BỘ GIÁO DỤC VÀ ĐÀO TẠO

TRƯỜNG ĐẠI HỌC KINH TẾ QUỐC DÂN

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BÀI TẬP NHÓM

HỌC PHẦN: MARKETING METRIC
Giảng viên: TS. Lê Thùy Hương
Nhóm 04
Lưu Khánh Linh 11202156
Hoàng Minh Phương 11206561
Bùi Thế Anh 11200038
Trịnh Đức Dương 11201001
Ngô Đức Anh 11200182
Khúc Phạm Băng Châu 11200551
Trần Diana 11200939
Nguyễn Lan Nhi 11202984

Hà Nội, ngày 26 tháng 04 năm 2023

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 MỤC LỤC
CHAPTER 2: SHARE OF HEARTS, MINDS AND MARTKETS Trang 03

CHAPTER 3: MARGINS AND PROFITS Trang 09

CHAPTER 4: PRODUCT AND PORTFOLIO MANAGEMENT Trang 15

CHAPTER 5: CUSTOMER PROFITABILITY Trang 23

CHAPTER 6: SALES FORCE AND CHANNEL MANAGEMENT Trang 26

CHAPTER 7: PRODUCT AND PORTFOLIO MANAGEMENT Trang 39

CHAPTER 8: PROMOTION Trang 44

CHAPTER 9: ADVERTISING METRICS Trang 49

CHAPTER 10: ONLINE, EMAIL AND MOBILE METRICS Trang 54

CHAPTER 11: MARKETING AND FINANCE Trang 59

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 CHAPTER 2: SHARE OF HEARTS, MINDS AND MARTKETS

1. Market share
1.1 Unit market share
Definition: The units sold by a particular company as a percentage of total market sales,
measured in the same units
Formula:

Exercise: In 2020. liquid milk sales of TH is 30000 boxes, total market liquid milk sales is 70000
boxes. So the unit market share is
Unit market share = 30000/70000= 43%
Explain: 43% is the percentage of liquid milk sold to the market by TH
compared to the total amount of liquid milk sold to the market in 2020

1.2 Revenue market share

Definition: Revenue market share differs from unit market share in that it reflects the prices at
which goods are sold
Formula:

Exercise: In 2020 Sales Revenue of TH yogurt is 300 billion dong and total market revenue of
yogurt is 1200 billion dong. So the revenue market share is:
Revenue market share = 300/1200 = 25%
Explain: 25% is the percentage of TH yogurt sold compared to the total revenue of the yogurt
industry sold in 2020
Solution: If TH wants to increase their market share, TH can consolidate and expand the market
segment for high-income customers, and seek to expand the market to middle- and low-income
customers.

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2. Relative market share and Market concentration
Definition:
Relative market share indexes a firm’s or a brand’s market share against that of its leading
competitor.
Market concentration measures the degree to which a comparatively small number of firms
accounts for a large proportion of the market (unit or revenue) (3 or 4 leading competitors in the
market).
Formula:

Exercise: In 2020, TH’s market share is 22%. There are some strong competitors in the market
such as: Vinamilk with 48%, Nutifood with 11%, Vinasoy with 9%. So the Relative market share
and market concentration are:
Relative market share = 22%/ 48%= 0.45
Market concentration = 22%+ 48%+ 11%= 81%
Explain:
TH's market share was 0.45 less than Vinamilk's market share in 2020 and the market
concentration of the dairy market was quite large, accounting for 81%.
Solution:
It can be seen that compared to Vinamilk, TH has less competitive advantage due to its lower
market share.
Vinamilk's competitive strategy is to invest in the world's leading modern technology line to
ensure 100% pasteurized clean milk quality. Although Vinamilk has a solid foundation, it still
focuses on the material, considering this as a strategic lever and competitive advantage to surpass
other competitors in the fresh milk segment.

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Therefore, in addition to the support of modern technology, TH needs to develop its advantages
through advertisements, newspapers, sponsoring TV programs, emphasizing messages on safety
and hygiene issues. At the same time, promoting the "clean" factor of TH true products and other
social activities such as nutrition programs for children and students, gratitude to customers, etc.
are essential.

3. Brand development index

Definition: The brand development index (BDI) quantifies how well a brand is performing
within a specific group of customers, compared with its average performance among all
consumers.
Formula:

Exercise: Among households without children, TH’s sales run 1000 ton products per week in
100000 households. In general population, TH’s sales run 1000 ton products per week in 50000
households. So the BDI is:
BDI = ( 1000/100000)/(1000/50000) = 0,5
Explain: The average amount of milk that TH sold to households without children
is 0.5 times the amount of milk TH sold to all households in general.
Solution:
To be able to sell more products to households without children, TH needs to focus on
developing new product lines that are suitable for adults. TH can launch TH Protein Shake
product line for gym people,or herbal tea and beauty tea product lines aimed at female customers
who care about their appearance and health.

4. Category Development Index

Definition: The category development index (CDI) measures the sales performance of a
category of goods or services within a specific group, compared with its average performance
among all consumers.
Formula:

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Exercise:
Total number of households in Hai Ba Trung District: 12000
Total liquid milk crates they bought: 25000
Total number of households in Hanoi: 100000
Total liquid milk crates they bought:600000
CDI = (25000/12000)/(600000/100000)= 0.34
Explain: The average amount of milk that TH sold to Hai Ba Trung district is equal to 0.34 times
the average amount of milk that TH sold to Hanoi market.
Solution:
In order to increase sales of products in a specific area, TH needs to invest in more stores and
actively distribute to agents throughout the region. This makes it more convenient for customers
in case they want to use TH's products (easy to find, don't have to go far). At the same time, TH
can freeship for customers who buy large quantities (such as 24 cartons of milk) and order
through TH's branch stores in the area.

5. Penetration
Definition: Penetration is a measure of brand or category popularity. It is defined as the number
of people who buy a specific brand or a category of goods at least once in a given period, divided
by the size of the relevant market population.

Formula:

Exercise:

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Total Population inVN: 10.000.000 people
8.000.000 people out of 10 million people bought yogurt
5.000.000 people out of 10 million people bought TH yogurt
products.
Market penetration = 8.000.000/10.000.000=0,8
Brand penetration = 5.000.000/10.000.000=0,5
Penetration share = 0,5/0,8= 62.5%

Explain: 80% is the percentage of Vietnamese population that buys yogurt. 50% is the percentage
of the Vietnamese population that buys TH yogurt. The number of people who buy TH yogurt is
equal to 62.5% of the number of people who buy yogurt in general in Vietnam
Solution:
Currently, most of TH's customers are women and children. Therefore, to increase brand
penetration, TH needs to invest and develop products aimed at other customers such as the
elderly. Elderly people often do not eat well, leading to a lack of necessary micronutrients to
nourish the body. Supplementing nutrients from functional foods, especially milk, is considered
an important and reasonable solution to ensure that the elderly always have good health.
TH may launch a line of dairy products for the elderly, including:
- Milk with good fat like plant sterol: for the elderly with cardiovascular disease
- Milk with balanced calcium, vitamin D and phosphorus: for the elderly with bone and joint
diseases
- Milk with abundant vitamins and minerals: for people who eat poorly, lack nutrition

6. Share of requirements
Definition: Share of requirements, also known as share of wallet, is calculated solely among
buyers of a specific brand. Within this group, it represents the percentage of purchases
within the relevant category, accounted for by the brand in question.
Formula:

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Exercise:
In a given year, the unit purchases of TH yogurt was 900.000 bottles. Among the households that
bought TH, total purchases of yogurt came to 1.500.000 bottles.
Share of Requirement = 900.000/1.500.000=60%
Explain: 60% is the percentage of people buying TH yogurt compared to the total purchase of all
other yogurts in a given year.
Solution:
To increase the share of requirements to 80%, 90%, TH can make a difference in service
delivery. The reasons why customers still buy yogurt or fresh milk products of other brands can
include discounts, buy 1 get 1 free of brands, new product launches or customers' inconvenience
in buying T's products => TH can implement a service to deliver milk (or products ordered by
customers) with a frequency of 1 time / week to households in the given area. This makes
customers maintain using TH's products more often.

7. Usage index
Definition: The usage index is a relative measure that indicates how heavily the customers of a
given brand use the product category
Formula:

Exercise:
In 2020 , the average yogurt purchased by people using TH brand was 120.000 bottles. During
the same period, average yogurt consumption by people using any kind of yogurt was 90.000
bottles.
Usage Index = 120.000/90.000= 1,33

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Explain: The average amount of yogurt people buy from TH
is 1.25 times the average amount of yogurt people buy of all brands.

8. Net promoter
Definition: Net promoter is a measure of the degree to which current customers will recommend
a product, service, or company.
Formula:

Exercise:
TH measures their promotion strategy with Percentage of Promoters is 60% Percentage of
Detractors is 5%.
Net Promoter Score = 60%-5% = 55%

Explain: 55% is the percentage of TH's customers willing to recommend their products to others
Solution:
TH can increase Promoter by implementing a discount program when customers buy large
quantities of the same product (fresh milk, yogurt, powdered milk, ice cream,...). This motivates
customers to link together to buy, which means they become Promoters for TH. For example, if a
mother with baby children wants to buy powdered milk at a cheaper price, she can convince
many other mothers to buy it with her.

CHAPTER 3: MARGINS AND PROFITS

1. Margins
Definition: Margin (on sales) is the difference between selling price and cost. This difference is
typically expressed either as a percentage of selling price or on a per-unit basis.
Formula:

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Example:
TH produces TH true milk bottles with a total cost of 4,000 VND. The company sells to
the market for 8,500 VND.
=> Unit Margin ($) = 8,500 – 4,000 =4,500 (VND)
=> Margin (%) = 4,500/8,500 = 53%
Explain: It means the difference between selling price and cost is 4.500 VND and it's about 53%
of selling price

2. Prices and Channel Margins

Definition:
Channel margins can be expressed on a per-unit basis or as a percentage of selling price. In
“chaining” the margins of sequential distribution channels, the selling price of one channel
member becomes the “cost” of the channel member for which it serves as a supplier.

Formula:

Example:
TH manufacturing company has a total cost of producing 1 tea box of 12,000 VND.
The company sells for 16,000 VND to wholesalers. Wholesalers sell for 20,000 VND to retailers.
Retailers expect a margin of 30%. Calculate margin (#,%) of manufacturers, wholesalers.
Calculate the retailer’s Customer selling price.
=> Margin of manufacturers : 16000 - 12000 = 4000

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% = 4000/16000 = 25%
Margin of wholesalers = 20,000 - 16,000 = 4,000
% = 4,000/20,000 = 20%
Retailer’s customer selling price = 20,000 + 20,000x30% = 26,000
Explain:
It means the difference between selling price and cost of manufacturers is 4,000 VND and it
occupied 25% of selling price to wholesalers and the difference between selling price for
wholesalers and selling price for retailers is the same but it only occupied 20% of selling price
for retailers.
Solution:
Enterprises can cut the selling price for wholesalers to VND 15,000, promoting wholesalers to
import more goods, thereby expanding their scale, increasing the number of stores and reducing
production costs due to high-volume production.

3. Average Price per Unit and Price per Statistical Unit

Definition 1:
Average unit price is the average price an item is sold for in a specific time period. Average unit
price is calculated by dividing the total revenue or net sales amount by the number of items sold.
Formula 1:

Example 1:
TH has 3 types of juice milk with flavors:
- cherry blossom pricing of 23,000 VND, accounting for 30% of sales,
- blueberry price of 22,000 VND, accounting for 40% of sales,
- orange at 21,000 VND, accounting for 30% of sales.
Average Price per Unit = 23,000 VND * 30% + 22,000 VND *40% + 21,000 VND * 30% =

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22.000 VND
Explain:
It means the average price per unit of total 3 type of special tea is 22,000 VND

Definition 2:
Price per statistical unit, can be defined as the total price of the bundle of SKUs comprising it or
in terms of the total price divided by the total volume of it. Price per statistical unit may also be
called per unit statistical price
Formula 2:

Example:

=> Price of 1l= 1.350.000/25=54.000 VND

Solution:
TH can launch more new product lines with different flavors such as bananas, pineapples,
watermelons, etc. to cut production costs.

4. Variable Costs and Fixed Costs

Formula:

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Example:
TH has to pay 10 million VND per month for space rental. Each month, they produce
and sell 100 products with a variable cost of 18,000 VND per product. Calculate monthly total
cost and total cost per unit.
=> Total variable costs = 18,000 x 100 = 1,800,000 VND
=> Monthly Total costs = 10,000,000 + 1,800,000 = 11,800,000 VND
=> Total cost per unit = 11,800,000/100 = 118,000 VND
Explain: It means each month TH pays 11,800,000 VND and cost per product is 118,000 VND
Solution:
TH can gradually switch to the automation line to cut wages for employees, continuously
maintain and check machines to avoid costly repairs. From there, businesses can reduce both
fixed costs and variable costs

5. Marketing Spending—Total, Fixed, and Variable

Definition: Marketing Spending: Total expenditure on marketing activities. This typically
includes advertising and promotion, sales force spending and other expenditure for marketing
activities
Formula:

Example:
TH spends $10 million a year to maintain a sales force that calls on grocery
chains and wholesalers. A broker offers to perform the same selling tasks for a 4%
commission.
At $150 million in revenue, Total Variable Selling Cost = $150 million x 4% = $6 million

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At $250 million in revenue,Total Variable Selling Cost = $250 million x 4% = $10 million
At $350 million in revenue, Total Variable Selling Cost = $350 million x 4% = $14 million\
Explain:
If revenues run less than $250 million, the broker will cost less than the in-house sales force.
At $250 million in revenue, the broker will cost the same as the sales force. At revenue levels
greater than $250 million, the broker will cost more.
Solution:
TH can keep the commission for wholesalers , but can develop many other policies to encourage
them to import goods by: marketing support, upgrading store space, giving gifts on special
occasions,...

6. Break-Even Analysis and Contribution Analysis

Definition:
The break-even level represents the sales amount—in either unit or revenue terms that is required
to cover total costs (both fixed and variable). Profit at break-even is zero.
Formula:

Example:
TH wants to know how many products it must sell to break even. The product sells for
36.000 VND per unit. It costs 12.000 VND per unit to make. The company’s fixed costs are 10
million VND. Calculate its Break even volume and Contribution margin (%)
=> Contribution per Unit ($) = 36,000 - 12,000 = 14,000 VND
=> Break-Even Volume = 10,000,000/ 14,000 = 714.28

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=> Contribution margin (%) = 14,000/36,000 = 39%
Solution:
TH can apply technology to simplify the production process to help reduce production costs,
thereby raising the bankruptcy limit higher.

7. Profit-Based Sales Targets

Formula:

Example:
TH wants to know how many Th true tea batches they must sell to realize a yearly profit
objective of 50.000.000. Each batch sells for 57.000 and costs 18.000 in materials to make. The
fixed costs are 30.000.000 per year:
Target Volume = 30.000.000 + 50.000.000 / 57.000-18.000 = 2052 batches
Target revenue = 2052 x 57.000 = 116.964.000 VND
Explain: It means 2052 batches is the number TH needs to sell to achieve 50.000.000 VND
yearly profit
Solution:
TH can use a communication campaign about its TH true tea product with a theme such as "The
essence of nature in every drop of tea" along with a combination of famous people like Mono,
Soobin Hoang Son, ... to spread their products to the youth better. Thereby helping to achieve
target revenue

CHAPTER 4: PRODUCT AND PORTFOLIO MANAGEMENT

1. Trial Rate
Definition: Trial rate is the percentage of a defined population that purchases or uses a product
for the first time in a given period.

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Formula:

Example: TH first launched the product in the tested market in the Ba Dinh district with 240
thousand people. The number of people participating in the trial is 12,000 people.
=> Trial Rate = 12,000 / 240,000 = 0.05 or 5 %
Explain: It means that 5% of people in Ba Dinh district had tried the new product of TH.
Solution: To increase the trial rate, TH should open many trial counters at supermarkets and
apartment buildings (depending on each product). For example, protein milk products for gym
people should be opened in gyms.

2. Penetration
Definition: Penetration is the number of people who have used the company's product
Formula:

Example: TH started selling new products in January. The company typically has an 80% repeat
rate and anticipates that this will continue for the new offering. They sold 15,000 cartons of milk
in January. In February, it expects to add 4,000 customers. On this basis, we can calculate the
expected penetration for this product in February.
=> Penetration in February = (Penetration January * Repeat Rate) + First-time Triers in February
= (15,000 * 80%) + 4,000 = 16,000
Explain: It means that in February there will be 16,000 customers.
Solution: To increase repeat rate, TH needs to improve product quality, build good relationships
with customers or increase product promotion.

3. Projection of Sale
Definition: Projection of sale is the forecasted number of products that customers buy.
Formula:

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Example: TH has 1000 customers, and each customer usually buys 8 times a month, each time
buying an average of 4 products.
=> Projection of Sales = 1000 * 8 * 4 = 32,000
Explain: It means that the sales of this period will be 32,000 products
Solution: To calculate the forecast that is closest to reality, TH needs to collect, analyze and
update data regularly

4. Year-on-year growth
Definition: Year-on-year growth measures the change in an annualized metric across two
comparable periods, typically the current period and the prior period as of the fiscal year-end
date.
Formula:

Example: In 2016, TH had revenues of 3,800 billion VND. In 2017 the company had revenues of
11,000 billion VND.
=> Year-on-year Growth = (11,000 billion - 3,800 billion) / 3,800 billion = 189.47%
Explain: It means that in 2017 the company sold 189.47% more than in 2016

5. Compound Annual Growth Rate (CAGR)

Definition: Compound annual growth rate is a specific business and investment term for
smoothly annualized investment income over a given period.
Formula:

Example: TH has 2016 sales of 3,615 billion VND and 2020 sales of 3,904 billion VND.
=> CAGR = ((3,904 / 3,615) ^ (1 / 5)) - 1 = 1.55%

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Explain: It means that through five years the average growth was 1.55%.

6. Cannibalization Rate
Definition: Cannibalization is the reduction in sales (units or dollars) of a firm’s existing
products due to the introduction of a new product.
Formula:

Example: TH sold yogurt in Hanoi with sales of 12,000 products last month. When Drinking
Yogurt was released this month, its sales were 7,000 units and TH True Yogurt's sales dropped to
4,000 units.
=> Cannibalization Rate = (12,000 - 4,000) / 7,000 = 114.2%
Solution: To minimize the Cannibalization Rate, TH should create value-added differentiation
between products to help customers find the product that best suits their needs. Value-added may
include product quality, after-sales service, or special product features.

7. Fair Share Draw

Definition: The Fair Share Draw represents the loss in share of products to a new entrant,
assuming that the new entrant will draw share proportionately from existing products.
Example: TH True Yogurt had sales of Eating Yogurt of 2 tons and Pasteurized Drinking Yogurt
of 1.5 tons in 2021. In 2022, the company was launching Fermented Drinking Yogurt with
expected sales of 3 tons and accounting for 30% of the total sales of the two previous types of
yogurt.
=> Sales and market shares of TH for 2021 appear in the following table:

Types of Yogurt Sales  Share 

Eating Yogurt 2.5 tons 62.5%

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 Pasteurized Drinking Yogurt 1.5 tons 37.5%

Total 4.0 tons 100%

Fermented Drinking Yogurt with expected sales of 3 tons and accounted for 30% of the total
sales of the two previous types of yogurt => This “capture” of sales will total 30% * 3 = 0.9 tons
Under fair share draw, the breakdown of that 0,9 tons will be proportional to the shares of the
current product. Thus 57.14 % of the 0.9 tons will come from Eating Yogurt, and 42.86% from
Pasteurized Drinking Yogurt. The following table shows the projected sales and market shares in
2022 of the three types of yogurt under the fair share draw assumption:

Types of Yogurt Sales  Share 

Eating Yogurt 1.9375 tons 31.8%

Pasteurized Drinking Yogurt 1.1625 tons 19.1%

Fermented Drinking Yogurt 3 tons 49.1%

Total 6.1 tons 100%

From the table, it is revealed that Fermented Drinking Yogurt has attracted more customers than
2 old products including Eating Yogurt and Pasteurized Drinking Yogurt. Since the 2 old
products and the new products are marketed by the same company, the new product shows a
higher probability of stealing sales of the old 2 products.

8. Brand Equity Metrics

8.1 Effective Market Share
Definition: Effective Market Share is a weighted average. It represents the sum of a brand’s
market shares in all segments in which it competes, weighted by each segment’s proportion of
that brand’s total sales.
Example: In 2021, TH made 70% of its sales in the Liquid milk segment, in which it had a 40%
share of the market, and 30% of its sales in the Yogurt segment, in which it had a 25% share.

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=> Effective Market Share = (0.7 * 0.4) + (0.3 * 0.25) = 0.28 + 0.075 = 0.355 or 35.5%

8.2. Relative Price

Definition: Relative Price is a ratio. It represents the price of goods sold under a given brand,
divided by the average price of comparable goods in the market.
Example: If goods associated with the TH understudy sold for 8,125 VND per unit while
competing goods sold for an average of 6,500 VND, TH’s Relative Price would be 1.25, and it
would be said to command a price premium. Conversely, if TH's goods sold for 4,875 VNĐ,
versus 6,500 VNĐ for the competition, its Relative Price would be 0.75, placing it at a discount
to the market.

8.3. Durability
Definition: Durability is a measure of customer retention or loyalty. It represents the percentage
of a brand’s customers who will continue to buy goods under that brand in the following year.
Example: In 2021, TH had 10,000 people buying products and in 2022 40% of them continue to
buy, then Durability is 60%.
Solution: To maintain and increase the repurchase rate, TH should improve product or service
quality, and create a good customer experience, ...

8.4. Brand Equity Index (Moran)

Formula: Brand Equity Index (I) = Effective Market Share (%) * Relative Price (I) * Durability
(%)
Example: TH Eating Yogurt focuses on two geographic markets—northern and southern Vietnam
metropolitan areas. In the northern market, which accounts for 50% of TH Eating Yogurt’s sales,
it has a 30% share of the market. In the south, where TH Eating Yogurt makes the remaining
40% of its sales, it has a 50% share of the market. (Figures for 2021)
Effective Market Share is equal to the sum of TH Eating Yogurt’s shares of the segments,
weighted by the percentage of total brand sales represented by each.
North = 30% * 50% = 0.15; South = 50% * 40% = 0.20 => Effective Market Share = 0.35
The average price for yogurt is 5,000 VND, but Eating Yogurt enjoys a premium. It generally
sells for 9,000 => Relative Price = 9,000 / 5,000 = 1.8

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Half of the people who purchase TH Eating Yogurt this year are expected to repeat it next year
=> Durability = 0.5
=> Brand Equity = Effective Market Share * Relative Price * Durability
= 0.35 * 1.8 * 0.5 = 0.315
Solution: To raise the Brand Equity Index TH needs to ensure the quality of the company's
products and services to meet the needs and expectations of customers. It also creates a good
bond with customers by creating opportunities for customers to engage and interact with the
brand.

9. Conjoint Utilities and Consumer Preference

Definition: Conjoint Analysis is a method of estimating customers by assessing the overall
preferences customers assign to alternative choices.
Formula:
Conjoint Preference Linear Form (I) = [Partworth of Attribute1 to Individual (I) * Attribute
Level (1)] + [Partworth of Attribute2 to Individual (I) * Attribute Level (2)] + [Partworth of
Attribute3 to Individual (I) * Attribute Level (3)] + etc.
Example: Two attributes of a carton of TH liquid milk, its price, and its size, are ranked through
conjoint analysis, yielding the results shown:

Attribute Level Pathworth

Price 4,200 0.9

Price 6,800 0.75

Size 110ml 0.7

Size 180ml 0.8

The 110 ml carton of milk for 4,200 VND has a part-worth to customers of 1.6 (derived as 0.9 +
0.7). This is the highest result observed in this case. The 180 ml carton of milk for 6,800 VND is
less desirable to customers, generating a part-worth of 1.55 (that is, 0.75 + 0.8).

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On this basis, we determine that the customer whose views are analyzed here would prefer a 110
ml carton at 4,200 to a 180 ml carton at 6,800. Such information would be instrumental to
decisions concerning the trade-offs between product design and price.
10. Segmentation Using Conjoint Utilities
Do Segmentation Using Conjoint Utilities for these customers of TH.

Customer Taste Packaging Price

A 0.7 0.8 0.8

B 0.8 0.7 0.6

C 0.5 0.4 0.7

Example: Using this methodology, the distance between each pair of TH’s customers can be
calculated as follows:

Distances Taste                             Packaging                       Price

A and B = (0.7 - 0.8) ^ 2   +     (0.8 - 0.7) ^ 2       +         (0.8 - 0.6) ^ 2

=      0.01             +          0.01                 +              0.04
=       0.06

A and C = (0.7 - 0.5) ^ 2   +     (0.8 - 0.4) ^ 2       +         (0.8 - 0.7) ^ 2

=      0.04             +          0.16                 +              0.01
=       0.21

B and C = (0.8 - 0.5) ^ 2   +     (0.7- 0.4) ^ 2       +         (0.6 - 0.7) ^ 2

=      0.09             +          0.09                 +              0.01
=       0.19

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If looking at this distance, A and B are so close to each other (0.06) => that we can put them into
one group/segment/cluster while A and C or B and C cannot be in the same group.
Therefore, businesses should focus on two groups of customers, A and B. In addition, they need
to pay attention to the two factors of taste and product packaging because these are the two
factors that these two groups of customers are most interested in.
11. Conjoint Utilities and Volume Projection
The conjoint utilities of products and services can be used to forecast the market share that each
will achieve and the volume that each will sell. Marketers can project market share for a given
product or service on the basis of the proportion of individuals who select it from a relevant
choice set, as well as its overall utility.
Example: TH can use conjoint analysis to project the market share and the sales volume that will
be achieved by its products.
For example, we will know the people who want to purchase liquid milk. They buy it because of
some utilities like nutrition, taste, price, and packaging, ... The ones who need nutrition or taste
might be moms. The ones who need packaging or price might be businesses. So through that
conjoint utility analysis, we can give the conclusion that customers will be individuals (moms) or
businesses (wholesalers, retailers, agents). Then we will estimate how many of each group are in
the area and forecast the market share and sales volume.

CHAPTER 5: CUSTOMER PROFITABILITY

1. Customers, Recency, and Retention
Definition:
Customer count is the number of customer checkout transactions for a day or week.
Recency: How recently a customer has made a purchase
Retention is the activities a store uses to increase the likelihood of a customer purchasing again,
while focusing on increasing the profitability of each repeat purchase.
 Purpose: To monitor firm performance in attracting and retaining customers.

2. Customer Profit

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Customer profit (CP) is the profit the firm makes from serving a customer or customer group
over a specified period of time. Calculating customer profitability is an important first step in
understanding which customer relationships are better than others. Often, the firm will find that
some customer relationships are unprofitable. The firm may be better off (i.e., more profitable)
without these customers. At the other end, the firm will identify its most profitable customers and
be in a position to take steps to ensure the continuation of these most profitable relationships.
The customer profitability definition is “the profit the firm makes from serving a customer or
customer group over a specified period of time, specifically the difference between the revenues
earned from and the costs associated with the customer relationship in a specified period”
 Purpose: To identify profitability of customers

3. Customer Lifetime Value

Definition: The present value of the future cash flows
 Purpose: To access to value of each customer
Formula:

Example: TH charges 23,900 VND per milk batch. Depreciation of unit fixed costs is VND
7.000 unit variable cost is VND 5,500. Retention Rate = 85%. Discount Rate = 1%. Calculate
CLV of a customer.
Contribution margin: 23,900 - 7,000 - 5,500 = 11,900 VND
CLV= 11,900 *[85% / (1+ 1% - 85%)] = 63,218 VND
Explain: CLV for this product is 63,218 VND
Solution:
In order to increase CLV => TH needs to increase Margin, retention rate and decrease discount
rate
- Margin: increase price + decrease cost
In order to increase prices, company need to promote advertising-> reputation Top of mind,
improve quality of product,..
to decrease cost: Optimize production, train workers, import raw materials at good prices

24
Retention rate: Making the product more valuable, instead of selling 4 boxes of milk in a batch,
sell 6 boxes. add coupons, give away other products that do not sell as well or products TH want
to advertise. Promoting more advertising programs, making bundles with similar items.

4. Prospect Lifetime Value

Definition: Prospect lifetime value is the expected value of a prospect. It is the value expected
from the prospect minus the cost of prospecting.
 Purpose: To account for the lifetime value of a newly acquired customer (CLV) when
making prospecting decisions

Example:
TH plans to spend $70,000 on an advertisement reaching 80,000 readers. If the service company
expects the advertisement to convince 1.5% of the readers to take advantage of a special
introductory offer (priced so low that the firm makes only $15 margin on this initial purchase)
and the CLV of the acquired customers is $100, is the advertisement economically attractive?
Here Acquisition Spending is $0.875 per prospect, the expected acquisition rate is 0.015, and the
initial margin is $15.
The expected PLV of each of the 80,000 prospects is
PLV = 0.015*($15 + $100) - $0.875 = $0.85
The expected PLV is $0.85. The total expected value of the prospecting effort will be
80,000*$0.85 = $68,000. The proposed acquisition spending is economically attractive.
Break-even acquisition rate = $0.875$15 + $100 = 0.007608 = 0.768%
Explain: 0.85 > 0 -> attractive
In order to success -> acquisition rate must exceed 0,768%

Solution: To increase PLV -> increase acquisition rate

TH’s Ads need to target right customers and create meaningful advertising campaigns for
customers

5. Acquisition Versus Retention Cost

25
Definition:
The firm’s average acquisition cost is the ratio of acquisition spending to the number of
customers acquired.
The average retention cost is the ratio of retention spending directed toward a group of customers
to the number of those customers successfully retained.
=>To determine the firm’s cost of acquisition and retention
Formula:

During the past year, TH spent $1.5 million and acquired 65,000 new customers. Of the 155,900
customer relationships in existence at the start of the year, only 89,900 remained at the end of the
year, despite about $550,000 spent during the year in attempts to retain the 155,900 customers.
Average acquisition cost is $1,500/65 = $23.08 per customer.
Average yearly retention cost is $550,000/89,900 = $9.18
Solution:
Decrease spending + Increase customer acquired: TOM, top of line -> marketing target
maximum customers ->build brand image product image.
Customer retention: TH need innovate products, change packaging, follow the trend and refresh
products, keep prices with many benefits such as customer care.

CHAPTER 6: SALR FORCE AND CHANNEL MANAGEMENT

1. Sales Force Coverage: Territories

Definition: Salesforce territories are the customer groups or geographic districts for which
individual salespeople or sales teams hold responsibility.
Formula:

26
Example: A salesperson in TH Group has 80 Current Accounts, Average Time to Service an
Active Account is 2 hours. Besides, she has 50 Prospects with a Time Spent Trying to Convert a
Prospect into an Active Account of 4 hours. Calculate her Workload. Each customer has the
buying power of 2 million VND. So how much is the Sales Potential next month for this
salesperson?
Explain the answer:
Workload = (80 x 2) + (50 x 4) = 360 hours
Sales Potential = 2.000.000 x 50 = 100.000.000 VND
=> The Sales Potential next month for TH’s salesperson is 100.000.000 VND
Solution:
Due to her inefficient working time, TH's Salesperson's present workload is rather significant.
With 80 Current Accounts, for example, the average time to service an Active Account is 2
hours. She also has 50 Prospects with 4 hours to convert them into active accounts. This wastes
time and has an impact on her performance. Therefore, in order to increase sales performance
and achieve higher disappointing work efficiency, and the following month's sales potential for
TH's sales force is greater than VND 100,000,000, TH Group must hold sales staff meetings and
training. Employees must have advanced capabilities. Furthermore, it is recommended to use AI
technology to automate various procedures in order to save time and money.

2. Sales Force Objectives: Setting Goals

2.1. Sales goal or allocation based on prior-year sales
Formula:

Example: A salesperson of TH Group has a Salesperson's Share of Prior-Year Sales in TH of

20%. Forecasted Sales for TH this year is 5 billion. Calculate Sales Goal for him.
Explain the answer:

27
Sales Goal = 0,02 x 5.000.000.000 = 100.000.000 VND
=> Sales Goal for the salesperson of TH Group is 100.000.000 VND
Solution:
Sales Goal for the salesperson is VND 100,000,000, which can be said to be temporarily suitable
for the current business situation. What TH need to do is help that salesperson reach that level of
sales. This is within the scope of the manager to review the capacity as well as each sales
territory from which to have appropriate strategies. Besides, TH should provide a suitable
commision rate and some company benefits.

2.2. Sales goal based on prior-year sales and the sales potential of a territory
Formula:

Example: Salesperson's Prior-Year Sales of 8 billion VND last year. Forecasted Sales reduced for
TH Group from 60 billion last year to 40 billion this year. Calculate this year's Sales Goal for this
salesperson.
Explain the answer:
Sales Goal = 8 + [40 x (-0,1)] = 2 billion
=> Sales Goal for the salesperson of TH Group this year is 2 billion
Solution: The Sale Goal for the sales person in the year is low due to the sales forecasted is
expected to decrease compared to last year. What needs to be done is to revive sales, reset KPIs
and recruit a salesforce to achieve the set goals. Besides, it also needs salesforce training, setting
up and reviewing all sales channels.

2.3. Combined Method

Formula:

28
Example: A salesperson is allocated a 10% Weighted Share of Sales. Forecasted Sales for TH
Group decreased from 30 billion to 25 billion. Calculate this year's Sales Goal for this
salesperson.
Explain the answer:
Sales Goal = 0,1 x 5 = 500 million
=> Sales Goal for the salesperson of TH Group this year is 500 million
Solution:
Same as the previous example, the Sale Goal for the salesperson in the year is low due to the
sales forecasted is expected to decrease compared to last year. What needs to be done is to revive
sales, reset KPIs and recruit a salesforce to achieve the set goals. Besides, it also needs salesforce
training, setting up and reviewing all sales channels.

3. Sales Force Effectiveness: Measuring Effort, Potential, and Results

Definition: By analyzing sales force performance, managers can make changes to optimize sales
going forward. Toward that end, there are many ways to gauge the performance of individual
salespeople and of the sales force as a whole, in addition to total annual sales.
Formula:

29
Example: A salesperson in TH Group has a sale of 3 billion VND. He contacted 100 Clients, and
created 80 Potential Accounts, of which 50% became Active Accounts with Buying Power of
250 million VND for each account. He has a total Expense for the sale of 1 billion. Calculate the
Effectiveness Ratios for this salesperson
Explain the answer:
Sales Force Effectiveness Ratios = 3 / 100 = 0.03 billion
Sales Force Effectiveness Ratios = 3 / 80 = 0.0375 billion
Sales Force Effectiveness Ratios = 3 / (0,5 x 80) = 0.075 billion
Sales Force Effectiveness Ratios = 3 billion / (250 x 40) million = 0.3 billion
Sales Force Effectiveness Ratios = 1 / 3 = 0.333 billion
Solution
As a result, sales managers must more efficiently allocate resources while also optimizing future
sales. What needs to be done is to raise the ratio of Active Accounts to Purchasing Power while
also lowering the cost of sales. To do this, a clear strategy and plan are required. Continuously
monitoring and analyzing the sales force's and market segment's effectiveness are much needed.

4. Sales Force Compensation: Salary/Reward Mix

Formula:

30
Example: TH Group pays a salary for a salesperson of 7 million VND per month. Commission
for sales is 0.8%. The salesperson sold 200 million VND last month. Calculate Compensation for
the salesperson last month.
Explain the answer:
Compensation = 7 + (200 x 0.008) = 8.6 million
=> Compensation for the Salesperson last month is 8.6 million
Solution
Last month's compensation for the Salesperson was 8.6 million, which included 0.8%
commission, which is a low commission rate when compared to other competitors. Because of
the low commission rate, the salesperson will be unmotivated to work, and the salesperson's
ability to work for competitors will be significantly high. Therefore, the commission rate would
need to be increased to around 1.2%, and the corporation should provide some perks such as
vacation, purchase price reductions, career advancement, and so on.

5. Sales Force Tracking: Pipeline Analysis

Definition: Pipeline analysis is used to track the progress of sales efforts in relation to all current
and potential customers in order to forecast short-term sales and to evaluate the sales force
workload.
=> Purpose: To forecast upcoming sales and evaluate workload distribution.

6. Numeric, ACV and PCV Distribution, Facings/Share of Shelf

6.1. Numeric
Definition: Numeric distribution is the percentage of outlets carrying a certain product of the
company. The main use of numeric distribution is to understand how many physical locations
stock a product or brand.

31
Formula:

Example: TH Group has 300 stores, including 60 stores that sell TH True Butter. Calculate
numeric distribution of TH True Butter.
Explain the answer:
Numeric Distribution = 60/300 = 20%
=> Numeric distribution of TH True Butter is 20%
The distribution of TH True Butter is 20%, indicating that this product is not generally available
in all stores. Customers will be irritated if they cannot find the thing they need. This will have an
impact on the consumer experience. The idea is to encourage a 100% rise in the number of stores
so that every customer can purchase this product regardless of where they go. To do this, the
distribution system and production must be expanded.

6.2. ACV
Definition: All commodity volume (ACV) is a weighted measure of product availability, or
distribution, based on total store sales. ACV can be expressed as a dollar value or percentage
Formula:

Example: TH Group has stores with total sales of 800 million VND, including stores that sell TH
True Yogurt with total sales of 300 million VND. Calculate ACV of TH True Yogurt.
Explain the answer:
ACV of TH True yogurt = 300/800 = 37.5%
=> ACV of TH True Yogurt is 37,5%
Solution:

32
The ACV of True Yogurt is 37.5%, which is a high level for AVC rates. TH's objective is to keep
that number stable as well as improve in the future. To do this, it is vital to boost sales during
peak months or high times in order to get the highest possible sales.

6.3 PCV
Definition: Product category volume (PCV) examines the share of the relevant product category
sold by the stores in which a given product has gained distribution.
Formula:

6.4. Category Performance Ratio

Definition: The relative performance of a retailer or retailers in a given product category,
compared with performance in all product categories.
Formula:

Example: TH Group has stores with total sales of 200 million VND, including stores that sell TH
True Juice and TH True Butter with total sales of 60 million VND. Calculate PCV and Category
Performance Ratio. (with ACV of the above exercise)
Explain the answer:
PCV = 60/200 = 30%
Category Performance Ratio = 30/37.5 = 0.8%
=> PCV of TH True Juice and TH True Butter is 30%
Category Performance Ratio TH True Juice and TH True Butter is 0.8%

33
Solution:
The PCV of TH True Juice and TH True Butter is 30%, while the Category Efficiency Ratio of
TH True Juice and TH True Butter is 0.8%. These two products are not the company's best-
selling products and are not too prominent for consumers, so these products are only at a low
level. In order to achieve the aim of becoming a top-of-mind and leading brand in customers'
hearts, TH Group must grow sales of all products, not just outstanding products such as TH True
Milk, TH True Yogurt, or TH True Tea,... To do this, it is necessary to develop a suitable
marketing mix strategy for each product category.
7. Supply Chain Metrics
7.1. Out-of-Stocks
Definition: This metric quantifies the number of retail outlets where an item is expected to be
available for customers but it is not. It is typically expressed as a percentage of stores that list the
relevant item.
Formula:

Example: TH's warehouse list contains 5000 products, yesterday 1000 products were sold out of.
Calculate Out-of-Stocks
Explain the answer:
Out-of-Stocks = 1000/5000 = 20%
=> The Out-of-Stocks of TH’s warehouse is 20%
Solution:
The out-of-stock rate at TH is 20%, which is considered quite low and is a positive aspect. TH
Group must keep this figure as low as possible in order to ensure that the supply of items is
always sufficient to meet the demands of consumers, avoiding a situation in which demand
increases but the company does not have sufficient goods to market. To do this, TH needs to
survey the skills of users' needs with each type of product to adjust the stock in the warehouse
accordingly, avoiding out-of-stock situations.
7.2. PCV Net Out-of-Stocks
Definition: The PCV of a given product’s distribution network, adjusted for out-of-stock
situations.
Formula:

34
Example: TH Group has PCV of 55%. Its warehouse list contains 3250 products, with 700
products sold out. Calculate Net Out-of-Stocks
Explain the answer:
Out-of-Stocks = 700/3250 = 21.5%
Net Out-of-Stocks = 0.55 x 0,215 = 11,8%
=> Net Out-of-Stocks of TH’s warehouse is 11,8%
Solution:
The net out-of-stock rate at TH is 11.8%, which is lower than the out-of-stock rate of 21.5%. As
a result, adjustments for out-of-stock products are required to keep this number equally low. The
situation can be solved by managing the PCV in TH's inventory.
7.3. Service Levels, Percentage On-time Delivery
Definition:
The percentage of the customer (or trade) orders that are delivered in accordance with the
promised schedule.
Formula:

Example: A month, the TH store has 350 orders, of which 320 are delivered on time. Calculate
Percentage On-time Delivery.
Explain the answer:
Percentage On-time Delivery = 280/350 = 91,4%
 Percentage On-time Delivery of the TH store is 91,4%
Solution:
Percentage On-time Delivery of the TH store is 91,4% which is high and stable. The objective is
to maintain that on-time delivery rate in order to preserve customer satisfaction and provide them
with the finest shopping experience possible at TH. Increase the on-time delivery rate to 100% if
possible. Transportation is a complex activity influenced by numerous objective and subjective
elements. A single change in any of these factors can cause transportation to be disrupted.

35
Therefore each store needs to anticipate the risks to deliver as quickly as possible. If there is a
delay, even if it is only a few minutes, it must be clearly notified to the customer in advance.
7.4. Inventory Turns
Definition: The number of times that inventory “turns over” in a year
Formula:

Example: TH True Milk sells for 500,000 VND. TH's sales last year were 70 billion. TH's
warehouse holds 3000 products. Calculate Inventory Turns.
Explain the answer:
Inventory Turns = 70 billion / (500.000 x 3000) = 47
=> Inventory Turns of TH’s warehouse is 47
Solution:
TH has 47 turns of inventory in a year, so on average, every month, there are 3-4 times the
product is "turned around". This number is quite high for TH True Milk. If they are constantly
replenishing their inventory just as they are running low, the inventory levels can go dangerously
low, affecting TH's balance sheet and operating efficiency. The solution to this is to adjust
production and inventory levels accordingly to meet consumer demand while ensuring stock
availability.
7.5. Inventory Days
Definition: the speed with which inventory moves through the sales process.
Formula:

Example: TH True yogurt sells for 250,000 VND. TH's sales last year was 10 billion. TH's
warehouse holds 1000 products. Calculate Inventory Days.
Explain the answer:
Inventory Turns = 250,000 / 2000 = 125

36
Inventory Days = 365 / 125 = 2,92 days
=> Inventory Days of TH’s warehouse is 2,92 days
Solution:
The inventory day for TH True Yogurt is 2.92 days, which is the product's average. However,
reducing the number of days things are stored in warehouses is still important. To accomplish
this, TH must recalculate the quantity requested for the product in order to produce suitably
while also accelerating distribution.
8. SKU Profitability: Markdowns, GMROII, and DPP
8.1. Markdowns
Definition: Markdowns are calculated as a ratio of discount to the original price charged.
Formula:

Example: TH True Nut is sold for 500,000 VND. TH Group reduced the price of TH True Nut to
290,000 for liquidation. Calculate % of Markdowns.
Explain the answer:
Markdowns = (500,000 - 290,000) / 500,000 = 42%
=> The percentage of Markdowns is 42%
Solution:
The markdown rate at True Nut is 42%, which is considered excessive at the moment. This will
have a significant impact on the store's revenue and sales, but due to the nature of the liquidation,
the product price drop is natural. To prevent entering a phase when product prices must be cut,
TH must calculate production correctly, avoiding excess production. Furthermore, it is vital to
regularly examine the number of goods in stock in order to make distribution and price
modifications in order to avoid a higher discount rate than intended.
8.2. GMROII
Definition: Gross Margin Return on Inventory Investment (GMROII): This metric quantifies the
profitability of products in relation to the inventory investment required to make them available.
Formula:

37
Example: TH Group has a product with Gross Margin on Product Sales in a Period of 95,000
VND. Average Inventory Value at Cost for each product is 30,000 VND. Calculate Gross Margin
Return on Inventory Investment.
Explain the answer:
Gross Margin Return on Inventory Investment = 95,000 / 30,000 = 31,7%
=> Gross Margin Return on Inventory Investment is 31,7%
Solution:
As we can see, the GMROII is 31.7%, indicating that the product generates a low profit rate.
Predictably, it will only be a matter of time before the cost of storage rises and the selling price
of the goods falls more. With such a product, TH Group must accelerate sales in order to lower
inventory value by offering programs such as buy one get one free, buy two get one free, and so
on in order to sell as many products as possible within the period.
8.3. Direct Product Costs / DPP
Definition:
Direct Product Costs: These are the costs of bringing a product to customers.
Direct Product Profitability (DPP): Direct product profitability represents a product’s adjusted
gross margin, less its direct product costs.
Formula:

Example: TH Group has a product with a Gross Margin of 80,000 VND. Each product has
Warehouse Direct Costs of 20,000 VND, Transportation Direct Costs of 15,000 VND and Store
Direct Costs of 10,000 VND. Calculate Direct Product Profitability.
Explain the answer:
Direct Product Costs = 20,000 + 15,000 + 10,000 = 45,000 VND

38
Direct Product Profitability = 80,000 - 45,000 = 35,000 VND
=> Direct Product Profitability is 35.000 VND
Solution:
As we can see, the DPP of the product is less than the Direct Product Cost, implying that the
direct costs of warehouse, transportation, and storage are greater than allowed. As a result, TH
Group must find a means to cut these costs. To do this, it may be required to minimize costs at
the warehouse, as well as superfluous equipment and labour. In addition, to cut transportation
expenses, a suitable warehouse location and store locations must be found. For store costs, TH
Group can increase the discount rate for intermediaries, allowing them to minimize store direct
costs.

CHAPTER 7: PRICING STARTEGY

1. Price Premium
Definition:
Price premium, or relative price, is the percentage by which a product’s selling price exceeds (or
falls short of) a benchmark price.
Purpose: To evaluate product pricing in the context of market competition.
Formula:

Example:
Currently in Vietnam's fresh milk market, a major competitor of TH True Milk is Vinamilk.
Compare the price of 1 box of TH True Milk 1L Pasteurized Milk which is 37,000 VND with the
price of 1 box of Vinamilk 1L Pasteurized Milk which is 29,000 VND.
Explain the answer:
Price Premium = 37 000 - 29 00029 000 = 27,5%
It means TH True Milk’s price is 27,5% more expensive than Vinamilk
In addition, TH True Milk also wants to compare the brand's price with the average price of
products on the market. TH True Milk 1L sterilized fresh milk is sold for 37,000 VND/box and

39
accounts for 45% of sales in the market. TH True Milk 100% Pasteurized Fresh Milk No Sugar
1L is sold for 39,000 VND/box and accounts for 55%.
TH True Milk calculates the weighted Average Price Paid as = (37,000 x 45%) + (39,000 x 55%)
= 38,100
Price Premium = 37 000 - 38 10038 100 = -2,8%
It means the TH True Milk’s price is 2,8% cheaper than the average price of products on the
market.
2. Reservation Price and Percent Good Value
Definition:
The reservation price is the value a customer places on a product. It constitutes an individual’s
maximum willingness to pay.
Percent good value represents the proportion of customers who believe a product is a “good
value” at a specific price.
Example:
Suppose there are 11 boxes of 1L Fresh milk TH True Milk with reservation prices of (3.000,
5.000, 10.000, 20,000, 30,000 … 90,000) frozen and TH True Milk trying to decide upon a
single price. Suppose also that the variable cost to produce the product is 20.000 VND per unit.
If these reservation prices are accurate, then the firm might expect to sell from 11000 to 12000
units if the price is 10,000 VND or less, 10000 units if the price is greater than 20,000 and less
than or equal to 30,000 VND, and up to no units demanded if the price is greater than 80,000
VND.
Explain the answer:

Price  % Good Quantity  Total

Value  Contribution

3.000 100.00% 12000 -204 million

dong

5.000 100.00% 11000 -165 million

dong

10.000 90.91% 11000 -110 million

40
 dong

20.000 83.35% 10000 0đ

30.000 71.82% 9000 90 million dong

40.000 50.23% 8000 160 million

dong 

50.000 34.45% 5000 150 million

dong

60.000 18.18% 2000 80 million dong

70.000 5.06% 1000 50 million dong

80.000 1.02% 0 0đ

Variable Cost is 20.000VND per unit.

→ Thus, the optimal price (the price that maximizes total contribution) to sell the boxes of 1L
fresh milk TH True Milk is 40,000 VND. At a price of 40,000 VND, TH True Milk expects to
sell 8000 units and the total contribution will be 160 million dong.

3. Price Elasticity of Demand

Definition:
Price elasticity measures the responsiveness of quantity demanded to a small change in price.
Purpose: To understand market responsiveness to changes in price.
Formula:

Example:

41
In 2022, TH True Milk sold a box of pasteurized fresh milk - 1L paper box for 32,000 VND and
had a sales volume of 5000. In 2023, TH True Milk increased the product price to 37,000 VND
and sales increased to 4500 boxes.
Explain the answer:
→ Price Elasticity = (4500-5000)/5000(37 000- 32 000)/32 000 = -64
Thus, the change in quantity demanded at the price of TH true milk is 64 times greater than the
change in price
-> This shows that, if TH increases the price, the percentage of customers who will buy other
substitute products from competitors such as Vinamilk, ... is relatively high.
Solution:
The solution for TH true milk if they don't want this to happen is:
Add value to customers by giving away accompanying products to enhance product value
Give more incentives when buying many products (Discount, gift voucher for next time, or give
lucky rewards such as phone, phone card, gold, ... in each month/quarterly)

4. Optimal Prices and Linear and Constant Demand Functions

Definition:
The optimal price is the most profitable price for any product. For linear demand, the optimal
price is the midpoint between the maximum reservation price and the variable cost of the
product.
Purpose: To determine the price that yields the greatest possible contribution.
Formula:

Example:
TH True Milk develops a new but similar product. Its demand follows a linear function in which
the maximum reservation price (MRP) is 50,000 VND. Variable cost is 20,000 VND per unit.
Explain the answer:
Optimal price = 50 000 + 20 0002 = 35,000 VND

42
5. “Own,” “Cross,” and “Residual” Price Elasticity
Definition:
The concept of residual price elasticity introduces competitive dynamics into the pricing process.
It incorporates competitor reactions and cross elasticity.
Purpose: To account for both customers’ price elasticity and potential competitive reactions when
planning price changes
Residual price elasticity is the combination of three factors:
“Own” price elasticity - The change in units sold due to the reaction of a firm’s customers to its
changes in price. (How customers in the market react to our price changes.)
“Competitor reaction” elasticity - The reaction of competitors to a firm’s price changes. (How
our competitors respond to our price changes.)
“Cross” price elasticity - The reaction of a firm’s customers to price changes by its competitors.
(How our customers respond to the price changes of our competitors.)
Formula:

Example:
TH True Milk sells products for 23,000 VND with sales of 14,000 units. When they reduced the
price by 10%, sales increased to 15,000 units. In response to TH True Milk's 10% discount,
Vinamilk reduced the price by 15%. From this decrease in Vinamilk's price, TH True Milk's sales
decreased by 5%. Calculate Residual price elasticity for TH True Milk.
Explain the answer:
Own price elasticity: The change in a firm’s unit sales, resulting from its initial price change,
assuming that competitors’ prices remain unchanged.
→ Elasticity (P1) = Q2 - Q1Q1P2 - P1P1 = 15000 - 140001400020700 - 2300023000 = -0,7
Competitor reaction elasticity: The extent and direction of the price changes that are likely to be
made by competitors in response to a firm’s initial price change.
→ Facing the 10% discount of TH True Milk, Vinamilk has reduced the price of their products
by 15%.

43
Cross elasticity with regard to competitor price changes: The percentage and direction of the
change in the initial firm’s sales that will result from a small percentage change in competitors’
prices.
→ Cross elasticity is -0.8, then a 15% decrease in Vinamilk's prices will result in a decrease of
10.5% in the initial TH True Milk's sales.
→ Residual price elasticity = -0,7 + 15% x -10,5% = -0,7
So, when a competitor's product changes in price, TH True Milk's customer elasticity will be 0.7.
Solution:
With this relatively high rate, TH needs to implement solutions to retain customers and enhance
their values, which may include:
Set up programs for loyal customers (such as vouchers for more products / price incentives /
points and exchange for product discounts for customers)
Set up programs to attract more potential customers (try the product, add flavor to the product, or
create community programs)

CHAPTER 8: PROMOTION
1. Baseline Sales, Incremental Sales and Promotional Lift
Definition
Baseline Sales means the monthly Net Demand Sales levels of the Products calculated and set by
CLIENT pursuant to Schedule B as those sales levels may be revised by written agreement of the
parties.
Incremental sales refers to the value of products or services sold during a tracked period of time
that goes over and above what your business might normally sell.
Promotion lift is defined as the incremental increase in sales that occurs during a specific
promotional time period versus the baseline sales that would have occurred during that same
time period had the promotion never been launched.
Formula

44
Example
A TH’s retailer expects to sell 600 millions worth of milk in a typical month without advertising.
In May, while running a newspaper ad campaign that cost 50 millions, the store sold 800 millions
worth of milk. It engages in no other promotions or nonrecurring events during the month.
Total sales = Baseline sales + Incremental Sales from Marketing
=> Incremental Sales from Marketing = Total Sales - Baseline Sales = 800-600 = 200 millions
=> Positive Incremental Sales is an indicator of marketing effectiveness that helps businesses see
and identify marketing activities that have a positive effect on their sales.
The store owner estimates incremental sales to be 200 millions. This represents a lift (%) of 33%,
calculated as follows:
Lift (%) = Incremental Baseline Sales = 200600 = 33%
=> Lift from promotion by 25% can help marketers identify more effective strategies for future
campaigns, and this is the information needed to integrate successful tactics to increase sales.
profits for the organization.
The cost per incremental sales is $0.25, calculated as follows:
Cost of Incremental Sales = Marketing Spending Incremental Sales = 50200 = 0.25
=> Cost of incremental sales is 0.25. Here's how to describe promotional goals and track
performance, so that the company can optimize the plan as appropriate. And, there is a specific
language that speaks to advertising goals and metrics.
TH Group collects data from past promotions and estimates the lift it achieves through different
elements of the marketing mix. One researcher believes that an additive model would best
capture these effects. A second researcher believes that a multiplicative model might better reveal
the ways in which multiple elements of the mix combine to increase sales. The product manager
for the item under study receives the two estimates shown in Table.

                                  Additive                   Multiplicative

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 Spendin Advertising Trade Consumer Advertising Trade Consumer
g Promotion Promotion Lift Promotion Promotion
Lift Lift Lift Lift

0 0% 0% 0% 1 1 1

1 billion 5% 10% 16% 1.05 1.1 1.15

2 billions 10% 20% 35% 1.1 1.2 1.3

Fortunately, both models estimate baseline sales to be 9 billion. The product manager wants to
evaluate the following spending plan: advertising (1 billion), trade promotion (0), and consumer
promotion (2 billions).
- Additive:
Projected Sales = 9 + [9 * 5%] + [9 * 0] + [$9 * 35%] = 9 + 0,45 + 0 + 3,15 = 12,6 billions
- Multiplicative:
Projected Sales = Baseline * Advertising Lift * Trade Promotion Lift * Consumer Promotion Lift
= 9 * 1.05 * 1 * 1.3 = 13,51 billions
Ex: TH has profits achieved with promotion of $300.000. Contribution without the promotion
would be $260.000.
Profitability of a Promotion = $300.000 - $260.000= $40.000
=> An incremental increase in profits from $260.000 to $300.000
2. Redemption Rates, Costs for Coupons and Rebates, Percent Sales with Coupon
Definition
Redemption Rate is the number of sales promotion coupons converted to purchases expressed as
a percentage of the number distributed.
Rebates are an incentive program in which a supplier offers their customers a monetary reward
for reaching designated purchasing goals.
Formula

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Example
TH Group sold 200.000 bottles in one month. On each purchase, the customer was offered a
5.000 VNĐ rebate. 150.000 rebates were successfully claimed
Redemption Rate (in volume terms) = 150000200000 = 75%
=> Brands and retailers that know when their customers are in the right mindset to buy their
products are able to deliver the most effective offers at the right time. Coupon redemption rates
increase, enabling marketers to increase their ROI on marketing spend and their overall revenue.
Ex: TH Group sold 200.000 bottles in one month. On each purchase, the customer was offered a
5.000 VNĐ rebate. 150.000 rebates were successfully claimed. Coupon Face Amount is 2.000
VNĐ
Redemption Charges = Cost per Redemption - Coupon Face Amount
= 5.000 - 2.000 = 3.000 VNĐ
=> Redemption Charges is 3.000 VNĐ
Total Coupon Cost = Coupons Redeemed * Cost per Redemption
= 150.000 * 5.000
= 750.000 VNĐ
=> Total Coupon Cost is 750.000 VNĐ
3. Promotions and Pass-through
Definition: The "pass-through" is defined as the percentage of the trade deal that is given to
consumers
Formula

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Example
Ex: TH sold 200.000 bottles in one month. Sales with a temporary trade discount of some form is
250.000 bottles.
Percentage Sales on Deal = 250.000/200.000 = 125%
=> The percentage of company sales that are sold with a temporary trade discount of some form
is 125%
Ex: TH Group has discounts provided by the Trade to Consumers is 10.000 VNĐ. Discounts
Provided to Trade by Manufacturer is 15.000 VNĐ
Pass-Through = 10.500/15.000 = 70%
=> The percentage of the value of discounts given by the trade to their customers and the value
of temporary discounts provided by manufacturer is 70%

4. Price Waterfall
Definition:
Price waterfall is an analysis method used by the business to find the hidden costs and money
leakages at every price level.
Price waterfall helps companies to both identify how much of real revenue is gained from every
transaction as well as seal margin leakage by identifying areas where pricing is ineffective
Formula:

Example

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In selling, TH Group grants two discounts or allowances. The first of these is a 10% discount on
orders of more than 1000 bottles. This is given on 50% of the firm’s business and appears on its
invoicing system. TH Group also gives an allowance of 5% for cooperative advertising. This is
not shown on the invoicing system. It is completed in separate procedures that involve customers
submitting advertisements for approval. Upon investigation, TH Group finds that 80% of
customers take advantage of this advertising allowance. The invoice price of the firm’s product
can be calculated as the list price (8.000 VNĐ per unit), less the 12% order size discount,
multiplied by the chance of that discount being given (50%).
Invoice Price = List Price – [Discount * Proportion of Purchases on Which Discount Is Taken]
= 8.000 – [(8.000 * 12%) * 50%]
= 8.000 VNĐ – 480 VNĐ = 7520 VNĐ
The net price further reduces the invoice price by the average amount of the cooperative
advertising allowance granted, as follows:
Net Price = List Price – [Discount * Proportion of Purchases on Which Discount Is Taken] –
[Advertising Allowance * Proportion of Purchases on Which Ad Allowance Is Taken]
= 8.000 – [(8.000 * 12%) * 50%] – [(8.000 * 5%) * 80%]
= 8.000 - 480 - 320
= 7.200 VNĐ
To find the effect of the price waterfall, divide the net price by the list price.
Price Waterfall (%) = 7200/8000= 90%
=> The reduction of the price actually paid by customers for a product as discounts and
allowances are given at various stages of the sales is 90%
Solution: TH needs to research to come up with a reasonable price strategy for each time and
each product type.

CHAPTER 9: ADVERTISING METRICS

1. Reach, Net Reach, and Frequency
Definition:
Reach is the same as net reach; both of these metrics quantify the number or percentage of
individuals in a defined population who are exposed to at least one exposure to advertisement.

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Frequency measures the average number of times that each such individual sees the
advertisement.
2. Advertising: Impressions, Exposures, Opportunities-To-See (OTS), Gross Rating Points
(GRPs), and Target Rating Points (TRPs)
2.1 Advertising: Impressions, Exposures, Opportunities-To-See (OTS)
Definition:
Impressions, Opportunities-to-See (OTS), and Exposures: The number of times a specific
advertisement is available to be seen or otherwise exposed to media audiences.
An impression is generated each time an advertisement is viewed. The number of impressions
achieved is a function of an ad’s reach (the number of people seeing it), multiplied by its
frequency (the number of times they see it).
Purpose: To understand how many times an advertisement is viewed
Formula:

Example: TH Group advertises its products to 3 million consumers. They reached 30% of the
intended people, with each person seeing the ad 2 times on average over the duration of the
campaign. Calculate impressions.
Explain the answer:
TH have reached: 3,000,000 * 30% = 900.000 consumers
Impressions = 900,000 * 2 = 1.800.000 times
=> TH Group's advertising reaches 1.800.000 times an ad is delivered to potential customers.
Solution: TH's ads reach 30% of the intended people, on average, each person sees the ad 2
times. This is a pretty decent number, but it can still grow higher. In order to increase reach rate
and average watch time, it is necessary to create an interesting ads that attracts viewers to retain
them as well as make them watch again and again. Besides, TH can also invite celebrities in
TVC, or create content on hot topics to attract viewers.
2.2 Gross Rating Points (GRPs), and Target Rating Points (TRPs)
Definition:
Gross Rating Points (GRPs): The sum of all rating points delivered by the media vehicles
carrying an advertisement or campaign.

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Impressions divided by the number of people in the audience for an advertisement.
Purpose: To measure impressions in relation to the number of people in the audience for an
advertising campaign.

Formula:
Example: TH Group runs an advertising campaign to 10.000 people, in fact, only 3500 peoples
have ever seen the ad with an average of 2 views.
Explain the answer:
Gross Rating Points = (3500* 2) / 10.000 = 0,7 = 70%
=> The sum of all rating points delivered by the media vehicles carrying TH's advertisement is
70%
Solution: Cost per Thousand Impression of TH’s advertising campaign is $35 which
means that with $35 TH can generate 1000 impressions. This is the average advertising
cost but to save more costs and still achieve the same or even better results TH can start
from doing some advertising work, avoiding outsourced a lot to save costs as much as
possible. Besides, with $2,500 and more attractively built advertising content, TH can
generate more than 350,000 impressions.
3. Cost per Thousand Impressions (CPM) Rates
Definition:
Cost per thousand impressions (CPM) is the cost per thousand advertising impressions. This
metric is calculated by dividing the cost of an advertising placement by the number of
impressions (expressed in thousands) that it generates.

An impression is generated each time an advertisement is viewed. The number of impressions

achieved is a function of an ad’s reach (the number of people seeing it), multiplied by its
frequency (number of times they see it).
Purpose: To compare the costs of advertising campaigns within and across different media.
Formula:

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Example: TH’s advertising campaign costs $2,500 and generates 350,000 impressions. On this
basis, CPM can be calculated as:
Explain the answer:
CPM = $2.500 / (350.000 / 2.500) = $35
=> Cost per Thousand Impression of TH’s advertising campaign is $35
Solution:
TH Group runs an advertising campaign to 10,000 people, in fact, only 3500 peoples have seen
the ad but each person has an average of 2 views to reach the sum of all rating points delivered
by the media vehicles carrying TH's advertisement is 70%. 70% is quite a high number, but
advertising only reaches about 33% of customers compared to the original 10,000. This may be
because the approach strategy is not attractive enough so it has not been effective to achieve the
expected level. TH needs to carefully evaluate and measure the effectiveness of each campaign
so that appropriate improvements and adjustments can be made to achieve the goals.
4. Frequency Response Functions
Definition:
Frequency Response Function: The expected relationship between advertising outcomes (usually
in unit sales or dollar revenues) and advertising frequency.
Purpose: To establish assumptions about the effects of advertising frequency
5. Effective Reach and Effective Frequency
Definition:
Effective Frequency: The number of times a certain advertisement must be exposed to a
particular individual in a given period to produce a desired response.
Effective Reach: The number of people or the percentage of the audience that receives an
advertising message with a frequency equal to or greater than the effective frequency.
Example
Advertisement of TH Group on the Tik Tok was believed to need 3 exposures before its message
would sink in.

Number of Exposures Population

0 100,000

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 1 95,000

2 45,000

3 20,000

4 or more 1,000

Total 261,000

Because the effective frequency is 3, only those who have seen the ad three or more times have
been effectively reached. The effective reach is thus 20,000 + 1,000 = 21,000
In percentage terms, the effective reach of this ad is 21,000/261,000 = 8% of the population
6. Share of Voice
Definition:
Share of Voice: The percentage of advertising in a given market that a specific product or brand
enjoys
Purpose: To evaluate the comparative level of advertising committed to a specific product or
brand.

Formula:

Example:
Milk market spends 2 million dollars on advertising in which TH spends 200 thousand dollars.
Share of Voice of TH = 200.000/2.000.000 = 10%
The percentage of advertising in a milk market that TH Group enjoys is 10%
7. Advertising Elasticity of Demand
Definition:

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The advertising elasticity of demand is the change in demand from a change in advertising
pending.
Purpose: Understanding the Responsiveness of Demand to Advertising
Formula:

Example:
TH sells casual boxes. They do all their advertising online, mainly through banner ads. TH’s
marketer wants to know the advertising elasticity of demand and runs a test using different levels
of advertising spend in two periods that are thought to be comparable. The marketer is thus
willing to assume that any difference in sales is caused by the difference in advertising spending.
Let us assume that advertising elasticity of demand is constant.
Period 1: Advertising Spending (A1) was 5,000 and Quantity Demanded (D1) was 150,000
Period 2: Advertising Spending (A2) was 5,500 and Quantity Demanded (D1) was 155,000
Advertising elasticity of demand can be assessed by the impact of the increased advertising
between periods A and B. Given constant elasticity we must use the following formula
Advertising Elasticity of Demand - ADE (1) = ln(155,000/150,000) / ln(5,500/5,000) = 0,344

CHAPTER 10: ONLINE, EMAIL AND MOBILE METRICS

1. Pageviews, and Hits
Definition: Hits: A count of the number of files served to visitors on the Web. Because Web
pages often contain multiple files, hits is a function not only of pages visited, but also of the
number of files on each page.

Formula 1:
TH’s website served 10 files per page and generated 1,000,000 pageviews.
=> Hits = 10 * 1,000,000 = 10,000,000 (files)
So a count of the number of files served to visitors on the TH's Website is 10,000,000 (files)

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Formula 2:
There are 1,000,000 hits on TH’s Website that serves ten files each time a page is accessed.
=> Pageviews = 1,000,000/10 = 100,000 (views)
So the number of times a TH's page has been displayed to user is 100,000 (views)
2. Rich Media Display Time and Interaction Rate
Definition 1: Rich media display is the metrics to monitor how long their advertisements are
holding the attention of potential customers

Formula 1:
TH has a 1- minute marketing campaign on Tik Tok, this has 3,000 viewers, and display time is 3
hour (10,800s)
=> Average rich media display time = 10,800 / 3,000 = 3,6s
In conclusion, this campaign didn’t attract people viewers
Definition 2: Rich media interaction rate to assess the effectiveness of a single rich media
advertisement in generating engagement from its viewers

Formula 2:
Advertisement of TH has 200 impressions, among those 150 clicks on this ad.
=> Rich Media Interaction Rate = 150/200 = 75%
3. Clickthrough Rates
Definition: Clickthrough rate is the percentage of impressions that lead a user to click on an ad

Formula:
There are 1,000 clicks on TH's website that serves up 100,000 impressions.
Clickthrough Rate (%) = 1,000 / 100,000 = 1%
→ The clickthrough rate is 1%:

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If the same website had a clickthrough rate of 0.5%, then there would have been 500 clicks:
Clickthroughs = 100,000 * 0.5% = 500
→ TH website has click through rate of 1% which means in 100,000 impressions, 1% will lead
to the user to click on WHISTAIL’s adds
If a different website had a 1% clickthrough rate and served up 200,000 impressions, there would
have been 2,000 clicks:
Number of Clicks = 1% * 200,000 = 2,000
4. Cost per Impression, Cost per Click, and Cost per Order
Example:
A TH's retailer spent 80 million VND on online
advertising and generated 1.5 million impressions
=> Cost per Impression ($) = 80 million / 1.5 million= 53.3 million VND
This led to 18,000 clicks
=> Cost per Click ($) = 80 million / 18,000 =4,444 VND
Only 1 in 10 of the clicks (1/10 * 18,000 = 1,800) resulted
in a purchase
=> Cost per Order ($) = 80 million / 1,800 = 44,444 VND
5. Visits, Visitors, and Abandonment
Definition:
Visits: measures the number of sessions on the Web site.
Visitors: measures the number of people making those visits.
Abandonment Rate: This measures the percentage of carts that were abandoned before
completion. The percentage of shopping carts that are abandoned.

Formula:
TH found that of the 1,000 customers who loaded items into their electronic baskets, only 800
actually purchased. Calculate Abandonment Rate.
Carts not completed = 1,000 - 800 = 200

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Abandonment Rate = 200/1,000 = 20%
Explanation: 20% abandonment rate means 20% customers will abandon their basket, not
moving to the final purchase
6. Bounce Rate (Web Site)
Definition:
Bounce Rate is a measure of the effectiveness of a Web site in encouraging visitors to continue
their visit. It is expressed as a percentage and represents the proportion of visits that end on the
first page of the Web site that the visitor sees.

Formula:
Example:
TH found that of the in 1,000 customers who visited their website, 200 visitors ended on the first
page of the website. Calculate Bounce Rate.
Bounce Rate = 200/1,000 = 20%
Solution: In order to reduce Bounce Rate, TH can design better user experience for their website
or imply a clear call-to-action button or do some A/B testing
7. Social Media Metrics: Friends/Followers/Supporters/Likes
Definition:
Cost per Friend (Like): The cost to the organization per friend recruited or Like generated
Example:
A TH's retailer spent 100 million VND on providing social networking presence and recruited
1000 friends
Cost per Friends = 100,000,000/1000 = 100,000 VND
It means the cost to the organization per friend recruited is 100,000 VND

A TH's retailer spent 100 million VND on providing social networking presence and generated
100,000 likes
Cost per Like = 100,000,000/100,000 = 1000 VND
It means the cost to the organization per like generated is 1,000 VND

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8. Mobile Metrics
Definition 1:
Average revenue per user (ARPU) is a widely used metric for app marketers.
Example: If TH generated $200 last month and had 4000 active users during that month, the
Average Revenue Per User would be $0.05 ($200 / 4000 = $0.05 ARPU)
Definition 2:
Store Visits: When you have the number of consumers going into a store you can compare this to
an online action, for instance the number who downloaded a coupon, to assess how effectively
the online strategy drives offline actions, visits to stores.
Example:
On average, in 1 month, there are 2450 visitors to TH's dairy store, of which on the online
system including apps and e-commerce sites, this number is 7000 visits.
→ Online to offline conversion =2450/7000 = 0.35 = 35%
→ Compare to the online action of TH’s consumers, only 35% have physical response of visiting
the store offline
9. Email Metrics
Definition 1:
Email Open Rate: The percentage of email delivered that gets opened.
Example 1:
If TH sends out 10 emails and 4 of them bounce, the number of delivered emails becomes 6. If,
out of those emails, 2 are opened, TH rate open rate is then 2/6 = 0.33. Multiplying that by 100
gives TH an email open rate of 33.3%.
Definition 2:
Email Clickthrough Rate: The percentage of email delivered that gets clicked on.
Example 2:
If TH send an email campaign to 100 people and 20 people clicked on links within email of TH,
then Th's click through rate would be 20%
Definition 3:
Email Unsubscribe Rate

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Example 3:
If 5000 emails are delivered in TH email campaign and 100 subscribers have opted-out then TH's
unsubscribe rate is 2%. A good unsubscribe rate is 0.5%
Definition 4:
Email bounce rate relates to emails that can’t be read.
Example 4:
TH sends out 2,000 emails and 100 of them bounce. TH's calculation would be (100 / 2,000) x
100, which would provide TH with an email bounce rate of 5%

CHAPTER 11: MARKETING AND FINANCE

1. Net Profit and Return on Sales
Definition: Return on sales (ROS) is net profit as a percentage of sales revenue used to measure
levels and rates of profitability

Formula:
Example:
In 2018, to produce 1000 tons liquid milk TH True milk spent 2 billion for total cost, revenue is
3 billion, Interest Payment is 50 million, taxes 200 million and Depreciation and Authorization
Charge is 100 million. Net profit, ROS and EBITDA?
Explain the answer:
Net profit= 3-2=1 (billion)
ROS= 1/3= 33,33 %
EBITDA= 1000+50+200+100=1350 million dong
=>Net profit measures the profitability of ventures after accounting for all costs, 1million is
profitability of ventures after accounting for all costs of TH True milk
=>Return on sales (ROS) is net profit as a percentage of sales revenue.33,33 % is net profit as a
percentage of sales revenue of TH True milk
=> 1350 million dong is operating cash flow in spite of Earnings Before Interest, Taxes,
Depreciation, and Amortization of TH True milk

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2. Return on Investment
Definition:
ROI and related metrics (ROA, ROC, RONA, and ROIC) provide a snapshot of profitability
adjusted for the size of the investment assets tied up in the enterprise
Purpose: To measure per period rates of return on dollars invested in an economic entity

Formula:
Example:
TH True milk invests 5 millions in a real estate business and generates a net profit of 15 billions.
Calculate ROI?
Explain the answer:
ROI = 15/5 =300%
=> 300% is rate per period of return on money invested in a real estate business of TH True milk
3. Economic Profit—EVA
Definition:
Economic profit has many names, some of them trademarked as “brands.” or economic value
added (EVA) which is measure of net operating profit after tax adjusted for the cost of capital.
Purpose: To measure dollar profits while accounting for required returns on capital invested

Formula:
The EVA formula shows that there are three main components to EVA: Profit after tax (NOPAT),
amount of capital invested, and WACC.
+ NOPAT: can be calculated manually but is often listed in the company's financial statements.
+ Investment capital: is the amount of money used to finance the company or for a particular
project.
+ WACC: average cost of capital, which is the cost of capital calculated based on the proportion
of different types of capital used by the enterprise. WACC is also often published as a public
metric.
Example:

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TH True milk Company has profits—NOPAT—of $500,000. They have a straightforward capital
structure, half of which is supplied by shareholders. This equity expects a 10% return on the risk
the shareholders are taking by investing in this company. The other half of the capital comes
from a bank at a charge of 9%. The company employs total capital of $2 million.
Explain the answer:
Weighted average cost of capital (WACC) = Equity (10% * 50%) + Debt (9% * 50%) = 9.5%
Cost of Capital = Capital Employed * WACC = $2,000,000 * 9.5% = $190,000
Economic Profit = NOPAT – Cost of Capital = $500,000 – $190,000 = $310,000
4. Evaluating Multi-period Investments
Definition:
Payback: The time (usually years) required to generate the (undiscounted) cash flow to recover
the initial investment
Net Present Value—NPV ($): The present (discounted) value of future cash inflows minus the
present value of the investment and any associated future cash outflows.
Formula:

Payback = Investment/ net profit

Example:
TH True milk’s investment for their new product is VND 1,500,000,000, the first year they have
a net profit of VND 500,000,000, the second year they get 600,000,000 and that of the third year
is 800,000,000. Calculate NPV after 3 years with a discount rate of 5%.
Explain the answer:
Discounting Nominal Value

Year 0 Year 1 Year 2 Year 3 Total

Investment (1.500.000.000) (1.500.000.000)

Income 500.000.000 600.000.000 800.000.000 1.900.000.000

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 Undiscounted (1.500.000.000) 500.000.000 600.000.000 800.000.000 400.000.000
Cash Flow

Discount 1(1+5%)0 1(1+5%)1 1(1+5%)2 1(1+5%)3

Formula

Discount 100,0% 95,2% 90,7% 86,4%

Factor

Present Value 1,5 billion 476 million 544,2 691,2 211,4 million
VND VND million million VND
VND VND

→ Thus, with TH True milk’s investment of VND 1.5 billion for their new product and net profit
of VND 500 million, VND 600 million and VND 800 million over the years, Total Present Value
with discount rate of 5% will be 211.4 million VND
5. Marketing Return on Investment
Definition:
Marketing Return on Investment (MROI), also known as Return on Marketing Investment
(ROMI): The incremental financial value attributable to marketing (net of marketing spending),
divided by the marketing “invested” or risked.

Formula:
Example:
TH True milk has an advertising cost of $10,000. Before advertising the profit is $50,000, after
advertising the profit is $100,000.
Explain the answer:
MROI = ((100.000 – 50.000) – 10.000) / 10.000 = 400%
Marketing ROI is a measure of the performance and profitability of marketing campaigns.
Marketing ROI is 400% indicating a high performance company. TH True milk can use this
number to measure how marketing efforts are contributing to overall revenue growth.

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 The end.
Thank you for reading!

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