April 12, 2017, posted by Kevin Smith
Ad Math: Calculating Your Value to Volume Ratio
In this video, we’ll look at Value to Volume Ratios (VVR), which can help determine how efficient your marketing efforts are compared to the competition. In a previous video, we discussed how to calculate market share and how that number indicates the percentage of business their company or product category has when compared to its competitors.
The value to volume ratio measures your estimated share of total market gross profits, either for the company overall or a specific product, compared to your share of the total dollar volume sold in your market or the product category.
In the example from the video, Pepsi’s ratio is 92% while Coke’s is 104%. Figures below 100% signal several possible concerns: costs are too high, prices are too low, or both. Conversely, Coke appears to be highly effective at leveraging its marketing spend.
VVR is a useful metric since it provides an early indication regarding which areas of the company, or your marketing, need improvement and which are being used effectively. Marketers can use the data to adjust the marketing program accordingly.
Again, if the Value to Volume Ratio is below 100%, then marketing needs to review pricing, improve perceived value, and also consider changing the product to conform more closely to the needs of your audience. If the ratio is higher than 100%, it likely indicates that you have a marketing leadership position, and may be able to capitalize on your efficient performance by promoting your success.
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