Page 93 - Marketing the Basics 2nd

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investment was $100 and the investment yielded a 10 per cent return. That would result in an overall return of $110. However, if the same investment yielded a return of –10 per cent, the return would be $99 not $90 as expected.
RETURN ON CAPITAL (ROC)
Return on capital is also known as return on invested capital (ROIC). It is defined as the net income on an investment divided by the capital invested in the project. Some managers include borrowing costs in their calculation of ROC. When the ROC is higher than the company’s cost of capital, then the company is creating value for the shareholders.
PRODUCT LEVEL STRATEGIES
Having discussed some of the tests managers use to assess the performance of a product, these numbers need to be placed within a corporate strategy perspective. The numbers can declare if a product is performing exceptionally, however, if that product is succeeding in a mature market, those results are likely to be attributed to other players exiting the market. To succeed in the long term, the company must change its product mix over time. The next section discusses a number of strategies at a firm’s disposal to change the product mix. For many firms they have margins that a certain percentage (say 50 per cent) of sales must come from products less than 5 years in the market; in high-tech markets they would often use a benchmark of 2 years rather than 5 years.
PRODUCT-FILLING
Product-filling is a strategy whereby the vendor offers the same products in different shapes, sizes, qualities or prices. The aim is to capture as much of the consumer surplus as possible by customizing the offering to different buyers with the same needs and wants. Pharmaceutical companies frequently stretch their product-line to capture market share. For example, for each brand of painkillers they offer, users can purchase a product of varying strength, method of consumption (tablet or gel-cap) and duration of effectiveness.