1 / 13

Marketing Arithmetic

Marketing Arithmetic. Professor Chip Besio Cox School of Business Southern Methodist University. Outline. Key Measures — Sales, Market Share and Margin Fixed and Variable Costs. What Are Key Indicators?. Companies are managed using common measurements These include: Sales Market Share

tasya
Download Presentation

Marketing Arithmetic

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Marketing Arithmetic Professor Chip Besio Cox School of Business Southern Methodist University

  2. Outline • Key Measures — Sales, Market Share and Margin • Fixed and Variable Costs

  3. What Are Key Indicators? • Companies are managed using common measurements These include: • Sales • Market Share • Profit/Contribution Margin

  4. Sales • Dollar Sales - Revenues generated • Gross Dollar Sales - Dollar sales at checkout (before returns) • Net Dollar Sales - Dollar sales after returns • Unit Sales - Measure of sales volume • Examples include individual units, ounces, grams, gallons and liters

  5. Market Share • Market share measures a company’s sales in a market relative to its competitors. • Calculation - Company’s unit sales in the market Sum of unit sales in the market of all competitors, including the company • Why is market share important? • Boston Consulting Group (BCG) study which linked high market share to corporate profitability

  6. Margin • The basic profitability measure • Calculation - (Selling Price per unit - Cost per Unit) Selling Price per Unit • Determining profitability per unit provides the company key information to improve its marketing program • Determining sales is fairly straightforward, but what about costs?

  7. Fixed vs. Variable Costs Costs should be divided into two types for marketing analysis: • Variable - Those costs that increase with each unit produced/sold • Fixed - Those costs incurred independent of the level of production/sales

  8. Fixed vs. Variable Costs • Variable • Cost of goods • Sales Commissions (as a percent of sales) • Transportation • Discounts • Warranty costs • Fixed • Utilities • Real estate payments • Selling, general and administrative expenses (SG&A)?

  9. Fixed vs. Variable Costs -TIME • Which costs are fixed and which are variable also depends on the time frame. • The longer the time frame, the more costs are variable and the fewer are fixed • For example: • Over the next week, labor costs (without overtime) are fixed • Over the next five years, however, the labor force can be increased or reduced to accommodate needs; i.e., variable

  10. Sunk Costs • Sunk costs, money which has already been spent, are frequently misunderstood • They are sometimes viewed as an investment on which some level of return must be realized • “Sunk costs are sunk” — they cannot be avoided or recovered • Sunk costs are irrelevant for marketing decisions

  11. Opportunity Costs • One important cost that is often overlooked is opportunity cost • That is, what is the value of opportunities the company cannot take advantage of because it chooses to devote resources to a different alternative? • Note that opportunity costs may be either variable or fixed

  12. Opportunity Costs EXAMPLE • Facilities and equipment • Investing $1,000,000 in new facilities is not without cost — the opportunity cost is the return that could have been generated by investing the money otherwise • At 8% return, the annual opportunity cost of $1,000,000 is $80,000

  13. Fixed vs. Variable CostsWHY ARE THEY IMPORTANT? • For marketing decisions, it is important to distinguish between: • Costs that : • 1) can be avoided by reducing production/sales • 2) are incurred by increasing production and • Costs which are not affected by production or sales

More Related