Long Term Paper o

7/29/2019 Long Term Paper o

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Group MembersHadia TasawarHumma Safdar

M. Usman AnwarQasim Gondal


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To switch to our network, the customers will have to pay afee of 2500E

They will get 190 minutes free for the 1st month after

switching to our network

After 190 free minutes, the customers will be charged8E/minute.

The customers will have to use at least 4 minutes permonth

They will be charged 30 E every month apart from the perminute charges


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Our costs for one customer1. Sales cost - 2000E

2. Per month cost- 50E3. Per minute cost- 2E

So for 190 minutes, the total cost is2000+50+(190 x 2) = 2430 E


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For the first month when we will give 190 freeminutes our profit will be:

Cost price = 2430 E Selling price= 2500 E

Profit 2500- 2430 = 70E per every newcustomer in the first month


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Cost price for 4 minutes1. Per month cost - 50 E2. Per minute cost - (2E x 4min)

3. Total cost price = 58E

Selling price for 4 minutes1. Per month fixed price- 30E2. Per minute cost - (8E x 4min)3. Total selling price= 62E

4. Profit 62-58= 4E


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No. of min at leastused

Fixed cost permonth

Per minute cost Total cost price(CP)

5 50 2 60

4 50 2 58

3 50 2 56

No. of min atleast used

Fixed pricethat customer

will pay

Per minutecost

Total sellingprice (SP)

ProfitSP- CP

5 30 8 70 10

4 30 8 62 4

3 30 8 54 -2


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Our target market is a mass market whichinclude big and small businesses as well as thelocal people

According to the consultants report on OLD, wewill also target the 50,000 (20%) of OLDscustomers that account for 80% (960 minutes)ofthe sales

So each customer out of the 50,000 use 960minutes So our main focus will be on these bigcompanies and bring them to our network


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Enough of old! Try NEW with improvedtechnology and low rates!


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No of minutes= (no. of large customers x 240min)+(no. ofrest of customers x 15min) -( the no. of new customers x190 free minutes)

(The number of minutes in the chart do not include thefree minutes)

[960 minutes yearly for large companies so this means960/12= 80 min on average per month. So for onequarter 80min x 3 months= 240minutes]

[60 minutes yearly for other customers so this means60/12= 5 minutes on average used by other customersper month]

For 1 quarter 5 x 3 = 15 minutes


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1. Revenue = (no. of minutes x price i.e. 8E) + (2500 x newcustomers)+(30E x no of customers)

2500E is the fee that every customer will pay to switch toour network

Operating cost=(no. of minutes x 2)+ (50 x 3x customers) +(380 x no of customers)

190min x 2E = 380 E is the variable cost of 190 FREEminutes that we give to each customer

Sales cost= (2000 x no of customers approached)

G&A= (10% of Revenues)

Net profit= Revenues- Total cost


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We have also assumed that the large customers use960 minutes and the rest use 60 minutes yearlyaccording to the 80/20 ratio

These values are calculated with the help of data in theOLD annual report

We have also assumed that 6% of our sales costs are nottransformed into our customers. For example we

approached 954 people in Q1 in year 1 but could getonly 900 customers.

So sales costs are for 954 customers in Q1 year 1whereas other calculations are for the 900 customerswe got in that quarter


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Year 1

Q1 Q2 Q3 Q4

New customers 900 2300 2500 3000

Total customers 900 3200 5700 8700

%large customers 25 45 60 70

Minutes 64,125 372,000 855,000 1,500,750

Revenues 2,790,000 8,795,000 13,165,000 19,631,000

Operating cost 605,250 1,963,000 3,035,000 4,591,500

Sales cost 1,908,000 4,876,000 5,300,000 6,360,000

G & A 270,900 879,500 1,316,500 1,963,100

Total cost 2,784,150 7,718,500 9,651,500 12,914,600

Net profit 5850 1,076,500 3,513,500 6,716,400


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Year 2

Q1 Q2 Q3 Q4

New customers 3000 2900 2700 3000

Total customers 11,700 14,600 17,300 20,300


Minutes 1,755,000 2,354,250 2,906,400 3,319,456

Revenues 21,630,000 26,171,000 30,082,200 34,145,648

Operating costs 5,040,000 6,227,500 6,298,800 7,178,912

Sales costs 6,360,000 6,148,000 5,724,000 6,360,000

G&A 2,163,000 2,617,100 3,008,220 3,414,565

Total cost 13,563,000 14,992,600 15,031,020 16,953,477

Net Profit 8,067,000 11,178,400 15,051,180 17,192,171


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NEW can lower its prices from 8E/min to6E/min if MAD allows new entrants to enterthe business

This will ensure that the NEWs currentcustomers dont leave the network

NEW will still be able to generate

considerable profits as seen in the next slide For year 3 the selling price has been kept to

6E/min


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Year 3

Q1 Q2 Q3 Q4

New customers 3000 3000 2900 3000

Total customers 23,300 26,300 29,200 32,200


Minutes 4,019,250 4,418,402 5,102,700 5,554,500

Revenues 31,765,500 34,100,412 38,206,200 40,917,000

Operating costs 9,628,500 10,426,804 11,742,400 12,699,000

Sales costs 6,360,000 6,360,000 6,148,000 6,360,000

G&A 3,176,550 3,410,041 3,820,620 4,091,700

Total costs 19,165,050 20,196,845 20,711,020 23,150,700

Net profit 12,600,450 13,903,567 17,495,180 17,766,300


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Our estimated revenue from the first year will be44,381,000 E

Our costs are very less as compared to our revenue

because we have kept the general and

administrative expenses to a minimum and havent

let them exceed 10% of the revenue

The total costs from the first year are estimated tobe 33,068,750 E

So thus our net profit will be 11,312,250 E


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Sufficient profits can be generated as shown inthe financial forecasts if we focus more on thelarge customers.

These obviously link back to our pricing policy ofcharging 8E/ minute. As the sales departmenthad predicted that 20%discount from the OLDprice will lead to maximum sales

Our net profit from the 1st year of operations willbe 11,312,250 E


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The main competitor of NEW for the 1st yearwill only be OLD because MAD will not grant

any additional licenses in the 1st

year

OLDs prices are high i.e. 10 E/min ascompared to NEWs low price of 8E/min aswell as 190 free minutes that NEW offers forthe first month


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OLD may change its marketing strategywhen NEW comes in the market

OLD will probably now market its wireless onthe basis of trust factor that has beenestablished between the company and the

customers

It will also make strategies to convince peoplenot to trust the NEW network


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If MAD gives license to new entrants, NEWwill not be affected as such because NEW can

easily lower its prices to compete with thenew entrants

New entrants will not be able to give such lowprices because the cost of building a networkand taking customers from NEW will be veryhard


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When NEW will break OLDs monopoly tworeactions are expected

1. OLD will introduce new packages tocompete with NEW2. OLD will lower its prices


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If OLD decrease prices of their products andservices on the contemporary old technology

which is not able to give reliable servicesto customers So no ground left for OLD to call back their

customer because NEW offer very effectiveservices to customer with new packages

So customers prefer NEW products instead ofOLD.


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If MAD license new entrants they have tocharge less than the pricing strategy of NEW

which will be a difficult task for them becausethe networking will cost them more as itcosts NEW and OLD


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NEW will ask for deregulation for all wirelesscompanies

In this way the competition will increase andthen to put new entrants out of businessNEW can collaborate with OLD and togetherthey can charge a price that is even less thanbreak even and they can put other newentrants out of business and can earn profits.


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