Harvard bep

Harvard Business School

9-599-011
December 17, 1998

Note on Low-Tech Marketing Math
The Note on Marketing Strategy (9-598-061) describes the scope of marketing analysis needed to provide the basis for the development of a marketing strategy and the supporting implementation plan. The type of in-depth understanding of factors described there is often usefully supplemented by numerical analysis; at times, we need relatively complex, computer-supported analysis. At others, a low-tech approach utilizing the proverbial “back of the envelope” and maybe a calculator does the job. This note defines key terms and basic calculations useful in both case analysis and real-life marketing decision-making. To accompany this knowledge, one needs to develop some intuition about which type of numbers to look at when. A program of case studies offering repeated exposure to and practice in these issues is a good mechanism for developing skill in using quantitative analysis to develop and support your argument.

Basic Terminology
(a) Types of Cost Most of the time, a seller hopes to get a price which more than covers his or her cost. In everyday conversation, we might simply say they are trying to make a profit. We would measure that profit as the difference between the revenues taken in and the costs incurred. It is often useful to make a distinction between two kinds of costs, fixed and variable. We define fixed costs as those that remain at a given level regardless of the amount of the product produced and sold. An example of a fixed cost would be the firm’s expenditure on an advertisement. Regardless of how much Budweiser beer or Nike athletic shoes are sold, the media outlet gets the same fee from the takers of its advertising time or space. In contrast, variable costs are those that change depending upon the amount of product produced and sold. For example, the more beer Budweiser sells the greater are its packaging costs, shipping costs, raw material cost and so