Studies show that a company's market share erodes at a rate of -0.4% for every 1-percentage...

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Studies show that a company's market share erodes at a rate of -0.4% for every 1-percentage point change in market size. For example, if market size grows 5% a year, a company's market share will shrink by 2% a year (5 points of market growth x -0.4% -2%). In other words, the company's market share one year later will be 98% of its current year market share. If its market share this year is 10%, next year it will be 9.8%. Similarly, a company's market share also erodes at a rate of -0.08% for every 1-percentage point of the company's current market share. For example, a company with 5% market share will sees its market share shrink 0.4% a year (5 points of market share x -0.08% = -0.4%). In other words, its market share one year later will be 99.6% of its current share or 4.98%. The table below shows the current NMC for a company that competes in a mature market with a 0% growth rate. If next year the company's unit price, unit variable cost, and marketing expenses stay the same, how much will its NMC change? Market Demand Market Share Units Sold Unit Price Unit Variable Cost Unit Margin Revenues Gross Profit Current Year 2,000,000 25.00% Marketing Expenses NMC 500,000 $100 580 $20 $50,000,000 $10,000,000 $3,000,000 $7,000,000 Next Year (0% market growth) 2,000,000 $100 $80 $20 $3,000,000 Studies show that a company's market share erodes at a rate of -0.4% for every 1-percentage point change in market size. For example, if market size grows 5% a year, a company's market share will shrink by 2% a year (5 points of market growth x -0.4% -2%). In other words, the company's market share one year later will be 98% of its current year market share. If its market share this year is 10%, next year it will be 9.8%. Similarly, a company's market share also erodes at a rate of -0.08% for every 1-percentage point of the company's current market share. For example, a company with 5% market share will sees its market share shrink 0.4% a year (5 points of market share x -0.08% = -0.4%). In other words, its market share one year later will be 99.6% of its current share or 4.98%. The table below shows the current NMC for a company that competes in a mature market with a 0% growth rate. If next year the company's unit price, unit variable cost, and marketing expenses stay the same, how much will its NMC change? Market Demand Market Share Units Sold Unit Price Unit Variable Cost Unit Margin Revenues Gross Profit Current Year 2,000,000 25.00% Marketing Expenses NMC 500,000 $100 580 $20 $50,000,000 $10,000,000 $3,000,000 $7,000,000 Next Year (0% market growth) 2,000,000 $100 $80 $20 $3,000,000

Answer rating: 100% (QA)

To calculate the change in Net Marketing Contribution NMC for the next year we need to consider the ... View the full answer