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Transcription of this question: 2.Passionate PizzaPassionate Pizza is a chain Of over 30 franchised takeaway pizza outlets in New Zealand andhas a market share Of 15% Of all pizzas sold It mainly targets the 18-30 year Old single malemarket segment. Passionate Pizza’s market share has been growing despite charging higher pricesthan its competitors.Controversial use Of below-the-line promotion has driven Passionate Pizza success and growingbrand value The company does not use above-the-line promotion and has relied upon positiveword Of mouth to generate sales growth It has won a number Of awards for its point-of-salematerial but the government’s advertising regulator has received a number Of complaints aboutPassionate Pizza most recent customer newsletter.Table 1: An extract from the profit and loss account for the year ended 31 December 2008:ItemSalesCost of goods soldGross rofitAdvertisin ex nditureOther indirect costsNet profitSm1046222Cost Of goods sold will increase or decrease by the same percentage as an increase or decrease inthe number of pizzas sold. Independent market research commissioned by Passionate Pizza showsthe following:• Price per pizza: SIO• Price elasticity Of demand for Passionate Pizza pizzas: 0.5• Advertising (above-the-line) elasticity of demand for Passionate Pizza: 1.0• Cross-elasticity Of demand for Passionate Pizza with respect to the market leader: 0.05.Concerns about the increasing levels Of Obesity among young males have led Passionate Pizza toconsider a more ethical marketing approach. There is also a threat that the economy may moveinto recessionThe directors are unsure of the next step. In order to increase market share, they may have to try andappeal to a new market segment. They are discussing a two-stage strategy to extend the brand:l. reduce prices by 100/02. launch a new television advertising campaign costing $0.5 million.(Question 2 continued)(a)(b)(c)Define the following terms:(i)(ii)(i)(ii)(iii)below-the-line p,’vmotionprice elasticity of demand.[2 marks][2 marks]Prepare a forecast profit and loss account, using the same format asTable 1, for Passionate Pizza for the year ended 31 December 2009,assuming that they implement the two-stage strategy at the start Of[8 marks]the year. (Show all your working)Comment on your results from part (b)(i) using your forecasts and Otherinformation from the stimulus material.Explain one advantage and one disadvantage for Passionate Pizza Ofcommissioning market research from an independent market researchcompany.Examine two factors from the external environment that may influence thedecision Of the directors to implement the two-stage strategy.[3 marks][4 marks][6 marks]

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