Ina scenario where the retail price is fixed, any increase in thewholesalers and retailers margins would be detrimental to them. Inmost case, an increase in the profit margins results to a push in theprice for the product but since it is fixed, the retailers andwholesalers would suffer. It could result to pressure to themanufacturer to reduce their price so as to enable retailers andwholesalers gain their targets.
Inthe short-run, the increase in retail and wholesaler’s profitmargin would have no effect on the manufacturer’s price as it ispurely based on their targets and benefits. In the long-run, the onlyeffect would be as a result of pressure by the retailers andwholesalers to reduce the manufacturer’s price. It could only beeffective if the retailers and wholesalers choose to “blackmail”the manufacturer of Brand X by shifting their purchases to acompetitor’s product which would offer them the profit margin theyneed[ CITATION Lou14 l 1033 ].
Unitcontribution is the difference between the price of a product and thevariable costs. It shows the value of the product selling price thatwill be available to cater and cover the fixed costs. The total valueof contribution will not only be dependent on the selling price valuebut also the quantity of units sold of the product in question.Profitability will be higher if the contribution is high as it wouldbe able to cover the inherent fixed costs.
Increasingthe retail or wholesale margin will have an adverse effect on theunit margin as it will create pressure on the variable costs. In acase scenario where the variable costs cannot be varied, the unitcontribution will reduce so as to result to a higher profit margin.
The number of units the company needs to breakeven will have an upward pressure in n aim to cover the increased fixed costs.
The unit market share would have to increase so as to enable profit generation from the sale of the product.
Anincrease in the fixed cost indicates over spending and application ofillogical strategies that would results constant, decreases orincreases in a lower proportion than the increase in the salerevenue. It is a good indicator that the company is heading forfinancial distress.
Anincrease in the retail margin per unit would have a positive impacton the profit impact. As retailers increase their margin, they willhave set a higher level of profit to be obtained from the sale of theproduct. Any increase in the constituents of profit impact results toincrease in the profit impact itself.
Itis the volume in which the product/brand sells. Any increase in thebrand market share would have a massive impact on the total obtainedprofit impact. The increase in brand market share may not result toany increase in the prices or costs per unit of the brand thereby notincreasing the profit impact per unit[ CITATION Lou14 l 1033 ].Due to its volume increase sale proportion in the market, the productwill have increased salesrevenue hence increase total profit impact.
Theelement has diverse effects on the profit margin depending on theperspective being analyzed. Both increases and decreases couldincrease the profit margin. Here is analysis of the various ways inwhich both increases and decreases result to increases in the profitimpact. The directly observed effect is that a decrease in theadvertisement budget will increase the profit impact[ CITATION Pau04 l 1033 ].
Directeffect advertisements and promotional activities are expenses andany decreases in an expense will result to a direct increase in theprofit generated. Expenses tend to reduce the profit of any revenuehence a decrease in the advertising budget causes an increase in theprofit impact of Brand X.
Increasingthe retail margin per unit will have an expected direct increase inthe profit margin but continuous increase with constant costs, therewill be a pressure on the price charged. Increase in the prices willhave an effect on the sales unit hence on the brand market share.
Increasingthe brand market share will have an increase in the profit impact butalso will result to increase in the costs of production as more unitshave to be manufactured to meet the market demand. Any increase incosts of production will increase manufacturers’ rice charges andthis will have an adverse effect on both wholesaler and retailerprofit margins hence profit impact in general.
Advertisementsare promotional activities that are conducted Ina an aim of inducingsales volume hence sales revenue. As observed earlier, an increase inthe sales volume (Brand market share) results to an increase in thetotal profit impact. If the advertisement budget is set in a logicaland strategic manner such that it is effective on its targetclientele, it could have a massive increase in the profit impact ofBrand X. Assumptions in this explanation is that the advertisementcost to have major impact on the sales volume and maybe on the priceof the product.
Kurz, L. B. (2014). Contemporary Marketing, Update 2015. South Western: Cengage Learning.
Moore, P. W. (2004). The Profit Impact of Marketing Strategy Project: Retrospect and Prospect. New York: Cambridge University Press.