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84 Marketing: the Basics
Table 5.1 Product-mix matrix of a fictitious beverage company
   Soft Drinks
Generic cola
Ripe lemon-lime
Vanilla-flavoured cola
Ripe Orange Surprise
INVENTORY TURNOVER
Product-Line Width
Bottled Water
Tastes like tap water
Glacial, like ice
Eau de la Spring
Juices
100% ripe orange
100% ripe apple
      The inventory turnover rate is a measure of the number of times a company’s inventory is replaced during a given time period. Turnover ratio is calculated as cost of goods sold divided by average inventory during the time period. A high turnover ratio is a sign that the company is producing and selling its goods or services very quickly. Most distributors who have 20 to 30 per cent gross margins strive to achieve an overall turnover rate of five to six turns per year. One of the secrets to Dell’s success versus its former competitor Compaq (now part of high-tech giant HP) is that Dell had twice the inventory turnover as Compaq.
RETURN ON INVESTMENT (ROI)
ROI is a very common tool used to measure the return on an investment. It is calculated using the following formula:
ROI=Vf −1 Vi
where Vi is the initial investment and Vf is the final value.
When calculating ROI, a firm tries to incorporate all costs associ- ated with making the product. Positive ROI means the product is creating shareholder value. ROI is one of the most popular tools used by managers today because of the powerful conclusions one
can make using a simple formula.
Interestingly, the above formula misleads how much value was
destroyed if an investment went sour. Let us suppose the initial
Product-Line Length









































































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