Question

Your company currently holds 20% market share of the tennis equipment industry, with a gross margin of $6,000,000. Your new goal is to expand the company's market share to 22%. Suppose the overall industry generates $70,000,000 in sales revenue and has a marketing effort of $16,000,000. Using a competitive parity approach, how much money should you add to your firm's marketing effort to gain two more market share points?

Answer 1

Answer:

It will need to increase his marketing effort by $571,428.57

Explanation:

overall sales          70,000,000

overall marketing  16,000,000

current share 20%

14,000,000 sales revenue

3,200,000 marketing effort

potencial share of 22%

if we add a dollar of marketing effort, our competitor will also add a dollar.

So we have the following situation:

$\frac{3,200,000 + X}{16,000,000 + 2X}= 0.22$

1 dollar of the company increase the marketing effort by 2 dollars, 1 of our own, and one for the competitors.

We solve for X:

3,200,000 + X = (16,000,000 + 2X) x 0.22

3,200,000 + X = 3,520,000 + 0.44X

X - 0.44X          =3,520,000 - 3,2000,000

.56X                 =   320,000

     X                = 320,000/.56 = 571,428,5714

It will need to increase his marketing effort by $571,428.57