Problem • Objective • Expand Tangarine’s influence within market • Find consumer segment with greatest consumer need • Build on Tangarine’s growing relationship with it’s current an future merchants • Successfully advertise MyCard to a growing market
Problem Statement What distribution strategy can be used for MyCard to penetrate the appropriate market segment without harming Tangerine’s brand recognition?
1st Distribution MethodLoad fee: $2.95• $0.95 deduction to retailer• 2% deduction to MasterCard• $2.95-$0.95• =$2 without calculating deduction to MasterCard
1st Distribution MethodInitial Signup : $39.95• $3.995 deduction to MasterCard• $12 deduction to retailer• Assumption: All purchases will be distributed uniformly, this will lead us to $40 deficit.• $39.95-$3.995-$40-$12• =$-16.045
1st Distribution MethodMonthly Fee:$5.95• 6 months: $35.7Fixed cost: $ 880,000 (Advertisement for 6months)Contribution Margin: $35.7-$16.045 = $19.655• With a rough calculation: $880000/$19.655= 44773 consumers
1stofDistribution MethodNumber People in TargetedSegment: 2 Million• 2/31 Million People= 0.064 (Proportion of the segments to whole country)• 6 Million*0.064= 384,000 people fitting the segment, in Golden Horseshoe Area• 44,753/ 384,000MARKET SHARE= 11.6% forBreak Even
The segments will be directed towards those who have no credit and poor credit ratings, as they will be only groups that are willing to pay to have the advantages of a MasterCard MyCard. There are 2 million out of 31 million Canadians in these segments. 2,000,000/31,000,000 = 0.064 6.4% is the population proportion targeted for MyCard. Using this proportion, we will find the segments targeted in the Goldenhorshoe area. We will assume that the population of the Golden Horshoe area is ⅕ of Canada’s total population, making the population of the Goldenhorshoe 6 million. To find segments in this area, 0.064 will be multiplied by 6 million which will give us 384,000 people. Load fee is $2.95, $.95 will be deducted to the retailer and 2% of total deposited on the MyCard will be deducted and allocated to MasterCard. So as a result, if we call y the total amount deposited on the MyCard we obtain this function: Load Fee = $2.95 Deduction to Retailer = .95 Deduction to Mastercard = 0.02y =2-0.02y Initial Signup = $39.95 Deduction to MasterCard = $3.995 Deduction to retailer = $12 We have assumed that all people who will purchase this product will buy them from retailer in an uniform distribution. In other words, we have made the assumption that cards sold will be strongly correlated to the number of stores that retailer have. That has lead us to the extra $40 expenditure towards retailers. 39.95-3.995-40-12 =$-16.045 We conclude here that this will cause a deficit of $16.05 Monthly Fee:5.95 Considering the 6 month Advertising Campaign, we will multiply the monthly maintenance fee by the total number of months. (5.95)(6)=35.7 For the contribution margin, we need to calculate revenue-variable costs. This has been done separately for each part of the case. We will then add them up. 35.7-16.045=18.955 contribution margin = 18.955 Using a rough calculation which include fixed costs divided by contribution margin, exclude revenue that can be generated from load fee. This will provide us with the number of consumers that will help us determine our break-even analysis. 880000/(35.7-16.045) 880000/18.955 =44773 consumers needed for break-even. Now we will need to define the market share. This will be done by dividing 44773 consumer by 384,000. 44773/384000=.116 11.6% is the market share needed to break-even.