Marketing Management
Egregia Motors is a manufacturer of small, economical cars, and has competed in the automobile industry over the last ten years with two standard products: the Crianza (a sedan) and the Pronto (a hatchback). Their market analysts have convinced the company, however, that it would be a wise move for them to enter into the low-emission, high MPG automobile market with a hybrid version of their product, to be named the Alofta.
While each of the existing Crianza and Pronto cars sell for $17,500 each, the analysts believe the new trendy Alofta could sell well at a $27.500 price point. The Egregia Research Department projects that sales of the new hybrid will reach 20,000 units in the first year. One half of those first-year Alofta sales would cannibalize sales from the other two Egregia products (60% from the sedan and 40% from the hatchback). The other half of the Alofta sales would be new sales or stolen from established hybrid automobiles from other manufacturers. Unit variable cost of the Crianza is $12,500, and $13,500 per unit for the Pronto. Unit variable costs for the new Alofta are projected to reach $19,500 because of the unfamiliar technology that provides its special performance parameters. Next year’s original forecast sales of Crianza were 35,000 units (without the entrance of Alofta), and 30,000 units for the Pronto (without the entrance of Alofta). Analysts project additional fixed costs for the proposed Alofta rollout would reach $115 million for the first year, because of new plant and equipment, etc. R&D has begun cannibalization analysis below. Finish the work (and show all work and highlight your final answer) and discuss whether the Alofta project is economically viable.
Explain how each of the marketing mix decision areas, as well as market segmentation and target marketing, could provide context and influence the outcome of the calculation you have made.