Market Investigations Costs of market communications and Product

Market Investigations, Costs of market communications and Product recalculations INF 5290 L. Monrad-Krohn 1 10/21/2021 IN-DBL 2000

Market investigations, Stepvise Will someone pay what price for the product? – 1. Ask yourself, use common sense – 2. Ask friends and family – 3. Invite to a discussion party, good dinner with cognac – 4. Use the telephone and directory – 5. Engage a telemarketing bureau with predefined questions, make statistics yourself – 6. Engage a professional “gallup”-bureau – 7. Engage a “market communications” bureau – 8. Do test-selling (with long delivery time) 2 10/21/2021 IN-DBL 2000

Competitor analysis • Part of market analysis, and can be done in the same steps as mentioned in Market Investigations • Can we find a weak spot in products, service, price, sales conditions, distribution, etc. that we can use to our advantage to distinguish us from the competing companies. • Use official statistics as published in trade journals to estimate market size, and their share of it 3 10/21/2021 IN-DBL 2000

Product Segmenting, same product in different segments – “Product sales price is governed by competitors or market price-demand-curve” – Not cost of production (Too high costs make you simply broke) – Different market segments has different set of competitors and different price-demand-curve. – Thus one product should have different price in different segments. – The product must be modified for each segment: “Home” and “Professional” model. 4 10/21/2021 IN-DBL 2000

Product Segmenting, same product in different segments 2 • The two models should be fundamentally equal to save on – Logistics, Support, Production • “Professional” model should have more “whistles and bells” • Gross margin may be different • Sales channels may be different 5 10/21/2021 IN-DBL 2000

Estimating costs to reach market segment – Price of 1/1 page “Aftenposten” is roughly NOK 120 k. In addition we have the costs of preparing the ad, which could be in the same order of magnitude, say NOK 120 k. – The Ad is seen by 1/3 of its buyers, say about 100 k people – If market segment is exactly buyers of Ap, the cost one “contact” is NOK 2, 40 – If market segment is 10% of Ap readers, cost is NOK 24, 00 per contact in the segment. 6 10/21/2021 IN-DBL 2000

Estimating costs to reach market segment 2 – If the market segment population within buyers of Ap is 300, the contact price is NOK 240 000/300 =NOK 8000, making this communication channel rather expensive – A salesman can make 4 customer calls a day, ie 800 calls per year. – Salary and expenses may amount to NOK 800 k per year – Connection cost is NOK 1. 000 and probably much more efficient than the customer observing an Ad. – Conclusion: Don’t use Ap ads for non-consumer sales. (But maybe for image building) 7 10/21/2021 IN-DBL 2000

Estimating costs to reach market segment 3 – As we have seen, the selection of market communication channels depend on the population of our market segment – The channel selection also depend on product price and product calculation. • Assume that we calculated the product price to contain 10% profit bt and 10% sales cost • Also assume that 4 visits by our salesman is required to produce 50% probability of an order • Also assume that half of our sales budget goes to the visiting salesmen • Thus Product price must be higher than NOK 19. 500 including VAT to make this possible 8 10/21/2021 IN-DBL 2000

Product calculation revisited • When our company plan is made, we have made decisions as to our fixed cost structure (consider now a single product company) • The fixed costs can be separated into strategic sums for: – – Sales and marketing Product development General and administrative Depreciation and Financial 9 10/21/2021 IN-DBL 2000

Product calculation revisited 2 • Looking at the P&L statement of good competitors in the same industry, one can find some keys as to the percentage figures of the “Strategic costs” Sales&Marketing and Product development in relation to sales • The product calculation may then be made taking these figures into account 10 10/21/2021 IN-DBL 2000

Product calculation revisited 3 • A typical calculation: – Sales price, ex VAT – less Cost of sales – equals Gross margin – less Profit b. t. – less Sales&Marketing – less Development – less G&A – less Depr. &Finans – equals 100 10 90 20 40 15 10 5 0 11 10/21/2021 IN-DBL 2000

Product calculation revisited 4 • Exercise: What is end user price inkl. VAT if product is sold through the following channels, with corresponding gross margins on their hands: – Export agent 7% – Import company 15% – Distributor 35% – Reseller 35% 370? 12 10/21/2021 IN-DBL 2000

Product calculation revisited 5 Food for thought • Assuming that a developer has a cost of NOK 800 k inclusive overhead per year, what is the necessary sales (inc. vat) per development person, given our previous example: NOK 21 mill • And if there were no distribution network (the Sales&Marketing covered direct Net sales): 6, 6 mill 13 10/21/2021 IN-DBL 2000