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session 2 - Marketing Management Qiang Liu Marketing Math I...

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1 Marketing Management Qiang Liu Marketing Math I “Marketers need to look for new opportunities … and put hard data ahead of gut feelings.” -- David Pottruck, former CEO, Charles Schwab
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2 Agenda Marketing math: Relevance Cost definition: variable cost and fixed cost Break-even analysis (BE) Total and Incremental Break-Even Volume (TBEV and IBEV) Cannibalization Break-Even
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3 Father of Modern Marketing Science Frank M. Bass 1926 - 2006 at Krannert 1961-1982 Introduced in 1962
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4 Marketing math: Relevance General relevance to business decisions Analyses don’t make decisions; managers make decisions Analyses provide inputs that help make good decisions Business decisions are often messy – knowing what analysis to use and how to use it is usually more difficult than performing the calculations Specific need for course cases Analyses we review focus on basic data analyses only Different cases require different evidence (some cases are more data driven and others more qualitative)
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5 Definitions Costs Variable costs and fixed costs Labor cost, raw material cost, packaging cost Equipment cost, TV advertising cost, CEO salary In the long run, all costs are variable Avoidable vs. unavoidable fixed costs Unavoidable FC (sunk cost): any cost that will not be affected by the decision Should be ignored in analyzing a new investment Don’t cry for the spilled milk. Avoidable FC: any cost that can be “avoided,” or changes depending on the decision Should always be counted in decision-making
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Fixed or Variable? Unilever develops a diaper that is twice as absorbent as the leading diaper on the market. It decides to launch an advertising campaign on Amazon.com. It will pay Amazon $0.10 for every diaper sold on that website. Sales estimates for year 1 = 200M diapers. Unilever develops a diaper that is twice as absorbent as the leading diaper on the market. It produces 200M diapers and decides to spend $20M on TV advertising in launching the diaper.
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7 Distinguish between types of fixed cost Your company proposes launching a new product, X. To launch the product X, the company will require $500K in new equipment, otherwise no cost is incurred. In researching the new product, your firm spent $100K on marketing research. Is the $100K avoidable or unavoidable fixed cost for the new product launch project? Your firm needs to replace a piece of equipment to maintain its
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This document was uploaded on 02/06/2011.

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session 2 - Marketing Management Qiang Liu Marketing Math I...

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