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Competitive-Based Marketing

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Competitive-Based Marketing

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  1. Competitive-Based Marketing Ted Mitchell

  2. Market Share Analysis is at the Heart of Competitive-Based • Price Setting • Product Development Spending • Promotion Budgeting • Place Development and Selection Strategy

  3. Competitive Analysis Using Market Share Theorem Ted Mitchell

  4. Add up the Sales Volume of you and your competitors • Biz-Café Comparative Results for Industry Performance • Total Number of Cups Sold in the Industry • Total Revenue of Industry

  5. Your Market Share Your Sales Volume Total Industry Sales Volume Your Market Share = $119,922 Your Market Share = $1,100,000 Your Market Share = 0.109 = 10.9%

  6. Average Market Share with 10 firms = 10% Your Market Share Your Sales Volume Total Industry Sales Volume Your Market Share = Looking Good! $119,922 Your Market Share = $1,100,000 Your Market Share = 0.109 = 10.9%

  7. Market Share Predicted byShare of Marketing Effort Market Share Theorem

  8. Market Share Theorem 1) Is a Very Important Concept 2) Says “Your Market Share should be equal to your share of the industry's marketing effort”

  9. Share of Marketing Effort • Share of total industry advertising budget • Share of total number of sales people • Share of the total number of retail stores • Share of total number of shelf facings • Share of Promotion, Place, Product. Price • In practice it is normally measure in terms of dollars spent ot marketing budgets.

  10. Share of Marketing Effort in Biz-Cafe • Share of total industry advertising budget • Share of total number of servers • Share of the total number of store hours • Share of product quality (relative ) • Share of price (need relative )

  11. Relative Amount of Marketing Effort • Relative advertising budget • Relative number of servers • Relative number of retail stores • Relative number of shelf facings • Relative product quality • Relative price

  12. Classic Market Share Theorem • If we are spending 25% of the total industry’s promotion budget, • Then we should have 25% of the market share

  13. Share of Voice = Our Total Promotion Budget Total Industry Promotion Budget

  14. Classic Theory: Theorem of Market Share Our Market Share Ought to be equal to Our Share of Voice • Our Share = Our Total Promotion $ Our Promotion $ + Their Promotion $

  15. Implication of Theory • If I increase my share of the marketing effort, • Then I should increase my market share.

  16. In Practice • The Identity is Seldom True • Market Share is almost never equal to the Share of Marketing Effort • WHY NOT? • Because there are too many variables and inefficiencies

  17. (Market Share) (Share of Voice) Marketing Efficiency Ratio = Fundamental Theorem of Market Share Implies a Marketing Efficiency Ratio Our Market Share Ought to be equal to Our Share of Voice Modified by our Conversion Efficiency Market Share = (Efficiency Ratio) x (Share of Voice)

  18. Rate of Efficiency • Is the metric that tells us how effectively the firm’s marketing department or system is converting marketing resources and effort into sales and revenue compared to the competition

  19. The general focus on Market Theorem is • 1) We know our market share • 2) We know our share of some effort • 3) What is holding us back from a full share?Why are we doing so well?

  20. Example of Share/Effort = Conversion Efficiency Use Biz-Cafe

  21. In Biz-Café Comparative Results, You Get • Amount of Advertising • Size of Sales Force (servers) • Product Quality • Number of Hours • Number of Competitors • Calculate the Size of the Average Voice$2,500,000 • Calculate the Total Size of the Industry’s Voice (Total Industry Promotion Budget)10 firms x $2,500,000 = $25,000,000

  22. From Market Research You Get • Average Expense in Each of Advertising, Consumer Promotion, Sales Force, Dealer Promotions, and the Number of Competitors $2,500,000 1) Calculate the Total Size of the Industry’s Voice (Total Industry Promotion Budget) 2) Calculate the Size of the Average Voice10 firms x $2,500,000 = $25,000,000

  23. From Market Research You Get • Average Expense in Each of Advertising, Consumer Promotion, Sales Force, Dealer Promotions, and the Number of Competitors • Calculate the Total Size of the Industry’s Voice (Total Industry Promotion Budget among 10 firms) is $25,000 • Calculate the Size of the Average Voice$25,000/10 = $2,500

  24. Share of Voice = Our Total Promotion Budget Total Industry Promotion Budget $2,760 $25,000 = 11.04%

  25. Average Market Share with 10 firms = 10% Your Market Share Your Sales Volume Total Industry Sales Volume Your Market Share = Looking Good! $119,922 Your Market Share = $1,100,000 Your Market Share = 0.109 = 10.9%

  26. Average Market Share with 10 firms = 10%But Share of Voice Predicts 11.04% Your Market Share Your Sales Volume Total Industry Sales Volume Your Market Share = Looking Not so Good! $119,922 Your Market Share = $1,100,000 Your Market Share = 0.109 = 10.9%

  27. (Market Share) (Share of Voice) (10.9%) (11.04%) Marketing Efficiency Ratio = Marketing Efficiency Ratio = Efficiency of Converting Voice to Market Share Marketing Efficiency Ratio = 98.73%

  28. For Planning and Tracking Purposes • Planned Market Share = Efficiency Ratio x Planned Share of Voice • Planned Market Share = 98.73%(Planned Share of Voice) • Is Our Efficiency Improving from Period to Period?

  29. Fundamental Theorem of Market Share • Market Share is equal to the ratio of Total Marketing Effort divided by Total Industry Effort • Our Share = Our Promotion $ Our Promotion $ + Their Promotion $

  30. Adjusting For Relative Quality of Effort and Promotion Promotion We have better trained servers than the average Cafe

  31. Relative Impact • Adjust for Quality of Impact Wwhere mean impact is W=1 • Our Share = Wi (Our Promotion $) Wi(Our Promotion $) + Wj(Their Promotion $)

  32. Example • Your firm spends $200,000 in advertising with an impact index of 1.2 • Other Firms spend $800,000 in total with an average impact of 1.0 • What is your expected market share? • Market Share = 1.2(200) / 1.2(200)+1.0(800) • Market Share = 240/1040 = 23.1%

  33. Example • Actual Market Share = 19% • Expected Market Share = 23.1% • Market Share Variance = 4.1% unfavorable • Can be Confounded by Carry over effects, regional mismatches, synergies and local elasticities.

  34. Remember: Market Share Theorem • Market Share should be equal to firm’s proportion of marketing effort to the total marketing effort of the industry in the firm’s Served Market. • Sales / (Industry Sales) = (Marketing Expenses) / (Industry Marketing Expenses)

  35. Any Questions on The Importance of Market Share?