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
Chapter 16

Evaluating Marketing Efforts 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 whats important Assumptions and goals determine measures

What gets measured is what gets done

15-7

DIMENSIONS OF CONTROL
Micro
Input Regional Sales Office Expense Trade Show Budget Product X Development Cost Output Regional Sales Office Revenue

Macro
Total Selling Expenses Promotion Budget Total R&D Budget Total Revenue

Leads from Trade Shows

Sales for Product X
Exhibit 15-2

Corporate Position
Total Division Revenue

15-8

CONTROL OF INPUT AND OUTPUT VARIABLES

INPUT VARIABLES ACTION PHASE MARKET REACTION OUTPUT VARIABLES

Price Product R&D Advertising Promotion Distribution Marketing Research Marketing Administration
SET BY BUDGET

THE MARKETING PROGRAM

THE MARKET

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
Net income Profit margin Return on investment Return on assets managed

CUSTOMER RESULTS
Revenue per customer Account share Customer satisfaction Intent to repurchase

INTERNAL BUSINESS PROCESS

Employee satisfaction Data availability New product development cycle Credit approval cycle

LEARNING & GROWTH MEASURES

Completed training programs New patents obtained New products introduced
15-10

Exhibit 15-4

DEALING WITH VARIANCE IN OUTCOMES

FOUR CAUSES OF VARIANCE
CHANGES TO PROCESS
TINKERING VARIANCE

CHANGES BY RANDOM FACTORS

EXTERNAL CAUSES

Making minor adjustments SYSTEMATIC SOURCES Change systems to create new measures

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 200 175 Sales in $000 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.

275 250 Sales in $000

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 salespersons performance. The range is due to seasonality of customers purchases
275 250 225 Sales in $000

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
Benchmarking

Pros

Con

Comment
Can use industry association measures Consider sources of variance when setting Create systems for opportunity evaluation
15-16

Can learn and Hard to find improve someone willing to let you benchmark Easy to establish Can be difficult to account for variance Lack of flexibility can lead to missed opportunities
Exhibit 15-8

Quotas and Targets

Budgets and Pricing Plans

Easy to establish

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
Marketing Audits Pro Complete process review Con Difficult and timeconsuming Challenge to find what or who caused (dis)satisfaction Hard to apply to specific customers Comment Most beneficial when done regularly but not frequently Used as a measure of performance Sources of Data Observation and survey in the field by the auditors Surveys of customers, including decision makers and users Transaction systems such as accounts receivable, shipping, and manufacturing
15-18

Customer Can be a Satisfaction predictor of Measurement future sales

Accounting Systems

Enables allocation of fixed costs

Use a variety to understand customer and product profitability

Exhibit 15-9

KEYS TO THE MARKETING AUDIT

CONDUCTING AN EVALUATION OF A FIRMS 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 Direct Costs Overhead Costs (say $150 divided 60/40) Net Revenue $500 50 60 $390

PRODUCT B
$800 100 90 $610
15-21

CONTRIBUTION ANALYSIS
Sales Office A Sales Less variable costs Contribution margin Fixed costs controllable by sales manager Sales managers contribution margin Fixed costs identified but not controlled by sales manager Sales office contribution Common costs Income before taxes Exhibit 15-12
15-22

Sales Office B $320 160 $160 52 $108 19 $ 89

Sales Office C $380 175 $205 54 $151 19 $132

Total $1,050

$350 170 $180 53 $127 19 $108

$328 $231 $ 97

COMPARING CONTRIBUTION AND ABC METHODS

Digital Wamometer
Sales Less variable costs1 Contribution margin Less fixed mfg. costs2 Less fixed selling costs3 Income using ABC Income using contribution
1Includes

Tricometer
$545 335 $210

$545 320 $225 Contribution Method 85 30 $110 $150 $135 50 25 50 25

15 20 $185

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 Reporting Systems Pro Method of information sharing across work-groups Self-serve reporting Con Can get traditionbound Comment Companies are moving to real-time systems like dashboards Increasing use of data warehouses lets managers access data directly Sources of Data Salespeople, trade show managers, other marketing managers, as well as transaction systems Surveys, transaction systems, and third-party sources such as Dun & Bradstreet

Information Systems

Case Analysis

Method of organizational learning

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

Experimentation

Statistical Analysis

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

Exhibit 15-13
15-24

THE REALITY TREE PROCESS FOR DETERMINING PROBLEMS: FOCUS ON OUTCOMES

Undesirable Effect: Avg. 52 days, invoice to payment

Undesirable Effect: Accounts Receivable sends Incorrect invoice Potential Cause: Accounts Receivable receives poor information

Potential Cause: Accounts Receivable misprocesses invoices

Potential Cause: Customers are slow payers

Potential Cause: Credit terms cause slow pay Undesirable Effect: Shipping generates incorrect records

Potential Cause: Customers cant pay

Undesirable Effects: Order-entry misrecords terms of sales

Core problem: Information submitted is incomplete or fragmented

Exhibit 15-14
15-25