Question

Somerset Inc. has finished a new video game, Snowboard Challenge. Management now is considering its marketing strategies. The following information is available:

Anticipated sales price per unit	$80
Variable cost per unit*	$35
Anticipated volume	1,000,000 units
Production costs	$20,000,000
Anticipated advertising	$15,000,000

*The cost of the video game, packaging, and copying costs.

Two managers, James Hamilton and Thomas Seymour, had the following discussions of ways to increase the profitability of this new offering:

James: I think we need to think of some way to increase our profitability. Do you have any ideas?

Thomas: Well, I think the best strategy would be to become aggressive on price.

James: How aggressive?

Thomas: If we drop the price to $60 per unit and maintain our advertising budget at $15,000,000, I think we will generate total sales of 2,000,000 units.

James: I think that's the wrong way to go. You're giving too much up on the price. Instead, I think we need to follow an aggressive advertising strategy.

Thomas: How aggressive?

James: If we increase our advertising to a total of $25,000,000, we should be able to increase sales volume to 1,400,000 units without any change in price.

Thomas: I don't think that's reasonable. We'll never cover the increase advertising costs.

Which strategy do you think is best and why? Would you do nothing? Would you follow the advice of Thomas Seymour? Or would you follow James Hamilton's strategy?

Answer 1

i go with James hamilton because , his strategy is better then Thomas .

It should be increased profit of $3'000'000 (18'000'000 - 15'000'000)

Higher contribution and higher contiribhtion percentage .