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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 2