How to calculate opportunity cost in Markstrat?

Why do we want to calculate the cost per product?

We want to know how much do we lost by not producing enough. This will help your report to be more clear and concise with numbers and data. This will not be helpful until you have a period that the inventory equal zero.

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Step 1:

Choose two consecutive periods, in which one of them has zero inventory (Px) and the other one has left-over inventory (Py). ( the market share of the period with left-over inventory has to be bigger than that of the period with zero inventory). If the market share of zero inventory period is bigger , that means the segment is shrinking, and you produce less next period.

Step 2:

Subtract market share of the product’s target segment of Py and Px. (Py-Px).
The market share of the product for each segment will be found in the consumer panel.

Step 3:
Multiply the difference by segment size.
The segment size will be found in market forecast.

Step 4:
Multiply the number you got in step 3 with the price of the product in Px.

Below is the example:

Segment size: 312,000

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So we lost about $714,480 for not produce enough for period 2.

I am writing this blog with one of my group mates, James Argenta. Thank you very much for helping me, James

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