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10/1/15 Quadra<c Rela<onship between Profit and a Marke<ng Investment Growth In The Current Segment MROR at a point
(I, Z)
MROR = ∆Z/∆I
Rate of Return Quadratic
Relationship Z
= aI –bI
Profit, Z + Ted Mitchell Area AROR(I) is
the Profit,
Z = (a–bI)I
Marketing
Investment, I
AROR at a Point (I. Z)
AROR = Z/I
How to interpret the ‘a’ and the ‘b’ Marketing
Investment, I
Rates of Return a Average Rate of
Return,
AROR = a–bI
The value of a is the highest rate of return you can get with the current size of the market Marginal Rate of
Return,
MROR = a–2bI
Marginal Rate
of Return,
MROR = a–2bI
How to interpret the ‘a’ and the ‘b’ Rates of Return a Average Rate of
Return,
AROR = a–bI
The value of b is how quickly the rate is decreasing as the size of the investment is increasing Marketing
Investment, I
How to conceptualize •  An exogenous growth of the current market Growing Markets are always more profitable than markets than are sta<c or shrinking However, the amount that must be invested to achieve an op<mal level of profit also increases Average Rate of
Return,
AROR = a–bI
Marginal Rate of
Return,
MROR = a–2bI
Marketing
Investment, I
The current segment being served with the
current offering grows larger and the optimal
level of Investment shifts to the right
Z = aI –bI2
Marketing Profit, Z
0, 0
Amount of Seller’s Investment, I
Market research provides the es<mates for a and b 1 10/1/15 Growth in the Average Rates of Return, AROR Rates of Return a+ Average Rate of
Return,
AROR = a–bI
a Growth in The Marginal Rate of Retun, MROR Rates of Return a + a Marketing
Investment, I
Marginal Rate of
Return,
MROR = a–2bI
Marketing
Investment, I
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