COMPULSORY QUESTION

Question 1
You are the KFC Account Manager at the Planet Sales Promotions Team and KFC has just handed you your toughest assignment. The growing Australian obesity problem is forcing many food manufacturers, supermarkets and fast-food companies to reconsider their product ranges and how they market their products. Six months ago KFC released the Healthier You range of chicken burgers and wraps—the primary targets were teenagers and families with children 3-12 years old.

Nutrition Australia’s website has the following information.

The average amount of kilojoules required daily is represented in the following table:
Age Male Female

12-15 years 10 900 kj 9 550 kj
16-18 years 12 900 kj 10 200 kj
19-50 years 11 550 kj 9 300 kj
51-70 years 10 450 kj 8 800 kj
Adults over 70 years 9 450 kj 8 300 kj
Source: NHMRC, Canberra . These figures represent average requirements for the Australian population. Actual energy needs for individuals will vary considerably depending on activity levels, body composition, state of health, age, weight and height.

http://www.nutritionaustralia.org/national/resource/balancing-energy-and-out#.U3lQxCidGSo

The kilojoules in KFC’s burgers and wraps range from 2,648 to 3,503—these are meals with regular chips and a can of soft drink. Having larger chips adds noticeably to the kilojoules.

Sales have been disappointing to say the least. The launch consisted of a $15m national TV launch campaign which was followed by intensive radio advertising ($1.5m) on highly targeted music and talk-back stations. Social media was used sparingly. Sales are only 25% of budget—sales reached $7.5m for the six months. Annual forecasts sales were as follows.

Year 1 $60m
Year 2 $100m
Year 3 $200m
Year 4 $350m

The key message in the TV and radio campaigns was that the KFC Healthier You range ‘tastes just like a traditional KFC meal but only healthier.’

KFC now doubts the wisdom of the decision to introduce at this time the healthier food options. However, KFC recognises that if it does not address this issue then the Federal and State Governments may introduce new regulations on fast-food nutrition requirements and fast-food marketing practices. Consequently, KFC wishes to re-launch the Healthier You product range.

KFC has given you the following information:

1. there will be no more TV or radio support for the next 6 months
2. the objective is to gain sales of $30m through a new marketing promotions campaign

KFC’s marketing manager has allocated $3m for you to work with. Your ability to retain this prestigious account will depend heavily upon turning around the sales situation.

Devise an ‘innovative’ marketing promotions campaign for KFC for the coming six months.

25 marks

CHOOSE ONLY THREE OF THE FOLLOWING FOUR QUESTIONS.

Question 2

a. Describe in detail each step of the new product development process.
12.5 marks

b. You are the product manager for a soft drink manufacturer and the Marketing Director says she has a great idea for a new range of soft drinks that has to be released for the coming summer season that starts in six months’ time. She wants you to start prototype development immediately.

Given your knowledge of the new product development process you do not support her request to start immediately with prototype development but you think the proposed launch date is achievable.

You decide to respond to her request by producing a report on the risks associated with her request and you also intend to include your recommended standard test marketing program to support your argument.

Write this report.
12.5 marks

[12.5 + 12.5 = 25 marks]

Question 3

a. Describe in detail the profitable product paradigm (PPP).
8 marks

b. Describe in detail the 80:20 and 20:225 rules—use diagrams to help illustrate your understanding of the concepts. Please indicate which rule provides more valuable data to a product manager and explain why.
10 marks

c. As product manager for the Golden Savings Investment Account at a small regional bank you have been told by the General Manager - Products to close the product. The product has been marketed for three years yet it only has 1,000 customers and total savings of $10m. The senior management team is anxious to close the product and use the resources in more profitable areas.

Use your knowledge of the PPP and the 20:225 rule to assist the product manager in deciding the set of circumstances to:

1. keep the account open; and

2. to close it.

NB: you need to address each of these separately.
7 marks

[8 + 10 + 7 = 25 marks]

Question 4

a. The product life cycle (PLC) is a popular concept in Marketing and Product Management. Define what the PLC is and draw a diagram showing all of its elements—draw the PLC with four stages.

b. There are a number of criticisms of the PLC—fully describe these.

c. Despite these criticisms, the PLC is used to shape marketing strategy given the stage of the PLC and whether the firm is a leader or follower.

1. At the maturity stage the market leader has three possible strategies. Identify what the leader is trying to achieve in an overall sense, and fully describe each of these three strategies.

2. What do followers try to achieve in the Growth stage? Followers have five generic strategies to choose from—fully describe the flanking attack and guerrilla strategies.

[3 + 10 + 6 + 6 = 25 marks]

Question 5

a. The Boston Consulting Group’s Growth-Share Matrix allows managers to review their businesses in terms of market strength and growth prospects.

1. Fully describe the BCG Matrix—use a diagram (with all of its elements) to help illustrate your understanding.

2. The Matrix is not perfect—fully describe five weaknesses.
10 + 5 = 15 marks

b. A product manager needs to convince her marketing manager and the executive team that the proposed three year marketing strategy for a new product creates financial value for the firm. Unless she can do this the development and launch of the product will not be approved. The basic data she has are as follows:

Initial investment $3,000,000
Profit Year 1 -$1,000,000
Year 2 $1,500,000
Year 3 $3,200,000
Discount factor (10%) Year 1 0.9091
Year 2 0.8264
Year 3 0.7513

1. Given these data, does the proposed strategy create or destroy financial value? Show your workings.

2. As a backup she also had data for a fourth year—Profit $3,600,000 and a discount factor of 0.6830. How is the outcome and decision to proceed affected by these data? Show your workings.

3. Define sensitivity analysis and provide one example of this concept in relation to this example.

4. Provide two strategies/tactics that you would recommend she try to further enhance the financial outcome?

4 + 2 + 1 + 3 = 10 marks

[15 + 10 = 25 marks]

This is the end of the examination.

This examination paper is to be left intact and placed inside the back cover of your answer book and left for collection at the end of the examination.