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Relative Value to Relative Share Theorem

Relative Value to Relative Share Theorem. Ted Mitchell. We have learned. 1) The Market Share Theorem where market share = share of industry effort

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Relative Value to Relative Share Theorem

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  1. Relative Value to Relative Share Theorem Ted Mitchell

  2. We have learned • 1) The Market Share Theoremwhere market share = share of industry effort • 2) Market Share, S, is a conversion rate in a two factor competitive machinefirm’s sales, Q = market share x industry sales, QiQ = market share, S x Qi • 3) The Relative Market Share, Sr, is a conversion factor in a three-factor competition modelfirm’s sales, Q = (relative share, Sr) x (average share in the market, Sa) x industry sales, Qi

  3. Now we learn • 1) Value of the Offering • 2) Relative Value theoremrelative market share = relative value of the firm’s offering relative market share = relative value of the firms’ marketing mix • 2) components of a relative value chain

  4. Value of The Firm’s Offering Ted Mitchell

  5. The Two Classic Components of Value are • 1) Benefits the Product/Service Delivers, π • 2) The Cost to the Customer, P

  6. Ur = Benefits Delivered • Product Attributes • Speed • Power • Convenience • Style • Durability • Quality

  7. In the Biz-Café game • Utility of Product attributes, U • A coffee drinking experience • Quality and Taste of the coffee • Service quality and server speed

  8. Cost to Receive Benefits • Selling price, P • Set up Cost • Delivery Cost • Learning Cost • Search Costs

  9. Definition of Value in Chapter 1 • Value to the customer is the ratio of the benefits delivered to the cost of acquiring the benefits • Value to Customer = Benefits Delivered/Acquisition Cost • Key Benefit is the taste (good, organic etc.), U • Key Cost is the price per cup, P • Value to Customer = Product Quality, U/Product Price, P • Customer Value = U/P • Customer Value = U x P-1 • As the benefits go up the Value goes up • As the Price goes up the Value goes down

  10. Simple Relative Value Metric • Value = Product Quality / Product Price • Relative Value is far more Useful • Relative Value is the ratio of the relative product quality, Ur, to the relative selling Price, Pr • Relative Value = Relative Quality/Relative Price • Relative Value = Ur / Pr

  11. Relative Quality, Ur • Relative Value = Relative Quality, Ur / Pr • Definition of Relative Quality, Ur, is the ratio of the firm’s product quality, U, to the average quality in the industry, Ua • Relative Quality, Ur = U/Ua

  12. Relative Cost (Selling Price) Pr • Relative Value = Ur/Relative Price, Pr • Definition of relative price, Pr is the ratio of the firm’s price, P, to the average Price in the industry, Pa • Relative Price, Pr = P/Pa

  13. Relative Value = Ur/Pr • Relative Value = Ur/Pr = Ur x Pr-1 • As the relative benefits go up the relative value to the customer goes up • As the relative Price to the customer goes up the relative Value goes down

  14. Other Ps Can Add Value • Advertising can add Image, style, • Retail Location adds fun of shopping experience • Sales people can add knowledge, confidence • Etc.

  15. Relative Value to Relative Share Theorem Ted Mitchell

  16. Relative Value Theorem • The firm’s relative market share, Sr, should be equal to the relative value it offers to the customers • Relative Share, Sr, = Relative Value, Ur/Pr • BUT like the market share theorem they are seldom equal to each other

  17. Value Conversion Efficiency, k • Relative Market Share, Sr = (conversion efficiency, k) x Relative Value, (Ur/Pr) • where k = efficiency of the firm’s marketing communication and delivery system • Conversion efficiency, k is calculated as the ratio of the Relative share, Sr, to the firm’s relative value • Conversion rat, k = Relative Share/Relative Value • Conversion rate, k = Sr/(Ur/Pr) • Relative share, Sr = k x (relative Value) • Sr = k(Ur/Pr)

  18. Two-Factor Machine of Relative Competition • Output: Firm’s Relative Share, Sr = (conversion rate, k) x (Input: relative value of the marketing mix) • We shall see that this is expanded into a chain of conversion efficiencies • Relative Share, Sr = k x Ur x Pr x Sr x Hr x Pr-1

  19. Questions about • Definition of Customer Value? • Definition of Customer Relative Value? • Relative Value Theorem where relative share, Sr should equal relative value • Conversion efficiency of the firm to convert relative value into relative share.

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