Question

Wood Paper plans to launch a new notepad product that is water resistant. The company wants to sell 35,000,000 of the new notepads next year and wants to know what trial rate is required to achieve this goal. The market research group has forecast an awareness rate of 75% and an ACV% of 60%. Of those that try the product by purchasing 1 notepad, 25% will repurchase 4 notepads per year. There are 200,000,000 notepad consumers in the target market. Total fixed costs to Wood Paper Company to manufacture this new notepad are $11,000,000, with variable costs of $3 per notepad.

Hint: Write the equation for total volume and solve it for Adjusted Trial Rate (%). Once the adjusted trial rate is computed, solve it for Trial Rate (%), Awareness (%), or ACV (%). Figure out what we are supposed to do: are we trying to estimate total volume given trial rate and others. Alternatively, are we trying to compute the target trial rate or adjustment (e.g., level of awareness) to achieve a certain level of total volume? Instruction: Write percentages to two decimal places (e.g., 45.12%). Write your formulae explicitly and clearly. Show your work in detail. Circle and label final answers.

1. What trial rate is required to achieve the company's goal?

2. What is the total number of first time triers expected in the target market assuming a trial rate of 18%?

3. If Wood is able to sell their new notepads for $5, what is the break-even volume (#)?

4. If Wood sells their notepads for $5 each, what is the total contribution earned from trial sales? Assume a trial rate of 18%.

5. In order to achieve the original sales goal of 35,000,000 notepads, what ACV% will be required if Wood instead achieves a 20% repeat purchase rate and a trial rate of 15%?

Answer 1

1)

Trial Volume = Awareness rate * Trial Rate * ACV (in %) * Target Market Number * Units per trial purchased

35,000,000 = 0.75 * trial rate * 0.60 * 200,000,000 * 4

hence

trial rate = 0.0972222

=9.722222 %

2)

Awareness rate * Trial Rate * ACV (in %) * Target Market Number * Units per trial purchased

= 0.75 * 0.18 * 0.60 * 200,000,000 * 4

= 64800000