Agenda

Loss of 3500 Crores Case Analysis Viability/Pricing of Qatar Market Marketing Strategies

Loss of 3500 Crore

Units Sold
Sale Price Total Sale Revenue Variable Cost Total Variable Cost Fixed Cost Selling & Admin Cost

5,00,000 cars
Rs. 5,00,000 / car Rs. 25,000 cr Rs. 2,00,000 / car Rs. 10,000 cr Rs. 16000 cr Rs. 2500 cr

Loss of 3500 Crore

Value (in Rs.) (in Crore)

Total Sales Revenue LESS: Variable Cost Contribution LESS: Fixed Cost Profit LESS: Selling & Distribution Cost Total Profit

25000 10000 15000 16000 (1000) 2500 (3500)

Director Production - Suggestion

Unit Produced Units Sold 10,00,000 cars 5,00,000 cars

Units kept for other markets

Sale Price Total Sale Revenue Variable Cost

5,00,000 cars
Rs. 5,00,000 / car Rs. 25,000 cr Rs. 2,00,000 / car

Total Variable Cost

Fixed Cost Selling & Admin Cost

Rs. 10,000 cr
Rs. 16000 cr Rs. 2500 cr

Director Production - Suggestion

(For 5.00.000 sold cars) Total Sales Revenue LESS: Variable Cost Value (in Rs.) (in Crore) 25000 10000

Contribution
LESS: Fixed Cost

15000
8000

Profit
LESS: Selling & Distribution Cost Total Profit Inventory Valuation (at Variable Cost of Rs. 2,00,000 / unit X 5,00,000 inv)

7000
2500 4500 10000

Director Production - Suggestion

We do not agree with this allocating half of the Manufacturing (Fixed) to Inventory Reason - as per the variable / marginal costing method the fixed cost can not be divide unit wise

Qatar Market
Unit Produced Units Sold Sale Price Total Sale Revenue 10,00,000 cars 10,00,000 cars 5,00,000 / car Rs. 50,000 cr

Variable Cost
Total Variable Cost Fixed Cost Selling & Admin Cost

Rs. 2,00,000 / car

Rs. 20,000 cr Rs. 16000 cr Rs. 2500 cr

Qatar Market
(For 5,00,000 cars sold in Qatar) Total Sales Revenue LESS: Variable Cost Contribution Value (in Rs.) (in Crore) 50000 20000 30000

LESS: Fixed Cost

Profit LESS: Selling & Distribution Cost Total Profit

16000
14000 2500 11500

Break Even
Value (in Rs.) (in Crore) Fixed Cost Selling & Distribution Cost Total Fixed Cost Contribution Per Unit Break Even Units 16000 2500 18500 0.03 616667 Units

Qatar Market Minimum Price

Break Even Units Produces Units Sold in Local market We can spread the loss of 3500 cr over 5,00,000 Units that can be sold in Qatar (CM) 616667 Units 1000000 Units 500000 Units (3500 cr / 5,00,000) = Rs. 70,000

Hence the rock bottom price that can be charged in Qatar market is 70,000 + VC / car i.e 2,00,000

Rs. 2,70,000

Marketing Strategy
3 years / 1,00,000 KM free service
So total free services would be 20 Cost for per service / per 5000 KM Rs. 2000 Total cost for servicing Rs (20 X 2000) Rs. 40000 We assume that this cost include
Purchase and Procurement of Spare parts Cost of Labour Servicing Over Head

So we will increase the price even if by Rs 50,000 we will still profit of Rs.10,000

Marketing Strategy - Benefits

Customer will feel this as a intangible benefit

The one time cost which we are charging from the customer would be spread over 3 years period or 1 Lakh KM
We assume that all the customer would not be running a car upto 1 lakh KM in 3 years So company would be saving the cost charged already