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Tough Questions from the Third M idterm

Tough Questions from the Third M idterm. Ted mitchell. 1. Can you calculate the average market share? . There are four firms in the industry. The average market share, Sa, is _________ a ) 20 % b ) 25% c ) 20,000 units d ) Insufficient information to calculate the

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Tough Questions from the Third M idterm

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  1. Tough Questions from the Third Midterm Ted mitchell

  2. 1. Can you calculate the average market share? • There are four firms in the industry. The average market share, Sa, is _________a) 20%b) 25% c) 20,000 unitsd) Insufficient information to calculate the • The correct answer is 25%Number of competitors = N = 4Average Market Share Sa = 1/N = ¼ or 25%

  3. 3) Can you calculate Breakeven Revenue? • You hope to draw more customers into the store with advertising. Your advertising plan will cost $100 a day. Your dollar markup is $5 and your normal percentage markup on price is Mp = 62.5%. What is the amount of additional revenue that must be generated each day just to breakeven on the advertising expense of $100 dollars a day? • AnswerBreakeven Revenue = Fixed Cost / Mp • BER= $100/0.625 = $160 in revenue each day

  4. 4) Can you calculate the sales increase to keep a constant gross profit? • Your advertising manager is convinced that odd-even pricing strategies are extremely powerful psychological incentives and odd prices encourage customers to buy more sandwiches. The current price is $3.00 per sandwich. He is suggesting reducing the $3.00 price by 5% will generate a huge increase in sales volume. • You know that the fractional change in quantity needed to maintain the current gross margin depends heavily on the current markup on price. Your current markup on price is 60% and the relationship between the proposed price discount and markup is∆Q = -%∆P/(Mp% + %∆P) • What percentage increase in the current volume of sandwiches sold must be achieved in order to generate the same gross profit that is normal and needed? • Answer: ∆Q = -%∆P/(Mp% + (%∆P) • ∆Q = - (-5%)/(60% + (-5%) • ∆Q = 5%/55% = 0.0909 x 100 = 9.09%

  5. 2) Can you use the Market Share Theorem to calculate your marketing efficiency? • Your relative market share is 140% of average share. Your relative price is 95%. Your relative quality is 120%. What is the efficiency of your marketing mix in converting relative marketing effort into relative marketing share? • Answer Sr: = (Ur/Pr) x E • 1.40 = 1.2/.95 x E • E = 1.4(0.95/1.2 ) =1.108 or 110.8%

  6. 5) Can you calculate the present value of your advertising project? • Your boss believes that the upcoming period will generate normal sales and costs and a normal gross profit of $60,000. He wants the promotion budget to be set high enough to generate the normal profit return on advertising budget of 200%.What is the advertising budget you should set to get the 200% return on advertising? • Answer: Z= PQ –VQ –A • Z = G – A • Z set equal to ROA x A • ROA x A = G – A • A + ROA(A) = G • A(1+ROA) = G • A = G/(1+ROA) • A = 60,000/(1+200%) = $20,000

  7. 6) Can you calculate an average rate? • The firm had a 25% market share in period 1 and sales of $80 million. In period 2 the firm had a market share of 20% and had sales of $100 million. What is the average market share for the two periods?a) 22.5 %b) 21.95%c) $90 million d) not enough information • Answer80 = 25% of 320 and 100 = 20% x500180/820 = 21.95%

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