Strategic Marketing

Pricing Strategies, PIMS

Profit Impact of Mktg. Strategy

The Strategic Planning Institute launched a study called the Profit Impact of Marketing Strategy (PIMS) which sought to identify the most important variables affecting profits. Data were collected from hundreds of successful/unsuccessful business units in a variety of industries, and the key variables included market share, product quality, and several others. The study found that a companys profitability, measured by pre-tax return on investment (ROI), rises with its relative market share as shown below. On the average, a difference of 10% points in market share is accompanied by a difference of about 5% points in pre-tax ROI. 38.5 The PIMS study shows that businesses with a 30 market share of above 40% earn an average 23.4 ROI of 38.5%, i.e, more than three times that 17.6 20 of those with shares under 10%. 14.1 These findings have led many companies to 10 9.1 pursue market share expansion and leadership objectives. PIMS analysis can show 1. How well a firm has met its profitability <10 10-20 20-30 30-40 >40 potential; Market Share % 2. Reasons for success or failure of above.
Dr. B. K. Mukherjee 2

Profitability %

PIMS (contd.)
PIMS helps marketing managers to: Select the appropriate market to target. Identify the marketing strategy that will maximise profits in a business. Compare a firms actual return on investment (ROI) and return on sales (ROS) with the ROI and ROS that are expected from firms in comparable businesses and circumstances. Product Differentiation over Time PIMS research on competitive strategy has studied how a product-markets characteristics change as the market evolves. As might be expected, product innovations diminish over time and R&D expenses (as percentage of sales) may decline from 3.1% during growth phase to 2.0% during maturity phase to only 1.2% during decline phase.

Dr. B. K. Mukherjee