Marketing Strategy

Marketing Strategy Chapter 9 Financial Assessment and Marketing Control

The Financial Assessment Process Contribution Analysis Response Analysis Systematic Planning Models

Contribution analysis attempts to determine the amount of output (revenues) that can be expected from a given set of inputs (costs). A type of contribution analysis, breakeven analysis, is used to determine the amount of revenue necessary to cover both variable and fixed costs. Contribution analysis can also be used to demonstrate the ability of a marketing plan to increase gross margin, which is calculated by subtracting the cost of goods sold and all marketing costs from sales volume in dollars. Four different factors figure into this form of contribution analysis: expected sales in dollars, fixed costs, variable costs, and the gross margin objective. Required sales = Total fixed costs ($) + desired gross margin ($) volume in units Gross margin contributed per unit or (Unit selling price ‑ variable costs per unit) Contribution Analysis

The goal of response analysis is to estimate accurate response coefficients that can be used to predict the change in sales volume based on a change in one or more elements of the marketing mix. With the exception of price, most other marketing mix elements would be expected to have positive response coefficients, whereby increased spending would be expected to result in increased sales volume. Price and sales volume should vary inversely, with the exception of certain prestige products or products with totally inelastic demand. Several sources of information are usually available to determine response coefficients. Historical relationships could be calculated. Trade association figures may also be used to estimate response coefficients. The firm may conduct primary research to better understand relationships. It would be rare for a marketing plan to call for the modification of a single marketing mix element. Response Analysis

1. Industry sales for the product This figure should be expressed in units, not dollars, because dollars are closely tied to the price variable. Industry sales in units can then be used to develop a forecast for the planning period. 2. The firm's market share This can be expressed as the number of units sold by the firm divided by the total units sold in the industry. This figure is then used to forecast market share for the planning period. Systematic Planning Model - I

3. Response coefficients are estimated for each element of the new marketing strategy. Calculating a group of coefficients for a strategy is complex, as interactions between marketing mix elements may produce a combined effect that is different from each coefficient if estimated independently. Both the positive and negative effects for the various elements are combined into an aggregate rate of sales change for the new marketing mix. This is referred to as the combined market response impact. Systematic Planning Model - II

4. Modified market share is calculated by multiplying the projected share (step 2) by the combined market‑response impact (step 3). The result indicates the relative merits of continuing the old strategy versus adopting the new one. 5. modified market share is multiplied by the projected total market in units (step 1). The result is a unit sales prediction for the brand. 6. Now add the unit's sales price 7. Multiplied unit sales price by the unit sales prediction to get projected brand sales in dollars. Systematic Planning Model - III

8. The cost of the new marketing mix is subtracted from projected brand sales volume. 9. The result is the gross margin predicted for the brand under the new marketing strategy. Gross margin is generally chosen as the outcome because it is a good targeted improvement area. With slight modifications, the model could produce whatever outcome is being considered by top management. Systematic Planning Model - IV

A firm's intended marketing strategy often differs from the realized strategy. Typically, there are three possible causes for this difference: The marketing strategy was inappropriate or unrealistic. The implementation was inappropriate for the strategy or was simply mismanaged. The internal or external environments changed substantially between the development of the marketing strategy and its implementation. Evaluating Marketing Activities

Any actions taken prior to the implementation of the marketing plan are referred to as input control mechanisms. The premise of input control is that the marketing plan cannot be implemented unless the proper tools are in place for it to succeed. One of the most important input control mechanisms is the recruiting, selection, and training of employees. Other examples of input controls include resource allocation decisions (manpower and financial), capital outlays for needed facilities and equipment, or increased expenditures on research and development. Formal Marketing Control - I

Process control mechanisms include activities that occur during the implementation of the marketing plan and that are designed to influence the behavior of employees so that they will support the marketing plan and its objectives. One of the most important process control mechanisms is the system used to evaluate and compensate employees. Another important control issue is the amount of authority and empowerment granted to employees. Internal communication programs are another type of process control. The process control mechanism that stands out above all others is management commitment to the marketing plan. Formal Marketing Control - II

Output control mechanisms are designed to ensure that the outcomes of marketing activities are in line with anticipated results. 1) Set Performance Standards 2) Implement the Marketing Plan Conduct a Marketing Audit 3) Compare Actual vs. Planned Performance 4) Take Corrective Action, if Necessary Formal Marketing Control - III

The primary means of output control is the setting of performance standards against which actual performance can be compared. All performance standards should be based on the marketing objectives to ensure an accurate assessment of marketing activities. Standards should reflect the uniqueness of the firm and its resources, as well as the critical activities needed to implement the marketing plan. In setting performance standards, it is important to remember that employees are always responsible for implementing marketing activities, and ultimately the marketing plan. Set Performance Standards

One of the best methods of evaluating whether performance standards have been achieved is to use a marketing audit to examine the firm's marketing objectives, strategy, and performance systematically. The primary purpose of the marketing audit is to identify problems in ongoing marketing activities and to plan the necessary steps to correct those problems. The marketing audit should be used in concert with the actual implementation of marketing activities—not just when problems arise. The audit should aid the marketing manager in evaluating marketing activities The information in a marketing audit is often based on a series of questionnaires given to employees, managers, customers, and/or suppliers. Marketing audits are usually quite beneficial for the firms that use them. Implement the Marketing Plan

Informal marketing controls are unwritten, employee-based mechanisms that subtly affect the behaviors of employees, both as individuals and in groups. The premise is that some aspects of employee behavior cannot be influenced through formal mechanisms and therefore must be controlled informally through individual and group mechanisms. There are three basic types of informal control: Employee self-control Social control Cultural control Informal Marketing Controls

Through employee self-control, employees manage their own behavior by establishing personal objectives and monitoring their results. Social control deals with the standards, norms, and ethics that are found within work groups within the organization. Cultural control is very similar to social control, only at a much broader level. Types of Informal Marketing Controls

Marketing Strategy