Marketing math 101 part 2

Sameer Mathur http://www.smathur.com Marketing Math 101 Price Elasticity, Marketing Channels

FREE TEACHING RESOURCES ON MARKETING MANAGEMENT at www.smathur.com/teaching.php Over 100,000 views by Management students and business professionals from over 90 different countries These presentations are part of Sameer Mathur's teaching portfolio. They are free to view or download for non-profit, academic use. Disclaimer: These teaching materials have been compiled from multiple, non-credited sources for non-profit, academic use. Copyright is retained by the original content creators. Sameer Mathur , Ph.D . Assistant Professor (Marketing) Web: www.smathur.com Email : [email_address] Twitter: @ProfessorMathur Facebook: Click Here

Math 101 for Marketers

Price Elasticity % change in Demand New - Old PE = ----------------------------- where % change = -------------------- % change in Price Old

Price Elasticity of the Microbrewery’s Beer Suppose: At $2.25 per bottle, it sells 300,000 bottles. At $ 4.33 per bottle, it sells 140,000 bottles. 300,000 - 140,000 % change in Demand = ------------------------------- = 1.14 (or 114%) 140,000

Price Elasticity of the Microbrewery’s Beer Suppose: At $2.25 per bottle, it sells 300,000 bottles. At $ 4.33 per bottle, it sells 140,000 bottles. 300,000 - 140,000 % change in Demand = ------------------------------- = 1.14 (or 114%) 140,000 $2.25 - $4.33 % change in Price = --------------------- = -.48 (or -48%) $4.33 PE = 1.14 / -.48 = -2.38

Price Inelastic If absolute PE < 1, the product is said to be price inelastic . Here, a decrease in price yields a less than proportional increase in demand. Generally, lowering price => a decrease in profits; raising price => increase in profits.

Price Elastic If absolute PE > 1 , the product is said to be price elastic . Here, a decrease in price yields a greater than proportional increase in demand. Generally, lowering price => increase in profit; raising price => decrease in profit.

Unit Elastic If absolute PE = 1 , the product is said to be unit elastic . Here, an increase or decrease in price yields the same change in demand.

Cross-Price Elasticity Examines the relationship between changing the price of one product and measuring the effect on the demand of a second product. % change in Demand of P2 New - Old CPE = ------------------------------------- where % change = --------------- % change in Price of P1 Old

Cross-Price Elasticity With complementary products, raising the price of one will yield a decrease in demand in the other. (e.g. bread and cheese) With substitute products , raising the price in one product will yield an increase in demand for the other. (e.g. Coke and Pepsi)

Cross Price Elasticity of Bread and Butter
Suppose that Butter is promoted and its price is dropped from $3.09 to $2.79 .
Suppose that this yields an increase in demand for bread from 4,000 loaves to 6,300 loaves .

Cross Price Elasticity of Bread and Butter
Butter is promoted and its price is dropped from $3.09 to $2.79.
This increases the demand for bread from 4,000 loaves to 6,300 loaves.
$2.79 - $3.09
% Change in = -------------------- = - .10
Butter Price $3.09
6,300 - 4,000
% Change in = ---------------------- = .58
Bread Demand 4,000
Cross-Price Elasticity = .58 / - .10 = - 5.8

A Marketing Channel of Distribution

Manufacturer’s Problem Manufacturer’s Price $15.55 Manufacturer’s VC $6.35 Manufacturer’s $ Margin ? Manufacturer’s % Margin ?

Manufacturer’s Margin Manufacturer’s Price $15.55 Manufacturer’s VC $6.35 Manufacturer’s $ Margin $9.20 Manufacturer’s % Margin

Manufacturer’s % Margin Manufacturer’s Price $15.55 Manufacturer’s VC $6.35 Manufacturer’s $ Margin $9.20 Manufacturer’s % Margin 59.16%

Wholesaler’s Problem Wholesaler’s Price $22.21 Wholesaler’s VC ? Wholesaler’s $ Margin ? Wholesaler’s % Margin ?

Manufacturer – Wholesaler Interaction

Wholesaler’s Variable Cost Wholesaler’s Price $22.21 Wholesaler’s VC $15.55 Wholesaler’s $ Margin Wholesaler’s % Margin

Wholesaler’s Margin Wholesaler’s Price $22.21 Wholesaler’s VC $15.55 Wholesaler’s $ Margin $6.66 Wholesaler’s % Margin 29.99%

Wholesaler – Retailer Interaction

Retailer’s Problem Retailer’s Price ? Retailer’s COGS ? Retail $ Margin ? Retail % Margin 10%

Retailer’s Cost of Goods Sold (COGS) Retailer’s Price Retailer’s COGS $22.21 Retail $ Margin Retail % Margin 10%

Retail Margin Retailer’s Price Retailer’s COGS $22.21 Retail $ Margin $2.22 Retail % Margin 10%

Retailer – Consumer Interaction

Retail Price paid by the Consumer Retailer’s Price $24.43 Retailer’s COGS $22.21 Retail $ Margin $2.22 Retail % Margin 10%

A Marketing Channel of Distribution

FREE TEACHING RESOURCES ON MARKETING MANAGEMENT at www.smathur.com/teaching.php Over 100,000 views by Management students and business professionals from over 90 different countries These presentations are part of Sameer Mathur's teaching portfolio. They are free to view or download for non-profit, academic use. Disclaimer: These teaching materials have been compiled from multiple, non-credited sources for non-profit, academic use. Copyright is retained by the original content creators. Sameer Mathur , Ph.D . Assistant Professor (Marketing) Web: www.smathur.com Email : [email_address] Twitter: @ProfessorMathur Facebook: Click Here

Sameer Mathur , Ph.D . Assistant Professor (Marketing) Web: www.smathur.com Email : [email_address] Twitter: @ProfessorMathur Facebook: Click Here RELATED SLIDES CLICK BELOW TO LEARN ABOUT: 1. How to Analyze a Marketing Case? Tyler Pet Foods 2. Market Share, Contribution Margin, Breakeven POPULAR SLIDES CLICK BELOW TO LEARN ABOUT: 1. Segmentation and Targeting 2. Positioning, Perceptual Maps

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Marketing math 101 part 2

by Sameer Mathur on Sep 23, 2010

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Marketing math 101 part 2 — Presentation Transcript