MKTG 376 Test 3 Flashcards
Market Share
one of the fundamental measures used in marketing. Measures the sales of a brand or product relative to the overall size of the market.
Market Share Formula
Revenues = Unites Sold x Price
Units Sold = Revenues/Price
Unit Market Share Formula
Unit Sales for Brand / Total Market Unit Sales
Revenue Market Share Formula
Sales Revenue for Brand / Total Market Sales Revenue
in percentages (multiply by 100)
Why is Market Share important?
is an indicator of how a brand is doing relative to the competition. Includes:
- customer’s assessment of brand’s value proposition
- advertising
- distribution
Why might a company have a higher price relative to the competition?
they have a higher revenue market share than unit market share.
How do unit sales have an impact of unit costs?
higher volumes of production lead to lower production costs relative to competition
Market Definition
in terms of geography, demographic, channel, time periods, etc.
Why do we need to define the market?
Kellogg's Example: Are we defining -all brands of corn flakes -all types of cereals -all breakfast foods
Year-on-year Percentage Growth
Growth % = Year 2 Sales - Year 1 Sales / Year 1 Sales
Relative Market Share
indexes a firm’s or brand’s market share against its leading competitor.
Provides managers with a measure to compare the relative market positions of their brands across markets.
Relative Market Share Formula
Brand’s Market Share ($ or Units) / Largest Competitor’s Market Share ($ or units)
Brand Sales / Largest Competitor Sales
Relative Market Share Value Greater than 1
when the brand under consideration is the market leader
Relative Market Share Value Less than 1
when the brand under consideration is not the market leader
Relative Market Share Metric
popularized in 1960s by Boston Consulting Group (BCG), where relative market share is a surrogate for competitive strength
Market Growth Rate
market attractiveness and potential
BCG Matrix
a portfolio planning model
Stars
High Market Share & High Growth Rate
Cash Cows
High Market Share & Low Growth Rate
Question Marks
Low Market Share & High Growth Rate
Dogs
Low Market Share & Low Growth Rate
BCG Growth-Share Matrix
- Assumes that increasing relative market share will result in cash generation
- Assumes that growing markets requires investment in assets, therefore consumption of cash
Dogs Investment
little or no potential, divest
Question Marks Investment
rapidly growing, consume cash; but have low share, do not generate cash. Needs careful analysis
Stars Investment
generate and consume large amounts of cash; will become cash cow when growth slows
Cash Cows Investment
mature market, generate more cash than they consume; fund other units such as question marks
Market Concentration
the degree to which a relatively small number of firms accounts for a large proportion of the market
3 Firm Concentration Ratio
sum of the market shares of the leading 3 competitors in a market
4 Firm Concentration Ratio
sum of the market shares of the leading 4 competitors in a market
Herfindahl Index
a market concentration metric derived by adding the squares of the individual market shares of all players in the market
What is used to decide if a merger is good for competition in a market place?
the Justice Department uses the Herfindahl-Hirschman Index to decide whether it is good
HHI under 1,000
considered a competitive market
HHI between 1,000-1,800
The Justice Department is likely to scrutinize a merger
HHI over 1,800
the Justice Department is almost certain to reject the approval of the merger
Market Penetration (Category)
the number of people who buy a specific brand or a category of goods at least ONCE in a given period, divided by the size of the relevant market population
Market Penetration (formula)
customers who purchased a product in the category/total population
Brand Penetration (formula)
Customers who purchased the brand/Total Population
Should a manager seek sales growth by acquiring new customers or seek growth by ‘stealing’ customers from competitors?
Growing the market by getting new customers (who have never used) is easier than stealing from competitors.
What happens if market penetration is high?
it is harder to grow the market
Market Share (formula)
brand sales/total sales
Category Development Index (CDI)
Category sales ($ or units) in a specified segment compared to sales of the category in the entire market, usually on a per-capita basis.
Category Development Index (CDI) (formula)
(Category unit sales in segment/Population in segment) / (Total category unit sales)/(Total population)
Brand Development Index (BDI)
Brand sales ($ or units) in a specified segment compared to sales of brand in entire market, usually on a per-capita basis
Brand Development Index (BDI) (formula)
(brand sales in segment)/(population in segment)/(total brand sales)/(total population)
Purpose of BDI and CDI
help identify strong and weak segments (such as demographic or geographic) for a brand or category
Revenue is often called…
“top line”
Income or Profit is often called…
“bottom line”
Basic Income Statement
Revenue-Costs = Income
How to increase revenue?
Increase prices
Increase sales of units
Distribution Channel
a set of interdependent organizations involved in the process of making a product or service available for use of consumption by the consumer or business user.
What is the $ Margin?
Margin=profit
Desired $ margin + cost to produce = Selling Price
What is the % Margin
Desired $ Margin % + Cost to Produce % = Selling Price %
Manufacturer % Profit Margin
Selling Price - Cost = Profit Margin / Selling Price = profit
Desired Margin
usually manufacturers, resellers, etc. know their costs and need to figure out what they want/need
Selling Price =
Cost/(1-% Margin)
Manufacturer’s cost to produce is $50. Manufacturer wants 60% margin. What is selling price?
$50/(1-.6)=$125
Manufacturer’s cost to produce is $50. Manufacturer wants 60% margin. Retailer bought it for $125. Retailer wants 20% margin. What is selling price?
$125/(1-.2)=$156.25
The selling price from manufacturer is $160. the margin is 33%. What is the manufacturer’s cost?
=Manufacturer SP * (1-margin%)
$160*.67=$107.25
Retailer sells the wine to consumers for $18 a bottle. Channel margins % are as follows. What is the cost to the manufacturer? Retailer-33% Distributor-25% Importer-33% Manufacturer-50%
$18(1-.67)=12.06
$12.06(1-.25)=$9.05
$9.05(1-.33)=$6.07
$6.07(1-.50)=$3.00
$ Unit Margin
Selling Price - Cost
% unit margin
Selling Price - Cost / Selling Price
Selling Price
Cost / (1- %margin)
% Margin for multiple channels
Average Margin % = margin1+margin2+margin3 / total of units
Total Sales =
total costs/total revenue
Total Margin $ =
Total Revenue - Total Costs
Total Margin % =
Total Margin $ / Total Revenue
Mark-Up =
Cost * (1+margin%) (decimal)
A retailer buys t-shirts for $10 and sells them at 50% mark-up
Selling price = $10*1.50=$15
Total Costs
Total variable costs + Total fixed costs
Profits
Total revenues - Total Costs
Total contribution
Total revenues - Total variable costs
$ Unit Contribution margin
Selling price per unit - variable costs per unit
% Unit Contribution margin
$ contribution margin/selling pricer per unit
Total variable costs
Unit variable costs * Units Sold
Break Even Point
Total Costs = Total Revenue
Unit Break-even =
Fixed Costs / Unit contribution
BE (units) =
Fixed Costs/(SP-VC)
BE ($) =
FC / ((SP-VC)/(SP))
Target Volume in Units =
(Fixed Costs + Profit Objective) / (SP-VC)
Dollar Break-even =
(Fixed Costs + Profit Objective / ((SP-VC)/SP))
