Marketing Strategy For Profit Maximization and Increase in Market Share

International Journal of Management (IJM), ISSN 0976 6502(Print), ISSN 0976 - 6510(Online),
INTERNATIONAL
JOURNAL OF MANAGEMENT (IJM)
Volume 5, Issue 8, August (2014), pp. 73-81 IAEME
ISSN 0976-6502 (Print)
ISSN 0976-6510 (Online)
Volume 5, Issue 8, August (2014), pp. 73-81
IAEME: http://www.iaeme.com/IJM.asp
Journal Impact Factor (2014): 7.2230 (Calculated by GISI)
www.jifactor.com
IJM
IAEME
MARKETING STRATEGY FOR PROFIT MAXIMIZATION AND INCREASE

IN MARKET SHARE
Mr. KUNJ KARIA, Miss. NEHA CHANCHLANI, Mr. KARAN KASHYAP
Final year student, Computer Engineering, VESIT,
Mumbai University, Maharashtra, India.
ABSTRACT
Profit maximization is the fundamental need of every company but the way in which this
objective can be achieved is quite underrated till date. In this paper, we analyse the business strategy
of a toothbrush producing company and demonstrate a case study regarding profit maximization by
initially reaching the breakeven condition and later enhancing the business strategy for profit
maximization. Using data from the previous quarters, with sales ranging over 5,00,000 units, we find
that the company is adept in finding the total number of units to be produced to meet the current
needs but is still not able to maximize the profit. Virtually all models of production start with profit
maximization. The company's inelastic pricing in the previous quarters leads to loss of opportunity.
The simplicity of business and the transparency of company's model is quite useful in devising a new
business strategy.
Keywords: Business Strategy, Case Analysis, Marketing Strategies, Profit Maximization.
1. INTRODUCTION
The company OHnC, producing toothbrush, is situated in the state of Maharashtra. The
company has a market share of 5% and is one of the many companies producing this product. This
company, since its advent, has made a remarkable progress by minimizing the cost in the market.
Survival is an implicit objective of most companies. Survival gains more value and prominence
during the initial stage of the establishment of the company and during general economic adversity.
The ability to survive in economic adversity is majorly depended upon the nature of ownership,
nature of business competence of management and financial strength of the company.
In the first quarter of 2013, the company produced 18,00,000 units of toothbrushes and
catered to 5.536% of the population of Maharashtra, making a profit of 2.7 crores. In the second
quarter, producing the same number of toothbrushes, the company witnessed a drop in profit from
2.7 crores to 2.298 crores.
73
280
270
270
Profit in lakhs
260
250
240
229.8
230
220
210
200
Jan-Mar
April-June
Quarters of year 2013
Chart 1: Amount of Profit in first two Quarters

In this case study, we find the reason for the drop in profit and devise a new marketing
strategy to achieve profit maximization.
2. QUESTION 1
What is the reason behind the drop in profit in the second quarter?
2.1 Statistical Analysis
Figure 1: The details of profit revenue cost formula.

74
Table 1: The cost per unit of the raw material that company imports
Item
Cost per unit (Rs.)
Stick
Bristles
Rubber
Packaging
0.2
0.2
0.3
0.2
Table 2: The amount of money the company spends on workers' salary per quarter
Domain
No. of Workers
Quarterly salary per worker (Rs.)
Machinery Work
Packaging
Quality Assurance Team
Transportation
80
20
6
25
30,000
30,000
75,000
30,000
Table 3: Companys fixed and variable cost per quarter

Entities
Expenditure per
Quarter (Rs.)
Workers Salary
37,50,000
Machinery
2,40,000
Quality Assurance
4,50,000
team
Transport
3,60,000
Rent
15,00,000
Raw Materials
16,20,000
Electricity
6,00,000
Advertisement
60,00,000
Expenses
25.80%
Workers
Machine
Quality Analysts
41.32%
Transport
1.65%
3.10%
2.47%
Rent
Raw material
Electricity
Advertisement
10.33%
4.13%
11.15%
Figure 2: Share of various cost factors in the total cost.

75
2.1.1 SWOT Analysis

Strength: Strength is an inherent capability of the organization which it can use to gain strategic
advantage over its competitors.
Weakness: Weakness is an inherent limitation or constraint of the organization which creates
strategic disadvantage to it.
Opportunity: An opportunity is a favourable condition in the organisation's environment which
enables it to strengthen its position.
Threat: A threat is an unfavourable condition in the organization's environment which causes a risk
for, or damage to, the organization's position.
Figure 3: SWOT analysis for the company

Total investment by the company, in the first quarter, was Rs. 1.452 crores and the number of
units produced is 18, 00,000. This means that the cost per unit is Rs. 8.07
In the first quarter, company sold 16, 60,800 toothbrushes with the price of each toothbrush
being Rs. 25 hence making the revenue 4.152 crores.
Profit = Revenue Cost
Hence, profit in the first quarter was Rs 2.7 crores.
In the second quarter, all the cost requirement remained the same but the profit dropped to Rs
2.298 crores which makes it clear that the revenue went down by Rs 40.2 lakhs i.e 1,60,800 items
were sold less as compared to the first quarter.
Hence, the reason behind the drop in the profit in the second quarter is decrease in sales.
76
3. QUESTION 2
How do we increase profit and company's market share?
3.1 Strategic analysis
Profit maximization can be done by increasing the sales. This basically satisfies both, profit
maximization and increase in company's market share. By using Ansoff's matrix tool, we can use
product development to introduce new product in the already existing company's market to achieve
growth.
Figure 4: Representation of the strategy used by company from Ansoff's matrix.

3.1.1 Product development
The new product to be developed is a tongue cleaner which can be incorporated on the
backside of the toothbrush. The raw material cost would increase by 2, 58,000.
Along with this strategic tool, we can use Five Force Model to analyse the competition with
the industry and business strategy. Five Force framework helps us to determine the intensity of
competition and hence we can determine the attractiveness and credibility of introducing the new
product in the market. The cost per unit increases by Rs. 0.2 which makes the cost of production per
unit Rs. 8.27. Company produces 18,00,000 units so now company's total investment is Rs 1.4886
crores in the third quarter of 2013.
77
Figure 5: Five Force Model

3.1.2 The five forces identified by Porter are
Threat of new entrants
The arrival of new entrants depends on the size of the market (economy of scale), the
reputation of a company already installed, the cost of entry, access to raw materials, technical
standards and cultural barriers. It is in a companys interest to create barriers to prevent its
competitors to enter to market.
Industry competition
The competition between firms determines the attractiveness of a sector. Companies
struggle to maintain their upper hand in the market share. The competition changes are based
on sector development, diversity and the existence of barriers to enter. In addition it is an
analysis of the number of competitors, products, brands, strengths and weaknesses, strategies,
market shares.
Bargaining power of buyers
If the bargaining power of buyers is high, they influence the profitability of the
market by imposing their requirements in terms of price and quality. Targeting perfect group
of clients is crucial because a firm should avoid beingin a situation of dependence. The level
of concentration of customers gives them more or less power. Generally their bargaining
power tends to be inversely proportional to that of the suppliers.
Bargaining power of suppliers
The bargaining power of suppliers is very important in a market. Powerful suppliers
can impose their conditions in terms of price, quality and quantity. On the other hand if there
are a lot of suppliers their influence is weaker.
Threat of substitutes
The substitute products can be considered as an alternative compared to supply on the
market. These products are due to changes in the state of technology or to the innovation.
The companies see their products be replaced by different products.
Many managers understood the industry as a whole much better with the model that was
78
introduced by Michael Porter as it helped a particular company to analyse its position in the industry
more effectively. A company can know where exactly it stands in an industry besides knowing how
to further improve their position by increasing barriers to entry, lowering threats of substitutes,
lowering supplier power, lowering buyer power and lowering rivalry of competitors. This has caused
companies these days to compete more intensely in trying to gain a significant advantage over their
competitors.
3.2 Statistical analysis
3.2.1 Strategy 1
Owing to elasticity being -5, if company decreases the price of each product by 4%, the
number of products sold will rise by 20%.
Thus, the number of products sold will become 18, 00,000 and price of each product will be
Rs 24 which will make the revenue of the company Rs 4.32 crores. Company's total investment was
Rs. 1.4886 crores, so the profit, according to the profit revenue cost equation, will be Rs 2.8314
crores. This profit is Rs 0.1314 crores more than that in the first quarter.
3.2.2 Strategy 2
Basically, the risk in strategy 1 is that if the company decreases the price by 4%, the
competitors may notice this price drop and may reduce prices of their product also. This will lead to
the profit maximization initially, but gradually the company will face fierce price competition at such
lower price. Hence Strategy 1 has the risk of competition in the future.
If the company decreases the price by just Rs. 0.76 i.e. 3.04%, the change in the price is not
that noticeable and owing to elasticity of -5, the sales will increase by 15.19% making the total
revenue Rs 4.1886 crores. Cost being the same Rs 1.4886 crores, gives the profit of Rs 2.7 crores.
This is the profit breakeven condition.
Applying strategy 2, the company can gain market share and keep the profits high without the
threat of immediate or gradual competition.
300
276.6
270
Profit in lakhs
250
229.8
200
150
100
50
0
Jan-Mar
April-June
July-Sept
Chart 2: Illustration of output of Strategy 1
79
280
270
269.99
270
Profit in lakhs
260
250
240
229.8
230
220
210
200
Jan-Mar
April-June
July-Sept
Chart 3: Illustration of output of Strategy 2

4. CONCLUSION
In this paper, we did a case study of a toothpaste producing company. In the initial segment,
we found out the reason why the company suffered a drop in profit in the second quarter of 2013. In
the last segment, devising two marketing strategies, we not only determined the breakeven profit
condition, but also introduced a new product in the already existing market and increased the market
share for the company, hence increasing the profit in the third quarter of 2013.
300
PROFIT in Lakhs
250
200
150
100
50
0
Jan-Mar
April-June
July-Sept
Strategy 1
270
229.8
276.6
Strategy 2
270
229.8
269.99
Chart 4
80
5. REFERENCES
[1]
[2]
[3]
[4]
[5]
[6]
[7]
[8]
Urde, M. (1999). Brand Orientation: A Mindset for Building Brands into Strategic Resources.
Journal of Marketing Management 15(1-3), 117-133.
Jaworski, B. J., &Kohli, A. K. (1993). Market orientation: antecedents and consequences.
Journal of Marketing, 57 (July): 53-70.
Calantone, R. S., Cavusgil, S. T., Schmidt, J. B., & Shin, G.-C.(2004). Internationalization
and the dynamics of product adaptation an empirical investigation. Journal of Product
Innovation Management, 21:185-`98.
http://www.nber.org/papers/w12152
Hemantkumar P. Bulsara, MeenuShantPriya and SamantShantPriya, An Exploratory Study
on Brand Management: Current Trends and Future Directions, International Journal of
Management (IJM), Volume 5, Issue 4, 2014, pp. 1 - 18, ISSN Print: 0976-6502,
ISSN Online: 0976-6510.
Evalueserve; Business India: August 29 to September 11, 2005/ http://www.kpoexperts.com
Fletcher, R., A holistic approach to internationalization, International Business Review 10,
25-57, Pergammon, 2001.
Desai Vasant, Small Scale Enterprise issues and problems, Himalaya Publishing house,2007,
Vol.-12.
81

Marketing Strategy For Profit Maximization and Increase in Market Share

Transféré par

Informations du document

Titre original

Copyright

Formats disponibles

Partager ce document

Partager ou intégrer le document

Options de partage

Avez-vous trouvé ce document utile ?

Ce contenu est-il inapproprié ?

Droits d'auteur :

Formats disponibles

Marketing Strategy For Profit Maximization and Increase in Market Share

Transféré par

Droits d'auteur :

Formats disponibles

International Journal of Management (IJM), ISSN 0976 6502(Print), ISSN 0976 - 6510(Online),

MARKETING STRATEGY FOR PROFIT MAXIMIZATION AND INCREASE

Chart 1: Amount of Profit in first two Quarters

Figure 1: The details of profit revenue cost formula.

Cost per unit (Rs.)

Table 3: Companys fixed and variable cost per quarter

Figure 2: Share of various cost factors in the total cost.

2.1.1 SWOT Analysis

Figure 3: SWOT analysis for the company

Figure 4: Representation of the strategy used by company from Ansoff's matrix.

Figure 5: Five Force Model

Quarters of year 2013

Chart 2: Illustration of output of Strategy 1

Quarters of year 2013

Chart 3: Illustration of output of Strategy 2

Vous aimerez peut-être aussi