Quantitative Analysis

in Marketing

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 Course Roadmap
Fundamentals Elements of Marketing Strategy Application

Situation Analysis
(Customer, Competitor, Company)

Market Selection
- Quantitative Analysis Simulation Game
(Segmentation, Targeting, Positioning)
- Consumer Behavior PharmaSim

Marketing Mix Formulation

(Product, Pricing, Distribution, Promotion)

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 Today’s Agenda
Basic terminology and analyses
Exercise

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 The Importance of Quantitative Analysis
Marketing strategy = science + art
Quantitative analysis forms a key part of the scientific aspect
But you need good judgment to make the final decision
You need to understand the meaning of the numbers

Quantitative analysis is instrumental in making good,

informed marketing decisions
Quantify marketing mix variables
Provide profit implications of different strategies
Calculate breakeven requirements
Calculate market share requirements

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 5
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 Some Basic Terminology
Fixed Costs
Costs that remain constant over a range of activity
regardless of the quantity produced
Total Fixed Costs

Quantity

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 Some Basic Terminology
Variable Costs
Costs that can be directly attributed to each additional unit
of production

Total Variable Costs

Quantity

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 Examples
Warehouse rent
We have to judge what is fixed what is variable by ourselves
Advertising (they can be a combination of both fixed n variable)
Labor and advertising can be in both
Labor (e.g. base salary + commission)
But advertising always fixed in many cases
Machinery
Sales Commission

Keep in mind that the same type of cost can be fixed costs or
variable costs depending on the specific context.

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 Unit Contribution and Margin

Margin is a conceptual stuff!

Unit contribution is real cash

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 Example: Gross Margins Along the Channel
Top-Down Calculation
Hv do divided by the next selling price
Manufacturer COGS HKD$40

Selling price to wholesaler HKD$90

Margin??
55.6%

Wholesaler
Purchase price from manufacturer HKD$90
10% Selling price to retailer HKD$100

Margin??Retailer
Purchase price from wholesaler: HKD$100

23.1% Selling price to consumer: HKD$130

Consumer
Margin??

Purchase from retailer at HKD$130

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 Example: Margins Along the Channel
Do aware which approach
the question ask u to use Bottom-Up Calculation

Manufacturer COGS: USD225

51.8%

Wholesaler $467.28

519*(1-10%)
10% margin

Retailer $519.2
649*(1-20%)
20% margin

Consumer Retail Price: USD649

- How much does Apple sell it to wholesalers?

- What’s Apple’s margin? S2 S3
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 Break-Even Analysis
Break-even point is the point of production at which:
Total Revenue from UC = Total Cost - (Total
Revenue is $100; Total Cost is $100)
Let’s assume each unit contribution is $10
Break-even volume (BEV) is the sales volume
required to recover total cost ($100/$10 = 10 units of
volume)
BEV = ???
BEV = Fixed Cost / Unit Contribution (FC is
MARK 4210$100/UC ofSpring
Prof. Eugene R. Raitt $10 2021= 10 units sold) 12
 Profit Impact
Profit Impact
= Unit Contribution * Volume - Fixed Costs
$10 * 10 - $100 = breakeven, no profit
But what if we wanted a profit of $30?
Volume needed for $X Profit Impact
= (Fixed Costs + $X) / Unit Contribution
$100 + $30/$10 = 13 units of volume needed

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 Market Share Analysis
Represent BEV as a share of the market
If total “market” = $100,000, and our BEV is $1000 (100
units), then we have a market share of 1% if we only do
breakeven Start at BEV

Why do we do market share analysis?

Assess realism of a sales forecast, especially if we are trying to
grow market share (Sales forecast is most important in every
year)

How to assess whether it is feasible or not?

Benchmark with yourself to see growth needed
Benchmark with major competitors’ sales
Also need to consider whether the whole pie size is changing
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 Exercise

From reading “Note on Marketing Arithmetic and Related

Marketing Terms”

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 Horatio Alger has just become product manager for Brand X. Brand X is a consumer product
with a retail price of $1.00. Retails margins on the product are 33%, while wholesalers take a
12% margin.

Brand X and its direct competitors sell a total of a 20 million units annually; Brand X has 24%
of this market.

Variable manufacturing costs for Brand X are $0.09 per unit. Fixed manufacturing costs are
$900,000.

The advertising budget for Brand X is $500,000. The Brand X product manager’s salary and
expenses total $35,000. Salespeople are paid entirely by a 10% commission based on the
manufacturer price. Shipping costs, breakage, insurance, and so forth are $0.02 per unit.

1. What is the unit contribution for Brand X?

2. What is Brand X’s break-even volume?

3. What market share does Brand X need to break even?

4. What is Brand X’s profit impact?

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 5. Industry demand is expected to increase to 23 million units next year.
Mr. Alger is considering raising his advertising budget to $1 million.
a. If the advertising budget is raised, how many units will Brand X
have to sell to break even?
b. How many units will Brand X have to sell in order for it to
achieve the same profit impact that it did this year?
c. What will Brand X’s market share have to be next year for its
profit impact to be the same as this year?
d. What will Brand X’s market share have to be for it to have a $1
million profit impact?

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 6. Upon reflection, Mr. Alger decides not to increase Brand X’s advertising
budget. Instead, he thinks he might give retailers an incentive to promote
Brand X by raising their margins from 33% to 40%. The margin increase
would be accomplished by lowering the price of the product to retailers.
Wholesaler margins would remain at 12%.
a. If retailer margins are raised to 40% next year, how many units will
Brand X have to sell to break even?
b. How many units will Brand X have to sell to achieve the same
profit impact next year as it did this year?
c. What would Brand X’s market share have to be for its profit impact
to remain at this year’s level?
d. What would Brand X’s market share have to be for it to generate a
profit impact of $350,000?

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