economic applications

7/29/2019 ECONOMIC aPPLICATIONS

http://slidepdf.com/reader/full/economic-applications 1/30

Click to edit Master subtitle style

1/19/13

Economic Applications for

BusinessLong Term Paper




1/19/13

Pricing Strategy



1/19/13

What customers will becharged

To switch to our network, thecustomers will have to pay a fee of

2500E

They will get 190 minutes free for

the 1st month after switching to ournetwork

After 190 free minutes, the



1/19/13

Reason for the pricecharged

Our costs for one customer

1. Sales cost - 2000E

2. Per month cost- 50E

3. Per minute cost- 2E

So for 190 minutes, the total cost is

2000+50+(190 x 2) = 2430 E



1/19/13

Our profit per every newcustomer

For the first month when we will give190 free minutes our profit will be:

Cost price = 2430 ESelling price= 2500 E

Profit 2500- 2430 = 70E perevery new customer in the firstmonth



1/19/13

Profit from minimum numberof minutes used

Cost price for 4 minutes

1. Per month cost - 50 E

2. Per minute cost - (2E x 4min)

3. Total cost price = 58E

. Selling price for 4 minutes

1. Per month fixed price- 30E

2. Per minute cost - (8E x 4min)


http://slidepdf.com/reader/full/economic-applications 7/301/19/13

Reason for using atleast 4 min per month

No. of min atleast used

Fixed costper month

Per minutecost

Total costprice (CP)

5 50 2 60

4 50 2 58

3 50 2 56

No. of minat leastused

Fixed pricethatcustomerwill pay

Per minutecost

Totalsellingprice (SP)

ProfitSP- CP

5 30 8 70 10

4 30 8 62 4

3 30 8 54 -2




1/19/13

Sales and MarketingPlan



Target Market

Our target market is a mass marketwhich include big and small

businesses as well as the localpeople

According to the consultant’s reporton OLD, we will also target the50,000 (20%) of OLD’s customersthat account for 80% (960minutes of the sales



Market Message

“Enough of old! Try NEW withimproved technology and low

rates!”



u ucalculate the sales and

financial forecastsv No of minutes= (no. of large customers x240min)+(no. of rest of customers x15min) -( the no. of new customers x 190free minutes)

Ø (The number of minutes in the chart do notinclude the free minutes)

v [960 minutes yearly for large companies

so this means 960/12= 80 min on averageper month. So for one quarter 80min x 3months= 240minutes]

v [60 minutes yearly for other customers so

this means 60/12= 5 minutes on averageused b other customers er month]



Formulas used

1. Revenue = (no. of minutes x price i.e. 8E) +(2500 x new customers)+(30E x no of customers)

.

2500E is the fee that every customer willpay to switch to our network

. Operating cost=(no. of minutes x 2)+ (50 x3x customers) +( 380 x no of customers)

Ø.190min x 2E = 380 E is the variable cost of 190 FREE minutes that we give to eachcustomer



Other Assumptions

We have also assumed that the “largecustomers” use 960 minutes and the restuse 60 minutes yearly according to the

80/20 ratio

These values are calculated with the help

of data in the OLD annual report

We have also assumed that 6% of our

sales costs are not transformed into our



Sales and FinancialForecasts

Year 1

Q1 Q2 Q3 Q4

New

customers

900 2300 2500 3000

Totalcustomers

900 3200 5700 8700

%large

customers

25 45 60 70

Minutes 64,125 372,000 855,000 1,500,750

Revenues 2,790,00

0

8,795,000 13,165,00

0

19,631,00

0




Year 2

Q1 Q2 Q3 Q4

New

customers

3000 2900 2700 3000

Totalcustomers

11,700 14,600 17,300 20,300

%large

customers

60 65 68 68

Minutes 1,755,000

2,354,250 2,906,400 3,319,456

Revenues 21,630,

000

26,171,00

0

30,082,20

0

34,145,64

8



Sales and FinancialForecastsNEW can lower its prices from

8E/min to 6E/min if MAD allows newentrants to enter the business

This will ensure that the NEW’scurrent customers don’t leave thenetwork

NEW will still be able to generateconsiderable profits as seen in thenext slide

For ear 3 the sellin rice has been



1/19/13


Year 3

Q1 Q2 Q3 Q4

New

customers

3000 3000 2900 3000

Totalcustomers

23,300 26,300 29,200 32,200

%large

customers

70 68 71 70

Minutes 4,019,250

4,418,402

5,102,700

5,554,500

Revenues 31,765,5

00

34,100,4

12

38,206,2

00

40,917,0

00




1/19/13

Financial Forecasts



1/19/13

Revenue, costs & cashflowsOur estimated revenue from the first year

will be 44,381,000 E

Our costs are very less as compared toour revenue because we have kept thegeneral and administrative expenses to aminimum and haven’t let them exceed

10% of the revenue

The total costs from the first year are

estimated to be 33,068,750 E



1/19/13

Profits

Sufficient profits can be generatedas shown in the financial forecasts if we focus more on the largecustomers.

These obviously link back to ourpricing policy of charging 8E/minute. As the sales department hadpredicted that 20%discount from theOLD rice will lead to maximum




1/19/13

Competitive Analysis



1/19/13

Competition for the 1styear

The main competitor of NEW for the1st year will only be OLD becauseMAD will not grant any additionallicenses in the 1st year

OLD’s prices are high i.e. 10 E/minas compared to NEW’s low price of 8E/min as well as 190 free minutesthat NEW offers for the first month



1/19/13

Marketing reaction fromOLD

OLD may change its marketingstrategy when NEW comes in themarket

OLD will probably now market its

wireless on the basis of “trust” factorthat has been established betweenthe company and the customers



1/19/13

If MAD gives license tonew entrants…

If MAD gives license to new entrants,NEW will not be affected as suchbecause NEW can easily lower itsprices to compete with the newentrants

New entrants will not be able to givesuch low prices because the cost of building a network and takingcustomers from NEW will be ver



1/19/13

Expected reactions fromOLD

When NEW will break OLD’smonopoly two reactions areexpected

1. OLD will introduce new packages tocompete with NEW

2. OLD will lower its prices



1/19/13

Limitations for OLD

If OLD decrease prices of theirproducts and

services on the contemporary oldtechnology

which is not able to give reliable

servicesto customers

So no ground left for OLD to call

back their customer because NEW




1/19/13

Public Affairs Plan

i i f



1/19/13

Licensing of newentrants

If MAD license new entrants theyhave to charge less than the pricingstrategy of NEW which will be adifficult task for them because thenetworking will cost them more as itcosts NEW and OLD

i i k b f



1/19/13

Position to take beforeMAD

NEW will ask for deregulation for allwireless companies

In this way the competition willincrease and then to put new

entrants out of business NEW cancollaborate with OLD and togetherthey can charge a price that is evenless than break even and they canut other new entrants out of




1/19/13

The End

economic applications

Documents