Rank Order Principle
“An empirical equation that predicts the
rank order of causes, components,
shares, of complete subjects”
.
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
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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
i=n
Share = 100/n
1/i
i=j
j = rank
n = # of players
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The Market Value System
.
n = 3 calculation
Example: 3 Players
j = 1, 2, or 3
n=3
#1 = 1003(1/1+ 1/2 + 1/3) = 61.0%
#2 = 1003(
1/2 + 1/3) = 27.8%
#3 = 1003(
1/3) = 11.1%
Kesting Ventures Corp.
The Market Value System
.
n = 7 graph
All equal is least likely.
40%
35%
30%
Expected
Equal
2 Leaders
3 Leaders
25%
20%
15%
10%
5%
0%
No.1
No.2
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No.3
No.4
No.5
No.6
No.7
The Market Value System
.
n = 2, 4, 6, Expected Value
80%
70%
60%
50%
n=2
n=4
n=6
40%
30%
20%
10%
0%
No.1
Kesting Ventures Corp.
No.2
No.3
No.4
No.5
No.6
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 Market Value Model
The functional
attributes of the
customer’s product.
TechnoMarket
Performance
(TMP) Value
A ratio based on cost
of customers’ product
divided by customers’
overall objectives.
Economic Value
Pricing
All other factors – Influence: motivational, external and market change
forces, specifications, alliances and end-product goals.
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
50%
Deviation
45%
40%
35%
30%
Deviation
25%
20%
Deviation
15%
10%
5%
0%
No.1
No.2
No.3
Rank Order
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No.4
All
Other
ctual
The Market Value System
.
Market Value versus Market Share (Current)
Rank
Market Value
Optimum
117.5
No.1
87.5
42.0%
No.2
92.5
28.5%
No.3
85.0
15.0%
No.4
82.0
11.5%
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Market Share
The Market Value System
.
Market Value versus Market Share (Future)
Rank
Market Value
Optimum
117.5
No.2
92.5
45.7%
No.1
87.5
25.7%
No.3
85.0
15.0%
No.4
82.0
11.5%
Kesting Ventures Corp.
Market Share
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
 3. Complex
6. All other 2.7%
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15.8%
6.1%
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
 3. Complex
6. All other 2.7%
15.8%
6.1%
If Ajax acquires Complex, Ajax’s share will be 45.7% rather than
56.7% at equilibrium.
 1.Ajax
45.7%
 2. Simplicity 25.7%
 3. Easy
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4. Antique
9.0%
5. All other 4.0%
15.7%
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
3. Complex
6. All other 2.7%
15.8%
6.1%
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
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11.1%
The Market Value System
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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
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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.
Kesting Ventures Corp.
The Market Value System