; others already have carriers or are just not interested. Some people who are interested in buying will want a lower-priced carrier made by a compering firm. With the mass marketing approach. T-Bar would not offer different colors. While that might make the carriers less attractive to some customers, it would reduce production costs and make it possible to sell the carriers at a lower price. Trying to reach the mass market will take more pro-motion and require more middlemen in more locations so promotion costs and distribution costs are higher with that approach. In addition, handling the larger unit volume of business is expected to require more overhead expense.
The spreadsheet gives more detail about both approaches. In the spreadsheet, quantity sold (by T-Bar) is equal to the number of skiers who will actually buy any type of ski-boor carrier multiplied by the share of those purchases won by T-Bar's marketing mix. Thus, a change in the number of people in the market, the percent of people who will buy, or the firm's percent (share) will affect quantity sold. And a change in quantity sold will affect total revenue, total cost, and profit.
a. On a piece of paper, show the calculations that prove that the spreadsheet "total profit" value for the target marketing strategy is correct. Which approach seems better-target marketing or mass marketing? Why?
b. In the targeting strategy. if T-Bar could find a way to reduce distribution cost per unit to $0.80. how much mild profit increase?
c. If, in addition to reducing distribution to $0.80 per unit, T-Bar is able to fine-tune its marketing mix decisions to increase its share of purchases from 50 percent to 55 percent-without increasing costs-what would happen to total profit? What does this analysis suggest about the importance of a marketing manager knowing enough about target markets to be an effective target marketer? For additional questions related to this in the Learning Asa for use with Basic Marketing. 11th edition.