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Market Investigations, Costs of market communications and Product recalculations

Market Investigations, Costs of market communications and Product recalculations. INF5290 L. Monrad-Krohn. Market investigations, Stepvise Will someone pay what price for the product?. 1.Ask yourself, use common sense 2.Ask friends and family

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Market Investigations, Costs of market communications and Product recalculations

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  1. Market Investigations, Costs of market communications and Product recalculations INF5290 L. Monrad-Krohn IN-DBL 2000

  2. Market investigations, StepviseWill someone pay what price for the product? • 1.Ask yourself, use common sense • 2.Ask friends and family • 3.Invite to a discussion party, good dinner with cognac • 4. Use the telephone and directory • 5. Engage a telemarketing bureau with predefined questions, make statistics yourself • 6. Engage a professional “gallup”-bureau • 7. Engage a “market communications” bureau • 8. Do test-selling (with long delivery time) IN-DBL 2000

  3. Competitor analysis • Part of market analysis, and can be done in the same steps as mentioned in Market Investigations • Can we find a weak spot in products, service, price, sales conditions, distribution, etc. that we can use to our advantage to distinguish us from the competing companies. • Use official statistics as published in trade journals to estimate market size, and their share of it IN-DBL 2000

  4. Product Segmenting, same product in different segments • “Product sales price is governed by competitors or market price-demand-curve” • Not cost of production (Too high costs make you simply broke) • Different market segments has different set of competitors and different price-demand-curve. • Thus one product should have different price in different segments. • The product must be modified for each segment: “Home” and “Professional” model. IN-DBL 2000

  5. Product Segmenting, same product in different segments 2 • The two models should be fundamentally equal to save on • Logistics, Support, Production • “Professional” model should have more “whistles and bells” • Gross margin may be different • Sales channels may be different IN-DBL 2000

  6. Estimating costs to reach market segment • Price of 1/1 page “Aftenposten” is roughly NOK 120k. In addition we have the costs of preparing the ad, which could be in the same order of magnitude, say NOK 120k. • The Ad is seen by 1/3 of its buyers, say about 100k people • If market segment is exactly buyers of Ap, the cost one “contact” is NOK 2,40 • If market segment is 10% of Ap readers, cost is NOK 24,00 per contact in the segment. IN-DBL 2000

  7. Estimating costs to reach market segment 2 • If the market segment population within buyers of Ap is 300, the contact price is NOK 240 000/300 =NOK 8000, making this communication channel rather expensive • A salesman can make 4 customer calls a day, ie 800 calls per year. • Salary and expenses may amount to NOK 800k per year • Connection cost is NOK 1.000 and probably much more efficient than the customer observing an Ad. • Conclusion: Don’t use Ap ads for non-consumer sales. (But maybe for image building) IN-DBL 2000

  8. Estimating costs to reach market segment 3 • As we have seen, the selection of market communication channels depend on the population of our market segment • The channel selection also depend on product price and product calculation. • Assume that we calculated the product price to contain 10% profit bt and 10% sales cost • Also assume that 4 visits by our salesman is required to produce 50% probability of an order • Also assume that half of our sales budget goes to the visiting salesmen • Thus Product price must be higher than NOK 19.500 including VAT to make this possible IN-DBL 2000

  9. Product calculation revisited • When our company plan is made, we have made decisions as to our fixed cost structure (consider now a single product company) • The fixed costs can be separated into strategic sums for: • Sales and marketing • Product development • General and administrative • Depreciation and Financial IN-DBL 2000

  10. Product calculation revisited 2 • Looking at the P&L statement of good competitors in the same industry, one can find some keys as to the percentage figures of the “Strategic costs” Sales&Marketing and Product development in relation to sales • The product calculation may then be made taking these figures into account IN-DBL 2000

  11. Product calculation revisited 3 • A typical calculation: • Sales price, ex VAT 100 • less Cost of sales 10 • equals Gross margin 90 • less Profit b.t. 20 • less Sales&Marketing 40 • less Development 15 • less G&A 10 • less Depr.&Finans 5 • equals 0 IN-DBL 2000

  12. Product calculation revisited 4 • Exercise: What is end user price inkl. VAT if product is sold through the following channels, with corresponding gross margins on their hands: • Export agent 7% • Import company 15% • Distributor 35% • Reseller 35% 370? IN-DBL 2000

  13. Product calculation revisited 5Food for thought • Assuming that a developer has a cost of NOK 800k inclusive overhead per year, what is the necessary sales (inc.vat) per development person, given our previous example: NOK 21 mill • And if there were no distribution network (the Sales&Marketing covered direct Net sales): 6,6 mill IN-DBL 2000

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