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Normative decomposition of the profit bridge into the impact of changes in marketing variables

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  • Tim J. Smith

    (Wiglaf LLC)

Abstract

A set of definitions and equations for measuring the impact of changes in quantity sold, price, variable costs, and mix between two time periods on the business’s profitability are provided. The recommended decomposition of the changes in profit is then compared with four other seemingly rational decompositions using hypothetical two-product firms. The comparisons demonstrate the importance of using a proper decomposition in constructing a measurement of the impacts of changes in quantity sold, price, variable costs, and mix on the profitability over other formulations and prior art. This normative decomposition of the profit bridge measuring the impact of changes in marketing activities is used as part of the intelligence mosaic in executive and investor decision-making.

Suggested Citation

  • Tim J. Smith, 2021. "Normative decomposition of the profit bridge into the impact of changes in marketing variables," Journal of Revenue and Pricing Management, Palgrave Macmillan, vol. 20(5), pages 530-545, October.
    • Handle: RePEc:pal:jorapm:v:20:y:2021:i:5:d:10.1057_s41272-020-00278-8
    DOI: 10.1057/s41272-020-00278-8
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