Net Marketing Contribution PDF

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appunti (in inglese) seconda lezione, prof Munz...

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Lecture 2

The Net Marketing Contribution How to measure the net marketing contribution There are different strategies for growing the NMC:  Increasing the market demand: size of the pie, size of all market  Increasing the market share: our slice of the pie, the part actually controlled by one company  Improving profitability: to have higher margins  Developing the brand portfolio Definitions Net marketing contribution: the gross profit minus the costs of marketing activities. Sales revenues: the amount of money we make by selling the products % Margin: amount of profit we made as a function of the costs. You can express margin as a percentage or as an absolute value. Gross profit: sales volume multiplied by the unit margin. Marketing and Sale expenses: advertisement campaign, cost of collecting data, new product design (but also related to R&D, depends on the company) Net marketing contribution: the gross profit minus the marketing and sales expenses Operating expenses: Operating income: it’s the NMC minus operating expenses. Also known as EBIT (earning before interests and taxes. If you subtract interests and taxes, you have net income NMC=Gross Profit−Marketing∧Salse Expenses=¿ ¿ ( Sales Volumes∗Margin unit) − Marketing∧ Salse Expenses=¿ ¿ ( ( Mkt Demand∗Mkt Share )∗( P−Unit Cost )) −Mktg∧Salse Expenses According to the formula, to influence the Net Marketing Contribution we can:  Reduce the costs associated with marketing and sales  Improve quality of product, and increase the price to have higher margin or reduce unit cost  increase the market share, but on average it implies new investments in marketing Related to all of these metrics, there are some basic marketing metrics:

Focus on Market Market Potential Market Development Index (MDI) Gap Analysis

Focus on Market Share Market Share Analysis Share Development Path Share Development Index (SDI)

Example Market demand: 18 million packs (150 grams each) Market share: 9% in volume and 60% of larger supermarkets Average selling price: €4.20 Unit cost: €2.8 Marketing & Sales expenses: €1 million NMC = 18,000,000 x 0.09 x (4.2 – 2.8) – 1,000,000 = 1,268,000

Focus on Profitability Price Elasticity Pricing Variation

Strategies for growth: Plan 1: Market Development MKTG Investments

Plan 2: Market Share Development Price Discount

Plan 3: Profitability Price Up Unit Cost UP MKTG Investments

Plan 1 Expected market growth: +20% Marketing investments: +30% NMC = (18,000,000 x 1.2) x 0.09 x (4.2 – 2.8) – (1,000,000 x 1.3) = 1,421,600 The NMC increased, so undertake this plan is a good idea Plan 2 Market share development: +20% Price discount: -10% NMC = 18,000,000 x (0.09 x 1.2) x [(4.2 x (1 – 0,1)) – 2. 8] – 1,000,000 = 905,120 This result is lower than the previous result, so the plan is not worth Plan 3 Price up: +20% Unit cost up: +15% Marketing investments: +30% NMC = 18,000,000 x 0.09 x [(4.2 x 1.2) – (2.8 x 1.15)] – (1,000,000 x 1.3) = 1,648,400 This plan has the highest NMC, so the best option is to act on profitability. However, this doesn’t mean that this is always the right decision. Example Market share: 6% N° of container sold annually: 36,000,000 Margin: €0.50 Marketing & Sales expenses: €1,800,000 Market demand: 36,000,000/0,06 = 600,000,000 NMC = 600,000,000 x 0.06 x 0.5 – 1,800,000 = 16,200,000 If market demand development: +1% NMC = (600,000,000 x 1.01) x 0.06 x 0.5 – 1,800,000 = 16,380,000...