Sir Grapefellow, tired of selling World War I era merchandise for years, is currently thinking of entering the breakfast cereals market in North Jersey with a new brand called Sir Grapefellow. Sir Grapefellow has estimated brand awareness to be approximately 90%, because the brand will enjoy high local TV and point-of-purchase promotion budgets. For manufacturing and marketing, Sir Grapefellow would have to spend $1 million towards fixed costs. Just one supermarket chain, which alone sells 35% of total breakfast cereals sold in the target market, will carry the brand. According to Sir Grapefellow, this brand, to be priced at $1.00 for a half-lb. pack, will sell enough to carry his company out of the red. An MR agency appointed by Sir Grapefellow has contacted a sample of households to get 'intention to buy' information for the brand. The agency reports that, given 100% awareness and availability, the percentage of respondent households who have given different ratings for 'intention to buy' on a 10-point scale (ranging from 0 = 'would definitely not buy' to 10 = 'would definitely buy') is given as follows:
Response on 0-10 scale Percent of responses
1 25
2 20
3 18
5 26
8 11
Sir Grapefellow's cost accountant reports that the variable cost for 1 lb. of the cereal comes to $1.05. If the target market in North Jersey consists of 100,000 households each buying a half-lb. pack per fortnight, answer the following questions:
1) What demand would you project for Sir Grapefellow for the current year?
2) Do you think Sir Grapefellow will sell enough to break even? Should he introduce his namesake cereal brand in North Jersey?
3) What is the projected pay back period?
Justify your answers with suitable calculations.