Strategic Finance

Market-Based order?
Cost-Based order?

Def. the % change in unit volume for a product per 1% change in price

\(PE = { \bigtriangleup Volume \over \bigtriangleup Price }\)

- if PE > 1, demand is Price elastic (demand is sensitive to price changes)
- if PE = 1, demand is Unit Elastic
- if PE < 1. demand is Price inelastic (demand is not sensitive to price changes)

1. Ease of Switching
   --> based on:   Product Differentiation (strong USP-> low price sensitivity),
                              Cost of Switching
                              Customer loyalty
2. Supply/Demand Conditions
   --> Supply Conditions: excess suply -> elastic prices
   --> Demand conditions: strong & growing demand -> less elastic prices
   --> Substitutes: many substitutes -> high price sensitivity
3. Competitor Price Response

- Products that have positive cross-elasticity are substitutes
(Lowering the price of one decreases demand for the other and vice versa...)

- Products that have negative cross-elasticity are complimentary
(Lowering the price of one increases demand for both)

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1. How are companies subject to change?
2. How to become independent/less dependent from change
3. Change or be changed: Portfolio Analysis
4. Product Life Cycle & Marketing Strategies

- Company change

- Markets change

- Competitors change

- Reinventing the Market

- Market boundaries change

- Anticipate by:

Product diversification & Market diversification

- React

While change can be sudden, chaotic, nonlinear and constant, your response can be planned and strategic.

Offensive = Grow

Businesses need a combination/balance between Offensive and Defensive marketing Strategies throughout the Product Life Cycle.

1. In-Process Metrics
    - early warning signal --> early identification of problems allows for corrective action.

2. End-Result Metrics

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Plan ownership is enhanced with:

- Detailed action plans
- Champion and ownership team
- Compensation based on performance metrics
- Top management involvement

Plans are supported with:

- Time to succeed
- Communication
- Resource allocation
- Skills to succeed

4 factors contribute to the adaptive nature of a marketing plan

- Continuous improvement
- Persistence
- Feedback measurements
- Adaptive roll-out

An indicator of a company’s short-term liquidity. The quick ratio measures a company’s ability to meet its short-term obligations with its most liquid assets.

Quick ratio = (current assets – inventories) / current liabilities

A liquidity ratio that measures a company's ability to pay short-term obligations.

Current Ratio = Current Assets / Current Liabilities

The degree to which an asset or security can be bought or sold in the market without affecting the asset's price

Assets that can be easily bought or sold are known as liquid assets.

EPS = Net Income / Outstanding Shares

Weightes EPS = (Net Income - Preferred Dividens) / Outstanding Shares

- Long run: Long run survivability

- Short run:

1. Delivering higher levels of customer satisfaction --> creation of "Customer Value"
2. Delivering higher profits --> creating of "Shareholder Value"

Customer and Shareholder Value help to Ouperform the competition

- Customer Satisfaction

- Alternatives

- Costs of Switching

(The more alts and lower the cost of switching for the consumer, the more important satisfaction will be to retention)

Attract --> Satisfy --> Retain (if successful: produce above average profits)

\(N = {1 \over 1-CR}\)

\(CR = 1 - {1 \over N}\)

\(PV = {C \over {(1+i)^n}}\)

i = interest
n = # of years
C = Future amont of $

Which are loyal?

Which to persue?

- Target Customers

- Non-Target Customers

- First time Customers

- Win-back Customers

- Mismanaged Customers

- Abandoned Customers

1.  Marketing Knowledge
2. Marketing Leadership
3. Employee Satisfaction

Driving forces to determine the degree of Market Orientation

4 factors leading to Profitability and Growth

- Increase Demand by branding, improving quality, opening communication with consumers etc.

- Increase Share by using a common marketing Strategy, get old customers back, sell more to exisiting customers

Pricing method in which a fixed sum or percentage of the total cost is added to the cost of the product to arrive at it's selling price.
 

Process of establishing a price upon existing market conditions. (Price is set by an agreement between a buyer and seller)

Cost-Based

Setting a price using financial requirements, such as gross margin or ROI

Cost-Based

Pricing based on the cost of the product plus a desired profit margin

Cost-Based

Strategy of setting low prices to achieve a high market share or high-volume position.

Cost-Based

Raising price in a series of steps in an effort to improve margins and maximise gross profit until the product exits the market

Market-Based

High price position that attracts a limitted number of customers but is sustainable because competitors cannot match the business's competitive advantage and value proposition.

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