Quantitative Analysis (Lecture #7) Flashcards
Market share formula
MS($)= your brand $ sales/ total segment $ sales
MS (units)= your brand unit sales/ total segment unit sales
what is market share?
the percent of the total market (expressed in units or dollars) that your brand or product controls
def. fixed costs (FC)
costs that do not fluctuate with changes in volume of production (i.e. advertising, public relations, fixed salaries, administration and overhead, rent, research, and development…)
def. variable costs (VC)
costs that are directly associated with volume of production (i.e. labour,materials, transportation, promotion costs such as allowances, coupons,, …).
def. contribution margin (CM)
represents how much is left over after accounting for thevariable costs to cover fixed expenses. Contribution Margin % tells you what % of each $you earn goes towards covering fixed expenses
formula for CM (unit a percentage)
CM (unit as a %)= [SP(unit)-VC(unit)]/SP(unit)
CM formula (unit)
CM(unit)=SP(unit)−VC(unit)
def. profit contribution (PC)
represents how much is left over after accounting for all costs (fixed and variable)
What is breakeven?
the point where you can cover your fixed costs (not total costs)
breakeven (units) formula
BE(units)= (total FC)/(SP(unit)- VC(unit))
Breakeven ($) formula
BE($)= Total FC/ [1-(VC/SP)]
def. price elasticity (PE)
measures how responsive demand would be to a change in price
price elasticity formula
PE= % change in demand/ % change in SP
where % change= (new - old)/old
if absolute PE < 1, the product is _________
price inelastic
if absolute PE >1, the product is ________
price elastic
if absolute PE = 1, the product is _______
unit elastic
What does it mean if a product is price inelastic?
- price has little effect on demand
- Here, a decrease in price yields a less than proportional increase in demand and an increase in price yields a less than proportional decrease in demand
- generally, lowering price price decreases profits, and raising price, increases profits
What does it mean if a product is price elastic?
- price has a relatively significant effect on demand
- Here, a decrease in price yields a greater than proportional increase in demand and an increase inprice yields a greater than proportional decrease in demand
- generally, lowering price increases profit, and raising price decreases profit
what does it mean if a product is unit elastic?
here, an increase or decrease in price yields the same change in demand
def. cross-price elasticity (CPE)
examines the relationship between changing the price of oneproduct and measuring the effect on the demand of a second product
With CPE what happens with complementary products?
raising the price of one will yield a decrease in demand in the other (negative CPE)
with CPE what happens with substitute products?
raising the price in one product will lead to an increase in demand for the other (positive CPE)
Price chain formula: CM% on SP
CM%onSP= [SP(unit)-VC(unit)] / SP(unit)
Price chain formula: Markup%onCost
Markup%onCost=[SP(unit)-VC(unit)] / VC(unit)
Price chain formula: used when CM on SP is known but not the SP
SP=VC(unit) / [100%−CM%onSP]
Price chain formula: used when you know the markup % on Cost but not the SP
SP = VC (unit) + Markup % on Cost × VC (unit)
