Steven Deases Jennifer Gregg Yi Hsuan Huang Ming Liu Yu Cheng Wei October 27, 2009

1. The Nature and Measurement of Marketing Productivity in Consumer Durables Industries: A Firm Level Analysis Steven Deases Jennifer Gregg Yi Hsuan Huang Ming Liu Yu Cheng Wei October 27, 2009

2. Introduction Improving Productivity is a Major Concern in America • How to measure the productivity of the marketing team or marketing decisions? Purpose of the Article • Develop a managerially relevant concept of marketing productivity of • Marketing productivity • Its operational measurement • A procedure for establishing environment specific benchmarks with which to compare the marketing productivity of various businesses

3. Marketing Productivity • Productivity is a ratio of output from some activity to the input required to the input required by that activity. • Marketing productivity = marketing output/marketing input • Problem: Fails to deal with inflation over time and differential inflation between components. • Marketing Output • “What does top management expect the marketing function to deliver?” • Market share = one’s shares/ total sales in relevant market • Price position= price level stated in relation to its major competitors • Marketing output= (relative market share)*(relative price)

4. Marketing Productivity (cont…) • It is clear that marketing cost is the appropriate concept for marketing cost. • What is not clear is what constitutes marketing cost. • Marketing Input = (marketing expenditures)/(sales) • Given the conceptual definitions of marketing output and marketing input described above, marketing productivity is defined as: • Marketing Productivity = Relative Market Share * Relative Price Marketing Expenditures/Sales

5. Developing a Marketing Productivity Index(MPI) Marketing Productivity Score (MPS) Score calculated using specified variables Means nothing when presented by itself Can be misleading when compared to competition Can be misleading when comparing within a firm’s history

6. Developing MPI(cont…) Marketing Productivity Index (MPI) Predicted score using a predictive model Requires explicit consideration of uncontrollable external variables Allows a firm to compare its performance to what it should be

7. Developing MPI(cont…) Profit Impact on Market Strategy (PIMS) Database The PIMS database was used to developed the MPI Firms pay a fee to join PIMS In 1987, it was the only database in existence that would allow

8. Variables Influencing MP • Relative Product Breadth (RPB) • Number of Competitors (NC) • Relative Product Quality (RPQ) • Relative Customer Size Range (RCSR) • Served Market Growth (SMG)

9. Variables (cont…) • Number of Immediate Customers (NIC) • Purchase Amount Immediate Customers (PAIC) • Importance of Auxiliary Services to End Users (IASE) • Frequency of Product Changes (FPC) • Customization (C)

10. Dependent Variable – MPS Correlation Matrix 135 Consumer Durable Manufacturing Firms Correlation Matrix for the Consumer Durables Industries MPS RPB NC RPQ RCSR SMG NIC PAIC C IASE RPB .25 NC -.26 -.13 RPQ .33 .25 -.14 RCSR .40 .10 -.14 .28 SMG .27 .09 .06 .16 .06 NIC -.31 .28 .00 .02 -.26 -.02 PAIC .20 -.21 .01 .06 .23 .14 -.56 C -.03 -.04 .01 .04 -.08 -.09 .03 .00 IASE -.04 -.06 .11 .07 .09 -.12 -.21 .30 .01 FPC .18 .14 .18 .08 .16 .01 .09 -.04 -.06 .17

11. Model Evaluation • Two categories – Durables and Non Durables • The Data - randomly split into two group • The multiple regression model – redevelop for each group • Validation of hypothesis • Different factors will affect marketing productivity in different types of industries

12. Drawbacks/Limitations • Pure efficiency analysis does not help identify what the marketing strategies should be (only helps identify obvious inefficiencies) • Relativity factors are not randomized and therefore have little meaning. Relativity factors for other industries and services are not provided. • Theory assumes that competitive intensity is low and the basic needs of customers are yet to be satisfied • Hard to compare MPI over time due to differences in macro- and industry environments

13. Drawbacks/Limitations (cont…) • Market share is a poor measure of marketing output due to relative level of competition and general economics at any point in time. • Price is also dependent on several uncontrollable factors and does not provide adequate balance to market share or inflation • MPI does not adequately measure effectiveness or aid in strategic decision making

14. Implications • A 1998 article by Sheth & Sisodia put forth the idea of defining productivity as “effective efficiency” • First strive for effectiveness, then seek efficiency • They advocate for a shift from a market perspective to a focus on customers • Use multiple metrics such as customer acquisition and retention • Account for long-term impacts of marketing efforts

15. Questions? Sheth, Jagdish and Sisodia, Rajendra. Marketing Productivity: Issues and Analysis. Unpublished research for Journal of Business: June 30, 1998. Retrieved from: <http:// www.jagsheth.net/docs/Marketing%20Productivity-JBR.pdf>