marketing quantitative analysis univ. washington

8/8/2019 Marketing Quantitative Analysis Univ. Washington

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University of Washington EMBA Program

North America 5

Quantitative Analysis for Marketing

T.A.: Char Popp


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It is a capital mistake to theorize

before one has data.

-Sir Arthur Conan Doyle


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Basic Quantitative Analysis for

Marketing


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Fixed, Variable, and Total Cost

Total Cost

Fixed Cost

k = variable cost per unit

Total Cost for output level V units = fixed cost + k*V

As you produce more units, the average cost per unit goes down (fixed

costs are spread out over more units).

V

Cost

Volume (Quantity)


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Example: Safeco Field TicketsFixed cost = $40,000,000

(player/manager/staff salaries, overhead, etc.)

Variable cost per seat sold (k) = 400

(shipping of tickets, custodial staff, maintenance, etc.)

Total # of seats = 46,000

If all seats are sold, variable costs are $18,400,000.

Total cost 58,400,000.

Total cost per seat if all seats are sold 1,270

If only half of the seats are sold, the total cost per unit is ___, because

the fixed costs of $40,000,000 are only covered by sale of 23,000 seats.

(These are made up figures!)


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Unit Contribution and Total Contribution

Unit Contribution = P k (P = price charged)

Total Contribution = (P k) * V = PV kV

= Price charged minus variable costs.

This is what you have left over to cover your fixed

costs and profit.


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Safeco Field Ticket Contribution at $2500 Price

Assume season tickets are sold for $2500 on average.

Unit contribution = $2500 - $400 = $2,100

Total contribution, assuming all 46,000 seats are sold= $2100 * 46,000 = $96,600,000

This tells us that after fixed costs of $40,000,000, we will

have a profit of $56,600,000.

If only half of the seats are sold, our total contribution

= $2100*23,000 = $48,300,000, leaving us with

a profit of $8,300,000


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Safeco Field Ticket Contribution at

$2000 price

Assume season tickets are sold for $2000 on average.

Unit contribution = $2000 - $400 = $1600

Total contribution, assuming all 46,000 seats are sold= $1600 * 46,000 = $73,600,000

This tells us that after fixed costs of $40,000,000, we will

have aprofit of $33,600,000.

If only half of the seats are sold, our total contribution

= _________________ leaving us with

a______________.


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Think of the impact of a winning

season on your ability to price!


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Margin

(Financial people like to confuse you!)

$ Margin = Selling price variable cost

(In this case, Margin is the same as unit contribution)

Beware, margin can often mean different things. Make sure

you have clarification of the specific elements included.

% Margin = (Selling price variable cost) / Selling price *

100% (this shows the % as a whole number instead of a

decimal)


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Break Even Volume (BEV)

Total Cost (Fixed Cost + k*V)

BEV

Total Revenue (Price * V)

Volume (Units)

$


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Break Even Volume (BEV)

BEV is the point at which

Total Revenue = Total Cost

Or said differently, you are at break evenwhen Price * V = Fixed cost + (k*V)

BEV = Fixed cost / (Price k)

Or more simply

BEV = Fixed cost / Unit contribution


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Application of Break Even Analysis to

Advertising ExpenditureExample.

An advertising campaign costing $500,000 has been proposed

for Safeco tickets with a unit contribution of $1,600. How many

additional seats will need to be sold as a result of the campaign

in order to justify its costs?? How many at $2,100?

$500,000 / $1600 per seat = 313 seats$500,000 / $2100 per seat = 238 seats

What if the proposed campaign cost $2,000,000? How many seats

would we have to sell to break even at $1,600/seat and $2,100/seat?


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It is important to remember

Numbers have more meaning when there is a benchmark against

which to compare them.

Market size

G

rowth rateCompetitive activity

For example, if we determine that we need to sell 78,125 units of a

product to break even

What does this mean for a product that is part of ahighly competitive, stable market with 150,000 units sold

annually

vs.

an emerging, fast-growing market with 1,000,000 units sold

annually.


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ApolloS

ystems Exercise


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Demand andF

orecasting Demand


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A Question of Thirst


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Market Potential

Market potential (Demand) = potential #of buyers * average quantity purchased by

a buyer * price

Potential buyers are the people for whom

your product is a solution to their need. Itis not a function of your manufacturingcapacity.


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Company Demand Forecast

Company Demand Forecast (Potential): theamount of sales of the market potential youbelieve you can capture, relative to that ofcompetitors. E.g. if you have a superior product, you will have a

higher demand forecast than if your competitorsproducts were superior.

Company Sales Forecast: expected level of

company sales based on a chosen marketingplan this reflects your efforts to take advantageof the company demand forecast.


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Forecasting Methods

3-stage procedure: prepare a macroeconomic forecast(based on expected inflation, unemployment, interest rates,consumer spending, etc.), followed by an industry forecast,followed by a company sales forecast

Based on what people say: Survey of buyers intentions/needs

Composite of sales force opinions

Expert opinion

Put the product into a test market and measure buyerresponse

Analyze records of past buying behavior and use astatistical method of projecting this behavior into the future


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Business Objectives

Profit (Revenue Total Cost)

Market Share Specify share of what market (global, national,

regional, etc.)

Dollars vs. %

Revenues

Growth

Return on Investment (ROI)

= net income / total investment * 100% Return on Equity (ROE)

= net income / owners equity * 100%

Return on Assets (ROA)

= net income / total assets * 100%


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T

hank You!

marketing quantitative analysis univ. washington

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