Session 3 - Marketing Management Qiang Liu Marketing Math cont 1 Marketing Math cont Agenda Group member list due Friday Jan 22 Email me your

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1 Marketing Management Qiang Liu Marketing Math con’t
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2 Marketing Math con’t - Agenda Group member list due: Friday, Jan 22 Email me your member list Contact me if you can’t find a group Break even review Marketing math con’t Case cracking Quiz Fill out student data sheet
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3 Agenda Group member list due: Friday, Jan 22 Email me your member list Contact me if you can’t find a group Break even review Marketing math con’t Case cracking Quiz Fill out student data sheet
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4 Break-even with marketing actions Profit change = Gain from action – Loss from action Break even point means Δπ = 0 Gain from action=Loss caused by action Unit Volume* Unit Contribution = Total Fixed Cost Incremental Unit Volume* Unit Contribution = Incremental Expenditure Incremental Unit Volume* New Unit Contribution = Total Loss from Price Reduction Incremental Unit Volume* New Unit Contribution = Incremental Expenditure +Total Loss from Price Reduction Total Fixed Cost TBEV = Unit Contribution Total Fixed Cost + Depreciation TBEV - Accounting= Unit Contribution Incremental Expenditure IBEV = Unit Contribution Old Unit Volume * Unit Contribution Loss IBEV = New Unit Contribution Incremental Expenditure + Old Unit Volume * Unit Contribution Loss IBEV = New Unit Contribution
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Cannibalization rate Cannibalization rate is quoted as the percentage of New Product Unit Volume that would have gone to the Old Product had the New Product not been introduced. OPUnits CR = ------------------- OPUnits = NPUnits * CR NPUnits where, NPUnits refers to the sales volume of new product, OPUnits refers to the lost sales volume of old product because of the introduction of the new product 5
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Break-Even Cannibalization Rate (BECR) Profit change after new product introduction: Δπ = NPUnits * NPUC – (NPUnits * CR * OPUC) – FC Where NPUC is new product unit contribution, OPUC is old product unit contribution. FC is the additional fixed cost due to the new product The maximum percentage of the new product’s sales that can be cannibalized (stolen) from the old product while breaking even If FC = 0 Solve CR BECR = NPUC / OPUC If FC<>0 Solve for CR BECR = NPUC / OPUC – FC/(OPUC*NPUnits) 6
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How about Actual CR < BECR?
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Session 3 - Marketing Management Qiang Liu Marketing Math cont 1 Marketing Math cont Agenda Group member list due Friday Jan 22 Email me your

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