Rank Order Principle “An empirical equation that predicts the rank order of causes, components, shares, of complete subjects”

Kesting Ventures Corp. The Market Value System. Rank Order Principle  Market share examples.  The equation predicts the share of each player after all market forces have acted and the market equilibrated.

Kesting Ventures Corp. The Market Value System. Rank Order Principle Rules  Principal players must be identified.  The number of players equals the principal players plus one.  The equation predicts the share of each player.  The last player must be “all other.”

Kesting Ventures Corp. The Market Value System. Rank Order Principle Equation Share = i = n i = j 100/n1/i j = rank n = # of players

Kesting Ventures Corp. The Market Value System. n = 3 calculation

Kesting Ventures Corp. The Market Value System. n = 7 graph All equal is least likely.

Kesting Ventures Corp. The Market Value System. n = 2, 4, 6, Expected Value

Kesting Ventures Corp. The Market Value System. n = 2, 4, 6, Observations  No.1 differs depending on n.  No.2 is similar.  No.4 for n = 4 is less than No.4 for n = 6.  No.5 for n = 6 is similar to No.4 for n = 4.  Rank correlates with market value.  If the nth entry offers more market value, the nth entry can become the leader.

Kesting Ventures Corp. The Market Value System. The functional attributes of the customer’s product. TechnoMarket Performance (TMP) Value All other factors – Influence: motivational, external and market change forces, specifications, alliances and end-product goals. The Market Value Model A ratio based on cost of customers’ product divided by customers’ overall objectives. Economic Value Pricing The Market Value Model calculates the Market Value Metric

Kesting Ventures Corp. The Market Value System. Market Value versus Market Share (5-players)  This is a typical plot that compares actual data with rank order equilibria.  All deviations from the rank order equilibria should be explained Deviation

Kesting Ventures Corp. The Market Value System. Market Value versus Market Share (Current) RankMarket ValueMarket Share Optimum117.5 No % No % No % No %

Kesting Ventures Corp. The Market Value System. Market Value versus Market Share (Future) RankMarket ValueMarket Share Optimum117.5 No % No % No % No %

Kesting Ventures Corp. The Market Value System. Market Share  The rank order principle can be used to quickly predict and explain market relationships without having to spend valuable resources on gathering statistics.  One or more known data points can be used to determine whether or not the rank order principle equation adequately describes the market.

Kesting Ventures Corp. The Market Value System. Existing markets  Name significant competitors plus one.  1.Ajax 4. Easy  2. Simplicity 5. Antique  3. Complex 6. All other  Calculate market share by rank order.  1.Ajax 40.9% 4. Easy 10.3%  2. Simplicity 24.2% 5. Antique 6.1%  3. Complex 15.8% 6. All other 2.7%

Kesting Ventures Corp. The Market Value System. Existing market analysis  Compare with known data and explain differences by rational argument.  New entries into a 6-player market will achieve less than 3% at maturity unless another player can be overtaken.  If No.2 in a 6-player market seeks to become No.1, the goal is 40.9%. Until that share is achieved the market will be in flux.

Kesting Ventures Corp. The Market Value System. Ajax plans to acquire Complex  Market shares of a 6-player market.  1.Ajax 40.9% 4. Easy 10.3%  2. Simplicity 24.2% 5. Antique 6.1%  3. Complex 15.8% 6. All other 2.7%  If Ajax acquires Complex, Ajax’s share will be 45.7% rather than 56.7% at equilibrium.  1.Ajax 45.7% 4. Antique 9.0%  2. Simplicity 25.7% 5. All other 4.0%  3. Easy 15.7%

Kesting Ventures Corp. The Market Value System. Ajax acquires Complex Strategy  Market shares of a 6 player market. 1.Ajax 40.9% 4. Easy 10.3% 2. Simplicity 24.2% 5. Antique 6.1% 3. Complex 15.8% 6. All other 2.7%  For Ajax to retain Complex’s share, Ajax must drive the market to 3 players. 1. Ajax 61.1% 2. Simplicity 27.8% 3. All other 11.1%

Kesting Ventures Corp. The Market Value System. Ajax acquires Complex Analysis  Rank order does not mean that Ajax will accomplish its goal automatically.  Rank order merely provides the stimulus for Ajax to discuss important issues.  Ajax’s program to change the market to 3-players will determine the success of the acquisition.

Kesting Ventures Corp. The Market Value System. Reasons for lack of fit of rank order equation:  Market is not at equilibrium.  Market is not one market.  Large segments are captive.  Market is improperly defined.  New technology can change the market.