Recently Brekky has had a price promotion on its cereal products to attempt to increase market share and increase profits. The data in the tables below show that the price promotion has not been successful in achieving these objectives.
Looking at the sales data in tables 1, 2 and 3, it can be concluded that putting Brekky cereals on sale at a price promotion will not result in a higher market share. This is evident by the data in all three tables, as they show that the market share gained when the product is selling at normal price is consistently higher than the market share gained when the product is selling at price promotion. In regions 1 and 2, the market share for Brekky is 16% when being sold at normal price, and only 11% when being sold at promotional price. In region 3, the market share for promotional price is higher at 14%, but still 2% lower than the market share for normal price volume sales, which is at 16%.
Although the unit volume of sales is not shown, a percentage change in sales volume, or price elasticity (Sharp 2010) could have been a high percentage change. This is because price cuts don’t ensure that extra profit will be made, as the contribution margin for each unit sold is cut as the sales price is cut Sharp (2010). The reason for this loss in profit may be due to the company’s lack of foresight into the revenue results of short term price promotions. It is advised that these three main factors determining the profitability on short-term price promotions be taken into consideration:
1. The contribution margin of the brand at normal price
2. The depth of the price cut
3. The price elasticity of the brand
A high market share is dependent on a high volume of sales, which is achieved by having a high percentage of buyers buying the brand out of all other brands in the category. Price promotions may not be the best way to achieve a higher market share, as there is little evidence that price cuts attract new...