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Relative Market Share in Biz Cafe Ted Mitchell

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Market Share Calculation Your Firm Firm BBFirm CCTotal Market Your share of total Market Revenue, R$8666$9113$9696$27,47531.54% Cups, Q222224302512716431.02%

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Market Share Calculation Your Firm Firm BBFirm CCTotal Market Your share of total Market Revenue, R$8666$9113$9696$27,47531.54% Cups, Q222224302512716431.02% Your Firm Firm BBFirm CCTotal Market Average Size 1/N = 1/3 = 33.33% Your share relative to average Revenue, R$8666$9113$9696$27,475$915894.62% Cups, Q2222243025127164238893.06% Relative Market Share Calculation

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Is Relative Market Share Important? Why is it so important? 1) Measure of competitive strength 2) Improved shares get you bonuses and job promotions 3) Trade-off between market share and immediate sales/profit. – Firms see it as a cushion against unexpected competitive moves – Firms see it as money in the bank

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Relative Market Share Theorem Implies that Relative Share, Sr, Ought to be equal to 1) Relative Value delivered to the customer 2) Relative Satisfaction the customer experiences 3) Relative amount of Effort Put into the Marketing Mix

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Market Share and Customer Satisfaction Relative Market Share, Sr = Relative Customer Satisfaction, CSr Sr = CSr Sr = Your Share/Average Share CSr = Your Satisfaction/Average Satisfaction Biz Café you have measures of customer satisfaction and average satisfaction

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What factors are positively linked Having a offering with more value? An offer with a better mix of the four Ps Place (what is it in Biz-Café) Promotion (what is it in Biz-Café) Product Quality (what is it in Biz-Café) Price (Better value)

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What are the two basic approaches to measuring customer value? 1) Value is Amount given up compared to benefits received The Difference between Benefits – Amount Paid, Price 2) Value is the Ratio of the benefits received to the price paid Value = (Benefits, U) /(Price paid, P) BTW Simplest measure is Value = 1/Price

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Relative Market Share ought to equal Relative Marketing Mix effort Sr = SFr x Hr x Ur x 1/Pr Sr = relative market share SFr = relative # of servers Hr = relative # hours open Ur = relative coffee quality 1/Pr = inverse of the relative price It is a chain of ratios and rates

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Relative Market Share Theorem Implies that Relative Share, Sr, Ought to be equal to 1) Relative Value delivered to the customer 2) Relative Satisfaction the customer experiences 3) Relative amount of Effort Put into the Marketing Mix But you normally are tracking the firm’s efficiency at converting the relative value, satisfaction, marketing effort into relative share

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Relative Market Share Theorem In Practice 1) Relative share, Sr = k x (Relative Value delivered to the customer) 2) Relative share, Sr = k x (Relative Satisfaction the customer experiences) 3) Relative share, Sr = k x (Relative amount of Effort Put into the Marketing Mix) Where k = the firm’s ability to convert relative elements into relative market share

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Relative Market Share where k is The firm’s conversion efficiency Sr = k x SFr x Hr x Ur x 1/Pr Sr = relative market share k = firm’s conversion efficiency SFr = relative # of servers Hr = relative # hours open Ur = relative coffee quality 1/Pr = inverse of the relative price

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Sample Exam Questions

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Exam Question #1 You have FOUR competitors in your market. What is the average market share, Sa? Average share, Sa = 1/(4+1) = 20%

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Exam Question #2 The average market share is Sa = 20% and your market share is 24%. What is your share relative to the average share? Relative to average share, Sr = 24%/20% Sr = 120%

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Exam Question #3 Your relative market share is Sr = 120%. According to the market share theorem what should be your relative customer satisfaction, CSr? Sr ought to equal CSr CSr = Sr = 120%

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Exam Question #4 Your relative market share is Sr = 120%. Sr ought to equal CSr Your relative customer satisfaction is 130% of average. Why? How could this be?

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Exam Question #5 You have made some modifications to your marketing mix in Biz-Café and your offering has the following attributes: Relative Advertising is 80% of average Relative Store Hours is 110% of average Relative Product quality is 140% of average Relative number of server is 90% of average Relative price is 90% of average What is the predicted relative share?

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Exam Question #5 offering has the following attributes: Sr = Adr x SFr x Hr x Ur x 1/Pr Sr = relative market share CPr = relative total Promotion =0.80 SFr = relative # of servers = 0.90 Hr = relative # hours open = 1.10 Ur = relative coffee quality = 1.40 1/Pr = relative price = 1/0.9 = 1.11 What is the predicted relative share, Sr? Sr =.8 x.9 x 1.1 x 1.4 x 1.11 = 1.23 = 123%

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Exam Question #6 Predicted relative share, Sr, is Sr = Adr x Sr x Hr x Ur x 1/Pr Sr =.8 x.9 x 1.1 x 1.4 x 1.11 = 1.23 = 123% And he average market share is 20% What market share are you predicted to have? Sr x Sa = S 1.23 x 20% = 24.6% share of the market

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Any Questions on Relative Share, Share, S = Q/Qi or R/Ri Qi and Ri = Industry Sales and Revenues Sales Volume, Q = Share x Qi Average Share, Sa = Qi/N Sa = Industry sales/ Number of competitors or Sa = 1/N Relative to average Share, Sr = S/Sa or Sr = Share x 1/N Using Market Share to predict Sales Volume, Q = (Q/Qi)N x 1/N x Qi

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Chapter 10- slide 1 Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Chapter Ten Pricing: Understanding and Capturing Customer Value.

Chapter 10- slide 1 Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Chapter Ten Pricing: Understanding and Capturing Customer Value.

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