Pointing to the survey we conducted, most airports lack an automated in-flight system. The proposed automated in-flight system will not only improve communication, but also efficiency in term of time and resources. Besides, it will not be a new technology that will require any special training. Rather, it is designed to improve on control of communication and ticketing while streamlining costs of operations.
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We opine that the improved system will greatly improve the profits of this airport with new updated technological knowledge that is conscious of environmental conservation. Reflectively, the survey results indicated that the automated in-flight system will receive a warm reception among the customers who would want an improved version of the current system to an automated system to make their travel convenient.
To show the effect of the new system economically on the old one’s cost, we made an assumption calculation table for the material budget used by the airport in Information Technology for 12 months. In calculating the unit cost of the old and new models we will apply the Conjoint Analysis (Curry 1996), which is a marketing research tool that is used to determine attributes of the new product and how the new features affect the price of the new product.
The choice to use conjoint analysis is supported by the fact that it is flexible and less expensive to carry out than concept testing (Trout 1998; Nagle & Holden 2001; Rhim & Cooper 2005). Suppose the company intended to purchase the new model, from the users’ perspective and experience, the new sets will be affected by some important product features, for example, speed, average life, and price. This strategy is applied when we want to get rid of overstock or sell complementary products. The products are bundled together and the customer who buys the new item can get an older or complimentary good for less (Day & Liam 1988; Doyle 2002).
Concerning the new model, we may decide to improve on the older versions or accessories that are compatible with the new model of the automated in-flight system in bundles at lower prices. Product bundling will help the airport to achieve its objective by making it possible to sell items that might have not been sold.
The first table below indicates the annual cost that the airport incurs in operating the old system as indicated in the survey results. We assumed that the system was operating fully within the budget set by the airport.
|Old automated in-flight system Economic Feasibility Assumption|
|Feasibility of the old system in the airport|
|Booking air ticket Cost||AED 500||2||AED 100|
|Booking papers||AED 33||100,000||AED 3,300,000|
|Black Color Print Device Ink||AED 122.40||50,000||AED 8,568|
|Software Program Cost||AED 10,000||15||AED 150,000|
|Laptop Cost||AED 2,500||20||AED 250,000|
|Backup Laptop Chargers||AED 150||20||AED 3000|
|Total Cost||AED 3708668|
|Total cost (100 customers)||AED 52,181,800|
|50% Material Use Cost||AED 26,090,900|
|Annual Cost||AED 260,909,000|
Table two below indicates the budget constraint for the new proposed system which has been adjusted to meet the demands and needs of potential buyers.
|New System automated in-flight Economic Feasibility Assumption|
|Feasibility for the new system to the airport|
|Booking Cost||AED 0||0||AED 0|
|Printing Paper Box Cost||AED 0||0||AED 0|
|Black Color Print Device Ink||AED 0||0||AED 0|
|Software Program Cost||AED 0||0||AED 0|
|Laptop Cost||AED 3,000||100||AED 300,000|
|Let Laptop||AED 3,000||50||AED 150,000|
|Backup Laptop Chargers||AED 0||0||AED 0|
|Total Cost||AED 491,568|
|Total cost (100 customer||AED 49,156,800|
|50% Material Use Cost||AED 24,578,400|
|Annual Cost||AED 245,784,000|
The main objective of this strategy is to attract and increase the market share of the product (Day & Liam 1988). Therefore, applying the costing strategy requires that the business reduces the prices to a certain minimum to attract customers; however, this price must be increased once the management is satisfied that the objective has been attained as this strategy initially reduces profit margins significantly. This costing strategy achieves the objective of quantity maximization by increasing the number of items sold at low prices. At the same, the strategy can help in revenue maximization that results from the large numbers of purchases made.
|Old System Annual Cost||AED 260,909,000|
|New System Annual Cost||AED 245,784,000|
|Amount of Annual Saving||Old Cost – New Cost =||AED 15,125,000|
Indicate below is the saving that the airport will realize if they apply the new system as compared to the old system.
Besides this, the marketing cost will include 200 brochures and publicity complaints through social media costing AED 30 each. Besides, publicity through social media will cost an average of AED 3,000 per month for 12 months. The strategy will be able to generate more profit for the company by increasing the number of items sold, as well as increasing prices for customers who purchase one item. Practically, the strategy penalizes the customer for purchasing one item since the price is typically set higher than it will cost.
Profit Margin Calculation
Cost of New automated in-flight technology per client AED 491,568
Cost for Estimated 100 clients AED 49,156, 800
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Marketing Cost (Social media + brochures) AED 40,000*100= AED 4,000,000
Profit AED 45,156,800.
Curry, J. (1996). Understanding conjoint analysis in 15 minutes: Quirk’s Marketing Research Review. New York: Sawtooth Technologies.
Day, G. S., & Liam, F. (1988). Valuing market strategies, Journal of Marketing, 2: 45-57.
Doyle, P. (2002). Marketing management strategy. Harlow: Prentice Hall.
Nagle, T., & Holden, R. (2001). The strategy and tactics of pricing. New York: Prentice-Hall, Upper Saddle River.
Rhim, H., & Cooper, L.G. (2005). Assessing potential threats to incumbent brands: new product positioning under price competition in a multi segmented markets, International Journal of Research in Marketing, 22 (2): 159-182.
Trout, J. (1998). Prices: simple guidelines to get them right, Journal of Business Strategy, 22: 13-16.