Tommy’s first step in formulating his plan to sell Lotus’ hot sauce was to run a test market; spend a little money now to learn more about how the sauce will do, rather than spend a lot of money later and not get the desired results. The data collected from this test market tells a lot about the pricing and promotion strategies Tommy chose to use. With the help from a relationship with a supermarket chain, Tommy was able to get Lotus’ sauce on to the shelves of
50 different grocery stores throughout the greater New York area. By splitting up the locations into three groups, Tommy was then able to try out three different integrated marketing communication (IMC) plans along with different levels of price. In all three groups, Tommy used five different prices, then between the three groups, he used three separate $IMC increments. By looking at the data provided from the test market, we are lead to believe an $IMC of $150 per 1000 people will yield the highest profit at a price point of
$3.51 ( see Appendix for table
). To find these amounts, we first had to find the revenue per person. To find this, we took the unit sales per 1000 and divided it by 1000, then multiplied by the unit price. Next, to find the cost per person, we took the IMC dollars per 1000 and divided that by 1000. We used those two numbers to find the profit per person by subtracting the cost per person from the revenue per person. Our final step is to find profit maximization by multiplying the unit sales by profit per person. The results from these calculations leads to the price and $IMC listed above.
The data provided shows a consistent trend between the amount of $IMC spending and price paid for the spicy chili sauce. In the first group, where the $IMC per 1000 was $20, Tommy used only one type of advertising level. In that group, the trend shows that the sauce was more profitable at the lowest price point of $3.50. In the next two groups, Tommy spent either $50 or
$150 on $IMC per 1000. In both of these groups, multiple forms of advertising were used and the data shows they were collectively more profitable than the first group. This tells us more
IMC dollars spent will increase profitability for Lotus’. With regards to price, the test market data shows the lower prices appeal more to the customers at the supermarket chain where the spicy chili sauce was tested. In general, most hot sauces are seen as commodity items. The test market data seems to agree with this statement, along with
Tommy’s general vision for the spicy chili sauce. According to an industry survey, the average customer of hot sauce is a male age 3555 who also makes over $60,000 a year. Based on the information pertaining to Tommy’s idea, the target market that may be most appropriate is slightly different than this average customer. While men have previously dominated the hot sauce market, women are now starting to buy. The current market holds men at 57% and women not far behind at 43%. The next demographic to consider is age. Customers between the ages of 20 and 40 hold over 50% of the market for hot sauce.
Finally, those with an annual income of over $40,000 make up over 50% of the hot sauce market.
Therefore, men and women between the ages of 20 and 40 that make over $40,000 a year is the most appropriate target market for Tommy’s plan to pursue.Men and women both rated taste as
the most important aspect of a hot sauce when asked about this metric. Lotus’ spicy chili sauce will appeal more to men based on the hotness of it, while the sauce will appeal to women more based on the variety of ways it can be used. Overall, price was the last on the list to be considered for both sexes. Tommy has a distinct advantage with his plan to grab hold in the market for hot sauces based on the taste and variety of ways the sauce can be used. Distribution Channel for Tommy’s…