It does not worth the effort for gator, inc. to attempt the increase in market share, and the amount of gross margin they lose in the effort assuming they are successful is $1,200,000.
Sales revenue per share point = 300 million/100
Sales revenue per share point = $30 million
Firm’s sales = 300 x 42%
Firm’s sales = $126 million
Firm’s Gross Margin per share point = $14.7 million/42 share points
Firm’s Gross Margin per share point = $350,000
Per share of voice point = $50,000,000/100
Per share of voice point = $500,000
Increase in market=42% -45%
Increase in market= 3%
Using 1.5 rule of competitive parity the company would have to spend more money in order to make use of 4.5 additional share of voice points
Additional marketing effort required=$500,000 per share x 4.5
Additional marketing effort required= $2,250,000
Assuming the company was successful, market share will increase by 3 share points.
Additional share points yield=350,000 x 3
Additional share points yield=$1,050,000
Gross margin=$1,050,000- $2,250,000
Gross margin= $1,200,000
Based on the above calculation Gator Inc. should not increase their market share reason been that they would lose $1,200,000.
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