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Flashcards in If-Scenarios Deck (17):

If sales are flat but profits are down

..examine both Revenue and Cost
- Always start with Revenue to understand the Revenue streams


If sales are flat but Market Share remains constant

..examine if industry sales are flat
- Competitors experience the same problem


If sales are declining, analyze three things:

1) overall demand (soda sales have dropped as bottled water becomes the beverage of choice)
2) possibility that the current marketplace is mature or your product became obsolete
3) loss of market share because of substitutions (video rentals have declined because there are numerous substitutions such as movie attendance, pay-per-view, Direct TV and Internet Straming


If the product has low consumption per unit, differentiated and depends on perceived benefits

..choose value-based pricing

- Lower Bound: COGS
- PV: Upper Bound: Less than TEV due to awareness of features or benefits, sceptical, relevance
- TEV: Cost of next best alternative + value performance differential = Value a fully informed customer should be willing to pay = PV + Marketing Efforts

-> Invest in market research to reveal Benefits


If the product is a commodity and no differentiation exists

..cost-based pricing


If the product is offered in an oligopolistic market

... Supply&Demand Pricing
- market players can impact supply curve, i.e. impact short

Quantity Competition: production plans are made in advance: OPEC, certain metals, chemicals, broadband, Airlines
=> Firms have strong incentives to invest in lowering Cost, aggressive moves lead to higher Q because rival accommodates

Price Competition: Differentiated goods where production is easy to adjust, Suppliers simultaneously choose prices: FMCG, Cereal, Soft Drinks, Personal Care, Software, Tech, Apps, iPhone
=> Strong incentives for branding: The more differentiation, the higher the price; Aggressive moves only lead to lower P in price competition


If Sales and Market Share increase but Profits decline, investigate

1) Are Prices dropping?
2)Are Cost climbing?

-> if costs are stable, check product mix for margin changes


If the reason for the profit decline is a Revenue drop, concentrate on

1) Marketing
2) Distribution Issues


If the reason for the profit decline is a rise in expenses, concentrate on

1) Operational issues
2) Financial issues, i.e. COGS, labor, rent, marketing cost


If the reason for the profit decline yet Revenues have gone up, concentrate on

1) Changes in Cost
2) Additional Expenses
3) Changes in Prices
4) Changes in Product Mix
5) Changes in Customer Needs


If the product in the emerging stage, concentrate on

1) R&D
2) Competition
3) Pricing


If the product in its growth stage, concentrate on

1) Marketing
2) Competition


If the product is in the mature stage, concentrate on

1) Manufacturing
2) Costs
3) Competition


If the product is in the declining stage, concentrate on

1) Define the niche market
2) Analyze the competition's play
3) Think about exit strategy


If you lower Prices, your volume rises, and you are pushed beyond full capacity

..your cost will shoot up as your employees work overtime and your profits will consequently suffer


If you increase Prices by 1%

Your Profit will increase by 8% on average


Prices are stable if 3 conditions are met:

1) Same growth rate for all competitors
2) Prices parallell cost
3) Prices are of equal value

- volume and cost are easier to change than the industry price level unless all parties work together