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Market Investigations, Costs of market communications and Product recalculations

Learn about market investigations, competitor analysis, product segmenting, and estimating costs to reach market segments. Understand product pricing, cost calculations, and strategic cost structures for successful market penetration.

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Market Investigations, Costs of market communications and Product recalculations

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  1. Market Investigations, Costs of market communications and Product recalculations INF5290 L. Monrad-Krohn IN-DBL 2000

  2. Market investigations, StepviseWill someone pay what price for the product? • 1.Ask yourself, use common sense • 2.Ask friends and family • 3.Invite to a discussion party, good dinner with cognac • 4. Use the telephone and directory • 5. Engage a telemarketing bureau with predefined questions, make statistics yourself • 6. Engage a professional “gallup”-bureau • 7. Engage a “market communications” bureau • 8. Do test-selling (with long delivery time) IN-DBL 2000

  3. Competitor analysis • Part of market analysis, and can be done in the same steps as mentioned in Market Investigations • Can we find a weak spot in products, service, price, sales conditions, distribution, etc. that we can use to our advantage to distinguish us from the competing companies. • Use official statistics as published in trade journals to estimate market size, and their share of it IN-DBL 2000

  4. Product Segmenting, same product in different segments • “Product sales price is governed by competitors or market price-demand-curve” • Not cost of production (Too high costs make you simply broke) • Different market segments has different set of competitors and different price-demand-curve. • Thus one product should have different price in different segments. • The product must be modified for each segment: “Home” and “Professional” model. IN-DBL 2000

  5. Product Segmenting, same product in different segments 2 • The two models should be fundamentally equal to save on • Logistics, Support, Production • “Professional” model should have more “whistles and bells” • Gross margin may be different • Sales channels may be different IN-DBL 2000

  6. Estimating costs to reach market segment • Price of 1/1 page “Aftenposten” is roughly NOK 120k. In addition we have the costs of preparing the ad, which could be in the same order of magnitude, say NOK 120k. • The Ad is seen by 1/3 of its buyers, say about 100k people • If market segment is exactly buyers of Ap, the cost one “contact” is NOK 2,40 • If market segment is 10% of Ap readers, cost is NOK 24,00 per contact in the segment. IN-DBL 2000

  7. Estimating costs to reach market segment 2 • If the market segment population within buyers of Ap is 300, the contact price is NOK 240 000/300 =NOK 8000, making this communication channel rather expensive • A salesman can make 4 customer calls a day, ie 800 calls per year. • Salary and expenses may amount to NOK 800k per year • Connection cost is NOK 1.000 and probably much more efficient than the customer observing an Ad. • Conclusion: Don’t use Ap ads for non-consumer sales. (But maybe for image building) IN-DBL 2000

  8. Estimating costs to reach market segment 3 • As we have seen, the selection of market communication channels depend on the population of our market segment • The channel selection also depend on product price and product calculation. • Assume that we calculated the product price to contain 10% profit bt and 10% sales cost • Also assume that 4 visits by our salesman is required to produce 50% probability of an order • Also assume that half of our sales budget goes to the visiting salesmen • Thus Product price must be higher than NOK 19.500 including VAT to make this possible IN-DBL 2000

  9. Product calculation revisited • When our company plan is made, we have made decisions as to our fixed cost structure (consider now a single product company) • The fixed costs can be separated into strategic sums for: • Sales and marketing • Product development • General and administrative • Depreciation and Financial IN-DBL 2000

  10. Product calculation revisited 2 • Looking at the P&L statement of good competitors in the same industry, one can find some keys as to the percentage figures of the “Strategic costs” Sales&Marketing and Product development in relation to sales • The product calculation may then be made taking these figures into account IN-DBL 2000

  11. Product calculation revisited 3 • A typical calculation: • Sales price, ex VAT 100 • less Cost of sales 10 • equals Gross margin 90 • less Profit b.t. 20 • less Sales&Marketing 40 • less Development 15 • less G&A 10 • less Depr.&Finans 5 • equals 0 IN-DBL 2000

  12. Product calculation revisited 4 • Exercise: What is end user price inkl. VAT if product is sold through the following channels, with corresponding gross margins on their hands: • Export agent 7% • Import company 15% • Distributor 35% • Reseller 35% 370? IN-DBL 2000

  13. Product calculation revisited 5Food for thought • Assuming that a developer has a cost of NOK 800k inclusive overhead per year, what is the necessary sales (inc.vat) per development person, given our previous example: NOK 21 mill • And if there were no distribution network (the Sales&Marketing covered direct Net sales): 6,6 mill IN-DBL 2000

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