McGraw-Hill/Irwin
Copyright © 2009 by the McGraw-Hill Companies, Inc. All rights reserved.
Part Four
Managing Programs
and Customers
Part Four
Managing Programs and Customers
• Chapter 15
• Evaluating Marketing Efforts
• Chapter 16
• Customer Retention and Maximization
Chapter 15
Evaluating
Marketing Efforts
THE PROCESS OF CONTROL
Replicate cause
of high
performance
Measure
performance
Compare
performance
to standard
Eliminate cause
of low
performance
Exhibit 15-1
15-5
THE FUNCTIONS OF A MARKETING
CONTROL SYSTEM
•
•
•
MEASURES ACTUAL PERFORMANCE AGAINST PLANNED
PERFORMANCE
• Sensor - The Measuring Tool
• Standard – The Goal To Achieve
MEASURES PRODUCTIVITY AND PROFITS BY
• Types Of Products
• Customers
• Territories
MEASURES KEY MARKETING VARIABLES:
• Customer Satisfaction
• Advertising Efforts
• Pricing Strategies
• Distribution/Channel Activities
15-6
THREE COMMON-SENSE
PRINCIPLES OF CONTROL
Measure what’s important
Assumptions and goals
determine measures
What gets measured
is what gets done
15-7
DIMENSIONS OF CONTROL
Input
Micro
Macro
Regional Sales Office Expense
Total Selling Expenses
Trade Show Budget
Promotion Budget
Product X Development Cost
Total R&D Budget
Output Regional Sales Office Revenue
Total Revenue
Leads from Trade Shows
Corporate Position
Sales for Product X
Total Division Revenue
Exhibit 15-2
15-8
CONTROL OF INPUT AND OUTPUT VARIABLES
INPUT
VARIABLES
Price
Product R&D
Advertising
Promotion
Distribution
Marketing
Research
Marketing
Administration
ACTION
PHASE
MARKET
REACTION
THE
MARKETING
PROGRAM
THE
MARKET
SET
BY
BUDGET
OUTPUT
VARIABLES
Sales
Market Share
Profit
Communication
results
Distribution
results
Buyer
attitudes
and
behavior
COMPARED TO
PERFORMANCE
STANDARDS
Exhibit 15-3
15-9
THE COMPONENTS MEASURED BY THE
BALANCED SCOREBOARD
FINANCIAL RESULTS
CUSTOMER RESULTS
Net income
Profit margin
Return on investment
Return on assets managed
Revenue per customer
Account share
Customer satisfaction
Intent to repurchase
INTERNAL BUSINESS
PROCESS
LEARNING & GROWTH
MEASURES
Employee satisfaction
Data availability
New product development
cycle
Credit approval cycle
Completed training
programs
New patents obtained
New products introduced
Exhibit 15-4
15-10
DEALING WITH VARIANCE IN OUTCOMES
FOUR CAUSES OF VARIANCE
CHANGES TO PROCESS
• TINKERING VARIANCE
Making minor
adjustments
• SYSTEMATIC SOURCES
Change systems to
create new
measures
CHANGES BY
RANDOM FACTORS
• EXTERNAL CAUSES
Identified uncontrollable
causes, like the economy
• RANDOM CAUSES
Both uncontrollable and
unidentified causes; how
much can be attributed to
known cause
15-11
VARIANCE – UNDERSTANDING THE CAUSES
•
•
•
•
Tinkering Variance:
• Improving the little things in an existing system/process
Systematic Variance:
• Out with the old, in with the new
External Causes of Variance
• The external environment provides all kinds of
challenges beyond management control
Random Causes of Variance
• Not only are there uncontrollable causes, there are
variables that cannot be identified. Things happen
15-12
VARIANCE: HOW DO YOU NARROW THE DIFFERENCE
Wilcox
200
Sales in $000
175
Young
Zorn
150
125
100
0
May
Feb March April
Jan
June
TINKERING: Make changes within a sales territory to narrow the
range of variance
Exhibit 15-5
15-13
VARIANCE: HOW DO YOU ADJUST PERFORMANCE
Each dot represents salesperson performance.
A new product brings higher levels of sales.
275
Sales in $000
250
225
200
175
150
125
100
0
Jan
Feb
Mar
Apr
May
June
Jul
Aug
Sep
New production introduction
Systematic Change: Create new systems with a new range of performance standards
Exhibit 15-6
15-14
VARIANCE: HOW DO YOU ADJUST FOR
EXTERNAL ENVIRONMENTAL ACTIVITIES
Each dot is a salesperson’s performance. The range is due to seasonality of
customers’ purchases
275
250
Sales in $000
225
200
175
150
125
100
0
Jan
Feb
Mar
Apr May June
Jul
Aug
Sep
Oct
Nov
Dec
External causes of variance: Create a response to changes caused by things beyond your control
Exhibit 15-7
15-15
BETTER PERFORMANCE:
OUTPUT AND INPUT TOOLS OF CONTROL
Standard
Setting Process
Pros
Con
Comment
Benchmarking
Can learn and Hard to find
improve
someone willing to
let you benchmark
Can use
industry
association
measures
Quotas and
Targets
Easy to
establish
Can be difficult to
account for
variance
Consider
sources of
variance when
setting
Budgets and
Pricing Plans
Easy to
establish
Lack of flexibility
can lead to missed
opportunities
Create systems
for opportunity
evaluation
Exhibit 15-8
15-16
THREE TOOLS FOR BETTER CONTROL OF
SYSTEM PERFORMANCE
•
•
•
SET OUTPUT AND INPUT STANDARDS Of
Performance That Can Be Observed And Measured
DEVELOP MEASUREMENT TOOLS Such As Marketing
Audits, Customer Satisfaction Measures And Accounting
Systems
CREATE SEARCH TOOLS Such As Reporting Systems
And Information Systems To Find Variance And Its Causes
15-17
SUMMARY OF MEASUREMENT TOOLS
Measurement
Tools
Comment
Sources of Data
Difficult
and timeconsuming
Most beneficial
when done
regularly but not
frequently
Observation and
survey in the
field by the
auditors
Customer
Can be a
Satisfaction
predictor of
Measurement future sales
Challenge to
find what or
who caused
(dis)satisfaction
Used as a
measure of
performance
Surveys of
customers,
including
decision makers
and users
Accounting
Systems
Hard to apply
to specific
customers
Use a variety to
understand
customer and
product
profitability
Transaction
systems such
as accounts
receivable,
shipping, and
manufacturing
Marketing
Audits
Pro
Complete
process
review
Enables
allocation of
fixed costs
Con
Exhibit 15-9
15-18
KEYS TO THE MARKETING AUDIT
CONDUCTING AN EVALUATION OF A FIRM’S
MARKETING ACTIVITIES AND ITS ENVIRONMENT
WILL INCLUDE REVIEWING ITS:
1. External Environment
2. Marketing Strategy
3. Level of Marketing Orientation
4. Marketing Systems and Processes
5. Marketing Functionality
6. Marketing Productivity
15-19
CRITICAL TO DECISION MAKING:
ALLOCATING COSTS
OBJECTIVE: INCREASE CONTROL OVER EXPENSES
AND INCREASE PROFITS
Full Costing
To work best, must
allocate every cost to a
specific product/cost
center
Contribution Analysis
To work best, all
incremental costs have to
be identifiable and
allocatable
Activity-Based Cost
Accounting
To work best, all revenues
and expenses have to be
allocated to each activity
15-20
FULL COSTING ALLOCATION
Assume: Two sales teams, one with six members
and the other with nine; one sales office
supporting both teams
PRODUCT A
Revenues
PRODUCT B
$500
$800
Direct Costs
50
100
Overhead Costs
(say $150 divided 60/40)
60
90
$390
$610
Net Revenue
15-21
CONTRIBUTION ANALYSIS
Sales
Office
A
Sales
Office
B
Sales
Office
C
$350
$320
$380
170
160
175
Contribution margin
$180
$160
$205
Fixed costs controllable by sales manager
53
52
54
Sales manager’s contribution margin
$127
$108
$151
19
19
19
$108
$ 89
$132
Sales
Less variable costs
Fixed costs identified but not controlled by
sales manager
Sales office contribution
Total
$1,050
$328
Common costs
$231
Income before taxes
$ 97
Exhibit 15-12
15-22
COMPARING CONTRIBUTION AND ABC METHODS
Digital Wamometer
Sales
Less variable costs1
Contribution margin
Tricometer
$545
$545
320
335
$225
$210
Contribution Method
Less fixed mfg. costs2
85
50
50
15
Less fixed selling costs3
30
25
25
20
Income using ABC
Income using contribution
$110
$185
$150
$135
1Includes
sales commissions, direct costs of manufacturing and shipping
2Total fixed mfg. costs = $100, but allocated based on complexity in mfg. process
3Total fixed selling costs (administrative overhead and sales office expenses)
= $50, but allocated on the basis of digital wamometer requiring six calls to
every four for the tricometer using ABC
Exhibit 15-12
15-23
BETTER PERFORMANCE: SEARCH TOOLS FOR IDENTIFYING VARIANCE
Search Tools
Pro
Con
Comment
Sources of Data
Reporting
Systems
Method of
information
sharing across
work-groups
Can get
traditionbound
Companies are
moving to real-time
systems like
dashboards
Salespeople, trade show
managers, other marketing
managers, as well as
transaction systems
Information
Systems
Self-serve
reporting
Increasing use of
data warehouses
lets managers access
data directly
Surveys, transaction
systems, and third-party
sources such as Dun &
Bradstreet
Case Analysis
Method of
organizational
learning
Experimentation
Establishes
Hard to control
cause and effect for all potential
causes
Can lead to
Can inform
forecasts, as well incremental,
as explain past rather than
innovative,
success
thinking
Statistical
Analysis
Difficult to get
data into a
format
everyone can
use
Can be hard to
apply learning
to new
situations
Look for
Interviews of people
underlying
involved
principles of success
or failure
Used more
Marketing systems that
frequently with
track source of sale
CRM systems
Often combined with All of the above
experimentation for
more powerful
decision-making
Exhibit 15-13
15-24
THE REALITY TREE PROCESS FOR DETERMINING
PROBLEMS: FOCUS ON OUTCOMES
Undesirable Effect:
Accounts Receivable sends
Incorrect invoice
Potential Cause:
Accounts Receivable
receives poor
information
Undesirable Effects:
Order-entry misrecords
terms of sales
Undesirable Effect:
Avg. 52 days, invoice
to payment
Potential Cause:
Accounts Receivable
misprocesses invoices
Potential Cause:
Credit terms cause
slow pay
Potential Cause:
Customers are slow
payers
Potential Cause:
Customers can’t pay
Undesirable Effect:
Shipping generates
incorrect records
Core problem:
Information submitted is
incomplete or fragmented
Exhibit 15-14
15-25