Principles of Marketing
25 November 2013
[MARKETING TOOLS ANALYSIS]
U - CURVE
Jacobson (1985) observed that higher ROI is earned by companies that are able to charge higher prices, most likely because of successfully differentiating their products and the firms that operate at cost advantage. There is seemingly a positive correlation between market share and ROI. The economies of scale, market power, and quality of management are some of the factors that make market share profitable. As market share increases, businesses are likely to have a higher profit margin, a declining purchase-to-sales ratio, decline in marketing costs as a percentage of sales, higher quality and higher priced products.
One of the main determinants of business profitability is market share. Businesses with high market share are considerably more profitable than smaller sizes rivals. ROI indicates the profitability of a company. Large businesses have high rate of return because they have achieved economies of scale in procurement manufacturing, marketing, and other cost components. Small sized business focus more on customer relations while large sized businesses work on economies of scale. As the businesses grow, they move away from the physical market. They cannot build their businesses around individual customers anymore, so they will have invisible customers in the market and they will try to meet the general (average of the) demands of such customers. Mid-sized companies have low ROI because as they are growing from the small sized company to a larger one, they try to hold on to the aspects that worked for them in the past without necessarily realizing that their old methods might not be efficient for them anymore; while also moving forward adapting to new needs which costs them more resources.
We use the U-curve marketing tool to analyze the correlation between ROI and market size, that have been thoroughly discussed by many authors, marketers and finance analysts. A Ucurve
[MARKETING TOOLS ANALYSIS]
U - CURVE
Jacobson (1985) observed that higher ROI is earned by companies that are able to charge higher prices, most likely because of successfully differentiating their products and the firms that operate at cost advantage. There is seemingly a positive correlation between market share and ROI. The economies of scale, market power, and quality of management are some of the factors that make market share profitable. As market share increases, businesses are likely to have a higher profit margin, a declining purchase-to-sales ratio, decline in marketing costs as a percentage of sales, higher quality and higher priced products.
One of the main determinants of business profitability is market share. Businesses with high market share are considerably more profitable than smaller sizes rivals. ROI indicates the profitability of a company. Large businesses have high rate of return because they have achieved economies of scale in procurement manufacturing, marketing, and other cost components. Small sized business focus more on customer relations while large sized businesses work on economies of scale. As the businesses grow, they move away from the physical market. They cannot build their businesses around individual customers anymore, so they will have invisible customers in the market and they will try to meet the general (average of the) demands of such customers. Mid-sized companies have low ROI because as they are growing from the small sized company to a larger one, they try to hold on to the aspects that worked for them in the past without necessarily realizing that their old methods might not be efficient for them anymore; while also moving forward adapting to new needs which costs them more resources.
We use the U-curve marketing tool to analyze the correlation between ROI and market size, that have been thoroughly discussed by many authors, marketers and finance analysts. A Ucurve