Question

Alliance, Inc is a manufacturer & marketer of gas lamps for utilization in mining & natural resources operations. Total industry sales in this relevant market were $100 million, with Alliance,s market share representing 5%. Alliances's contribution margin is 25%. Alliance's sales force calls on the widespread distributor network to generate their revenue. These distributors in turn sell the products to the industrial customers. Distributors generate on average revenue of $10,000 per outlet for Alliance. Each sales rep earns $50,000 per annum. Alliance has a corporate advertising & promotions campaign worth $640,000 which has managed to effectively maintain their brand awareness & image in the resources industry.

(a.) Alliance wants to raise their advertising budget by $200,000 to highlight their green initiatives and bolster brand presence further among expanding players in the industry.

- What increase in dollar sales revenue would be needed to recoup this incremental advertising expenditure?

- What increase in Alliance's overall market share does this call for?

(b.) Alliance is seeking to hire 2 more sales reps to expand further territories in their network by gaining access to additional distributors.

- How many new distributors would be required to cover the cost of hiring these 2 new sales reps?

(c.) Alliance is considering a 10% reduction in the price of its offerings.

- What absolute increase in its topline would be justifiable to maintain the present level of total contribution in dollars?

Answer 1