Unit 2: Pricing and sales analysis
Marketing Analytics notes · PTU syllabus (MBA 961-18)
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Unit summary
Price, sales force and distribution decisions directly drive revenue and profit. This unit covers price sensitivity, the price–volume equation, price promotion and price–value analysis, sales force sizing and territory planning, target setting, compensation and performance appraisal, and distributor numbers, margin and profitability analysis.
After this unit you can
- Measure price sensitivity and apply the price–volume equation
- Evaluate price promotions and price–value positioning
- Size and deploy the sales force and set targets and compensation
- Analyse distributor numbers, margins and profitability
PTU syllabus topics
- Price sensitivity
- price-volume equation
- price promotion and price-value analysis
- sales force sizing and territory planning
- target setting
- compensation and performance appraisal
- distributor numbers/margin/profitability analysis
Price elasticity
% change in volume / % change in price
Break-even volume change
−ΔP / (contribution margin + ΔP)
Promotional lift
(Promo sales − baseline) / baseline × 100
Sales force size (workload)
Total calls needed / calls per rep
Topic 1
Price sensitivity
Price elasticity of demand
% change in quantity ÷ % change in price
Arc elasticity
[(Q2 − Q1) ÷ average Q] ÷ [(P2 − P1) ÷ average P]
- Elasticity above 1 (in absolute value) — demand is elastic: a price cut raises revenue. Below 1 — inelastic: a price rise raises revenue.
- Measuring sensitivity: historical sales data with regression, price experiments and A/B tests, conjoint analysis, Van Westendorp price sensitivity meter, Gabor–Granger.
Topic 2
The price–volume equation
Required % volume change
−ΔP ÷ (CM + ΔP), with ΔP and contribution margin CM as % of price
Example
Contribution margin 40%. A 10% price cut needs volume to rise by 10 ÷ (40 − 10) = 33.3% just to keep total contribution unchanged. A 10% price rise can afford to lose 10 ÷ (40 + 10) = 20% of volume.
- Insight: the lower the margin, the larger the volume gain needed to justify a price cut.
Topic 3
Price promotion and price–value analysis
- Promotion evaluation: baseline sales vs promoted sales; incremental volume, forward buying and pantry loading, cannibalisation, post-promotion dip; promotion ROI = incremental contribution ÷ promotion cost.
- Price–value map: plot perceived value (quality score) against relative price; brands on the fair-value line are balanced; below it offer better value; above it are overpriced.
- Economic value to the customer (EVC): reference product price plus value of differentiating benefits — the maximum a rational buyer would pay.
Topic 4
Sales force sizing and territory planning
Total workload
Σ (number of customers in class × call frequency)
Calls per rep per year
Working days × calls per day
Number of salespeople
Total workload ÷ calls per rep
Example
1,000 A-customers × 24 calls + 3,000 B-customers × 12 calls = 60,000 calls a year; each rep makes 1,200 calls (240 days × 5). Sales force needed = 50.
- Other methods: breakdown (sales forecast ÷ sales per rep), incremental (add reps while marginal contribution exceeds cost).
- Territory design: balanced workload and potential, compact geography, minimal travel; tools — mapping software and optimisation.
Topic 5
Target setting, compensation and performance appraisal
- Targets (quotas): based on territory potential, past sales, market growth and company goals; types — sales volume, revenue, profit, activity quotas.
- Compensation plans: salary, commission, salary plus commission or bonus; link a variable share to strategic goals (margin, new products, collections).
- Performance appraisal: quantitative (sales vs quota, contribution, new accounts, calls, conversion) and qualitative (product knowledge, customer relations); sales dashboards and CRM data.
Topic 6
Distributor numbers, margin and profitability analysis
- Numeric distribution: % of stores stocking the product. Weighted (ACV) distribution: % of category sales made through stores that stock it.
Retailer margin
(Retail price − retailer's buying price) ÷ retail price
Distributor margin
(Price to retailer − distributor's buying price) ÷ price to retailer
Manufacturer's net price
MRP × (1 − retailer margin) × (1 − distributor margin), ignoring taxes
Example
MRP ₹100, retailer margin 20%, distributor margin 8%: price to retailer ₹80, distributor's buying price ₹73.6 — the manufacturer's realisation.
- Distributor profitability: gross margin minus operating costs (salesmen, delivery, warehousing, credit) — return on investment for the distributor must be attractive to keep good partners.
Key terms
- Price elasticity
- Responsiveness of demand to price changes
- Price–volume equation
- Volume change needed to offset a price change
- EVC
- Economic value of a product to the customer
- Workload approach
- Sales force sizing based on required calls
- Weighted distribution
- Share of category sales through stores stocking a product
Quick revision
- Elasticity: elastic vs inelastic; measurement methods.
- Break-even volume change: −ΔP ÷ (CM + ΔP).
- Promotion ROI, baseline and incremental sales; price–value map; EVC.
- Sales force size: workload, breakdown, incremental; territories; quotas; compensation; appraisal.
- Numeric and weighted distribution; channel margins; distributor ROI.
Important exam questions
Practice questions written to the PTU exam pattern for this unit's syllabus: short answers (Section A style) and long answers (Sections B and C style).
Short-answer questions
- Q1.What is price elasticity of demand?
- Q2.With a 25% margin, how much must volume rise to justify a 5% price cut?
- Q3.What is a price–value map?
- Q4.State the workload formula for sales force size.
- Q5.Distinguish numeric and weighted distribution.
- Q6.How is retailer margin calculated?
Long-answer questions
- Q1.Explain the measurement of price sensitivity and the price–volume equation.
- Q2.Discuss the analysis of price promotions and price–value positioning.
- Q3.Explain sales force sizing, territory planning and compensation.
- Q4.Explain distribution metrics and channel margin analysis.
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