Evaluate the alternatives available to Scope.

Question

What will be an ideal response?

Answer 1

The major alternatives are to maintain the status quo (which should include improving the marketing efforts for Scope), launch a line extension using the Scope name, introduce a flanker brand, or relaunch Scope (with the plaque benefit). The pros and cons for each alternative are provided in Exhibit TN–3.

The main criteria for evaluating each alternative are:

1. Consistency with P&G’s mission statement and company philosophy.

2. Maximizing profits and market share in the long term.

3. Consistency with existing marketing strategy.

4. Maximizing team/group efforts.

In considering the pros and cons against the criteria two key questions emerge:

• Is the new “health” segment developed by Plax meeting a long-term consumer need that is likely to increase over time?

• Has P&G developed a product of superior quality and value that best fills that need?

These questions should generate considerable debate as the alternatives are being evaluated. While arguments can be presented for both sides, the evidence (some very judgmental) would suggest that the “answer” is most 1ikely to be maybe or no.

Turning to the financial aspects of the analysis, the data in Exhibit TN–4 provide the basis for estimating various scenarios. Note that the “cost of goods sold” has been recast to reflect fixed and variable costs. Exhibit TN–5 provides examples of likely scenarios the students might consider. Based on the pricing data provided in case Exhibit 5, Scope has an opportunity to increase prices relative to the other major brands. As shown in Exhibit TN–5, a 5 percent price increase provides an increased contribution of $906,400 at 1990 unit sales levels. The line extension analysis suggests that price increases of 20 percent or more are probably required because of the increased costs (both fixed and variable) and that, at an ongoing level of 5 percent market share, contributions of $490,000 to $775,000 might be expected (no cannibalization assumed).

Market share estimates provided in the case for a line extension (6.5 percent), assuming cannibalism of 4 percent (range between 2 percent and 9 percent), a price increase of 20 percent over the current price of Scope, and a new brand name, leads to the following first year and ongoing costs and profits:



• Ongoing:

Marketing costs reduced to $1,000,000 leads to net contribution of $335,253. The level of uncertainty with this option might indicate that a higher return would be very desirable.