Icarus: Family Branding, Market Research, and Breakeven Analysis
Advantages of Family Branding for Icarus
Family branding offers several advantages for Icarus:
- It allows Icarus to offer new or related products to customers under one established and trusted family brand name, leveraging its reputation for innovation.
- Icarus can experience marketing economies of scale by advertising the family brand, which is associated with their entire portfolio of products.
- Brand extension becomes less risky and costly, with a higher chance of success.
- Icarus might find it easier to attract investors for their new hotel venture under the established family brand.
Stratified Sampling for Market Research
Since Icarus caters to a niche segment, stratified sampling may reveal interesting and specific data. This data can be used to focus and streamline marketing efforts. Because the sample is more representative, stratified sampling is likely to improve the accuracy of market research for potential guests interested in staying at the new outer space hotel, given the very high cost.
Sampling (standard) errors are likely to be reduced. For Icarus, this will allow very accurate figures for forecasting potential revenues, given the high risks of this project. A potential first-mover advantage can be gained.
However, stratified samples can be difficult because identifying appropriate strata for a study is challenging. It is more complex to organize, and the cost of conducting this type of research is likely to be very high. It also takes time to identify suitable market research respondents.
Breakeven Analysis Calculations
(i) Initial Breakeven Point
- Fixed Costs (FC): $10,000,000
- Contribution: $140,000 – $100,000 = $40,000
- Breakeven Point: $10,000,000 / $40,000 = 250 rooms
(ii) Breakeven Point with Target Profit
- Fixed Costs + Target Profit: $10,000,000 + $2,000,000 = $12,000,000
- Fixed Costs + Target Profit: $12,000,000
- Contribution: $140,000 – $108,000 = $32,000
- Breakeven Point: $14,000,000 / $32,000 = 437.5 = 438 rooms
Limitations of Breakeven Analysis
Breakeven analysis alone cannot provide enough information as a decision-making tool. Weaknesses in a breakeven analysis model include:
- The linear nature of the cost and revenue diagrams, based on the assumption that costs and prices are constant.
- New competition may reduce Icarus’s ability to increase prices.
- Limited information about how costs could further change (e.g., due to economies of scale).
- No probabilities or qualitative and quantitative risks are attached to the model. It might be difficult to predict some external influences that might impact a trip to outer space.
- The model ignores qualitative issues like the reaction of employees who need training, or new and future competition in this market.
It would be wise for Icarus to examine other models and use other marketing and business tools, such as investment appraisal, before reaching its final decision.
Overall Project Assessment
Given the well-established and reputable brand image, combined with the use of family branding, Icarus is likely to be successful. However, there are unexpected costs with the project. With three years until completion, these costs will impact future profits.
Given the importance of customer service and perception of Icarus, the issue of training becomes paramount. Intensive training will add to the costs considerably. If the product/service fails, there is a great risk of a negative effect on the other products under the family brand. With future revenues and costs uncertain, the degree of risk in the project is considerable.