Rank Order Principle

1. Rank Order Principle “An empirical equation that predicts the rank order of causes, components, shares, of complete subjects”

2. Rank Order Principle • Market share examples. • The equation predicts the share of each player after all market forces have acted and the market equilibrated. .

3. Rank Order Principle Rules • Principal players must be identified. • The number of players equals the principal players plus one. • The equation predicts the share of each player. • The last player must be “all other.” .

4. Rank Order Principle Equation i = n Share = 100/n 1/i i = j j = rank n = # of players .

5. n = 3 calculation .

6. n = 7 graph All equal is least likely. .

7. n = 2, 4, 6, Expected Value .

8. n = 2, 4, 6, Observations • No.1 differs depending on n. • No.2 is similar. • No.4 for n = 4 is less than No.4 for n = 6. • No.5 for n = 6 is similar to No.4 for n = 4. • Rank correlates with market value. • If the nth entry offers more market value, the nth entry can become the leader. .

9. The Market Value Model A ratio based on cost of customers’ product divided by customers’ overall objectives. Economic ValuePricing The functional attributes of the customer’s product. TechnoMarket Performance(TMP) Value All other factors – Influence:motivational, external and market change forces, specifications, alliances and end-product goals. The Market Value Model calculates the Market Value Metric .

10. Market Value versus Market Share (5-players) • This is a typical plot that compares actual data with rank order equilibria. • All deviations from the rank order equilibria should be explained Deviation Deviation Deviation .

11. Market Value versus Market Share (Current) .

12. Market Value versus Market Share (Future) .

13. Market Share • The rank order principle can be used to quickly predict and explain market relationships without having to spend valuable resources on gathering statistics. • One or more known data points can be used to determine whether or not the rank order principle equation adequately describes the market. .

14. Existing markets • Name significant competitors plus one. • 1.Ajax 4. Easy • 2. Simplicity 5. Antique • 3. Complex 6. All other • Calculate market share by rank order. • 1.Ajax 40.9% 4. Easy 10.3% • 2. Simplicity 24.2% 5. Antique 6.1% • 3. Complex 15.8% 6. All other 2.7% .

15. Existing market analysis • Compare with known data and explain differences by rational argument. • New entries into a 6-player market will achieve less than 3% at maturity unless another player can be overtaken. • If No.2 in a 6-player market seeks to become No.1, the goal is 40.9%. Until that share is achieved the market will be in flux. .

16. Ajax plans to acquire Complex • Market shares of a 6-player market. • 1.Ajax 40.9% 4. Easy 10.3% • 2. Simplicity 24.2% 5. Antique 6.1% • 3. Complex 15.8% 6. All other 2.7% • If Ajax acquires Complex, Ajax’s share will be 45.7% rather than 56.7% at equilibrium. • 1.Ajax 45.7% 4. Antique 9.0% • 2. Simplicity 25.7% 5. All other 4.0% • 3. Easy 15.7% .

17. Ajax acquires Complex Strategy • Market shares of a 6 player market. 1.Ajax 40.9% 4. Easy 10.3% 2. Simplicity 24.2% 5. Antique 6.1% 3. Complex 15.8% 6. All other 2.7% • For Ajax to retain Complex’s share, Ajax must drive the market to 3 players. 1. Ajax 61.1% 2. Simplicity 27.8% 3. All other 11.1% .

18. Ajax acquires Complex Analysis • Rank order does not mean that Ajax will accomplish its goal automatically. • Rank order merely provides the stimulus for Ajax to discuss important issues. • Ajax’s program to change the market to 3-players will determine the success of the acquisition. .

19. Reasons for lack of fit of rank order equation: • Market is not at equilibrium. • Market is not one market. • Large segments are captive. • Market is improperly defined. • New technology can change the market. .