Question

Mark owns "all about sports", which manufactures nfl, nba, and college logo merchandise. the sports merchandise industry has sales of $70 million. "all about sports" sales are $14 million with a gross margin $8 million. assume each "share of voice" point costs $275,000. is it advisable for mark to pursue four (4) additional market share points?

Answer 1

Answer:

All About Sports will incur net loss of $50,000 for additional share point so, it is not advisable to start the new share points.

Explanation:

According to 1.5 rule of competitive parity budgeting to gain the 4 market share points All About Sports will need to spend that will be needed for 6 as follow.

4 x 1.5 = 6

All About Sports is not able to buy 4 share point by simply spending $275,000 each. they need additional $1.65 million to invest in additional market share points.

Cost of 4 share points = $275,000 x 6 = $1,650,000

On the other hand All About Sports has market share of 20%.

( $14 million / $70 million ) x 100 = 20% = 20 share points

Firm gross margin is $8000,000 and gross margin per share point is $400,000 ( $8,000,000 / 20 ).

Total Benefit for additional share point = $400,000 x 4 = $1,600,000

Net Benefit = $1,600,000 - $1,650,000 = -$50,000

As All About Sports will incur net loss of $50,000 for additional share point so, it is not advisable to start the new share points.

Answer 2

I agree. ADD all the amounts together to get an answer