Marketing Management

1. Marketing Management Exam One Lecture Five

2. Presentation Themes • Marketing Productivity • Marketing Metrics • Customer Performance Scorecards • Four Tools to Measure Marketing Plan Performance • Market Demand and Potential

3. Measuring Marketing Productivity • Marketers are held accountable for their investments and have to justify marketing expenditures to senior management. • Marketing research can help address the need for accountability. • Two complementary approaches to measure marketing productivity are: • Marketing metrics to assess marketing effects. • Marketing mix modeling to estimate causal relationships and how marketing activities affects outcomes.

4. Marketing Metrics • Marketing metrics is a set of measures that help firms to quantify, compare, and interpret marketing performance. • Marketing metrics can be used by brand managers to design marketing programs. • Marketing metrics can be used by senior managers to decide on financial allocations. • Many marketing metrics relate to customer-level concerns such as their attitudes and behavior. • Others relate to brand-level concerns such as market share, relative price premium, or profitability.

5. External Awareness Market share Relative price Number of complaints Customer satisfaction Distribution Total number of customers Loyalty Internal Awareness of goals Commitment to goals Active support Resource adequacy Staffing levels Desire to learn Willingness to change Freedom to fail Autonomy Examples ofMarketing Metrics

6. Customer-Performance Scorecard Measures • % of new customers to average # of customers • % of lost customers to average # • % of win-back customers to average # • % of customers in various levels of satisfaction • % of customers who would repurchase • % of target market members with brand recall • % of customers who say brand is most preferred

7. Four Tools to Measure Marketing Plan Performance Sales Analysis Market Share Analysis Expense- to-Sales Analysis Financial Analysis

8. Sales Analysis • Sales analysis consists of measuring and evaluating actual sales in relation to goals. Two specific tools are used in sales analysis. • Sales-variance analysismeasures the relative contribution of different factors to a gap in sales performance. • Microsales analysislooks at specific products, territories, and so forth that failed to produce expected sales.

9. Market Share Analysis • To reveal how well the company is performing relative to competitors, management needs to track its market share. Market share can be measured in three ways: • Overall market shareis the company’s sales expressed as a percentage of total market share. • Served market shareis its sales expressed as a percentage of the total sales to its served market. • Its served marketis all the buyers who are able and willing to buy the product. • Served market share is always larger than overall market share. • Relative market sharecan be expressed as market share in relation to its largest competitor.

10. Market Share Movement • A useful way to analyze market-share movement is in terms of four components: Overall Market = Customer X Customer X Customer X Price Share penetration loyalty selectivity selectivity • Where: • Customer penetrationis the percentage of all customers who buy from the company. • Customer loyaltyis the purchases from the company by its customers expressed as a percentage of their total purchases from all suppliers of the same products. • Customer selectivityis the size of the average customer purchase from the company expressed as a percentage of the size of the average customer purchase from an average company. • Price selectivityis the average price charged by the company expressed as a percentage of the average price charged by all companies.

11. Marketing Expense-to-Sales Analysis • Annual plan control requires making sure that the company is not overspending to achieve its goals. • The key ratio to watch is marketing expense-to-sales ratio. • The period-to-period fluctuations in each ratio can be tracked on a control chart. • Display the marketing expense to sales by time period and set a desired level, upper limit, and lower limit.

12. The Control-Chart Model

13. Financial Analysis • The expense-to-sales ratios should be analyzed in an overall financial framework to determine how and where the company is making its money. Marketers use financial analysis to find profitable strategies beyond sales building. • Management uses financial analysis to identify factors that affect the company’s rate of return on net worth. • The return on net worth is the product of two ratios, the company’s return on assets, and its financial leverage. • The return on assets is the product of two ratios, the profit margin, and the asset turnover.

14. Financial Model of Return on Net Worth

15. Profitability Analysis • Companies should measure the profitability of: • Products. • Territories. • Customer groups. • Segments. • Trade channels. • Order sizes. • This information can help management determine whether any products or marketing activities should be expanded, reduced, or eliminated.

16. Simplified Profit-and-Loss Statement

17. The Measures of Market Demand • The size of the market hinges on the number of buyers who might exist for a particular market offer. • The potential marketis the set of consumers who profess a sufficient level of interest in a market offer. • The available marketis the set of consumers who have interest, income, and access to a particular offer. • The target marketis the part of the qualified available market the company decides to pursue. • The penetrated marketis the set of consumers who are buying the company’s product.

18. Sales and Market Planning • If the company is not satisfied with its current sales it can: • Attract a larger percentage of buyers from its target market. • Lower the qualifications of potential buyers. • Expand its available market by opening distribution elsewhere or lower its price. • Reposition itself in the minds of its customers

19. Market Demand • Market demandfor a product is the total volume that would be bought by a defined customer group, in a defined geographical area, in a defined time period, in a defined marketing environment, under a defined marketing program.

20. The Market Demand Function • The horizontal axis shows different possible levels of industry marketing expenditure in a given time period. • The vertical axis shows the resulting demand level. • The curve represents the estimated market demand associated with varying levels of industry marketing expenditure. • Some base sales (called the market minimum) would take place without any demand-stimulating expenditures.

21. Market Demand Function Graph

22. Market Potential and Sensitivity • Higher levels of industry marketing expenditures would yield higher levels of demand, first at an increasing rate, then at a decreasing rate. • Marketing expenditures beyond a certain level would not stimulate much further demand, thus suggesting an upper limit to market demand called the market potential. • The distance between the market minimum and the market potential shows the overall marketing sensitivity of demand. • An expansible marketis very much affected in its total size by the level of industry marketing expenditures. • A non-expansible marketis not much affected by the level of marketing expenditures.

23. Market Penetration Index • The comparison of the current level of market demand to the potential demand level is called the market penetration index. • A low market penetration index indicates substantial growth potential for the firm. • A high market penetration index suggests that there will be increased costs in attracting the few remaining prospects. • Generally, price competition increases and margins fall when the market penetration index is high.

24. Company Demand • Company demandis the company’s estimated share of market demand at alternative levels of company marketing effort in a given time period. • The company’s share of market demand depends on how its products, prices, communications, services, and so on are perceived relative to competitors. • All things equal, the company’s market share would depend on the size and effectiveness of its market expenditures relative to competitors.

25. Company Sales Potential • Company sales potential is the sales limit approached by company demand as the company marketing effort increases relative to that of competitors. • The absolute limit of company demand is the market potential. • In most cases, company sales potential is less than market potential. • Each competitor has a hard core of loyal buyers who are not very responsive to other companies’ efforts to woo them.

26. Total Market Potential • Total market potential is the maximum amount of sales that might be available to all the firms in an industry during a given period, under a given level of industry marketing effort and environmental conditions. • A common way to estimate total market potential is to multiply the following: • Estimate the potential number of buyers X. • The average quantity purchased by a buyer X. • The price paid.

27. Area Market Potential • Companies face the problem of selecting the best territories and allocating marketing budget optimally among these territories. • Therefore, it needs to estimate the market potential of different cities, states, and nations. • Two major methods of assessing area market potential are: • The market-buildup method that is used by business marketers. • The multiple-factor index that is used primarily by consumer marketers.

28. Market-Buildup Method • The market-buildup methodcalls for identifying all the potential buyers in each market and estimating their potential purchases. • This method produces accurate results if we have a list of all potential buyers and a good estimate of what each will buy. • An efficient method of estimating area market potentials makes use of the North American Industry Classification System (NAICS).

29. Multiple-Factor Index Method • The method most commonly used in consumer markets is a multiple-factor index, with each factor assigned a weight. • Many companies compute other area indexes as a guide to allocating marketing resources. • The brand development index (BDI) that is an index of brand sales to category sales. • After the company decides on the city-by-city allocation of its budget, it can refine each city allocation down to census tracts or zip+4 code centers. • Census tractsare small, locally defined statistical areas in metropolitan areas and some other countries. • Data on population size, median family income, and other demographic information is available for these units.

30. Industry Sales and Market Shares • A company needs to know the actual industry sales taking place in its market. This means identifying competitors and estimating sales. • The industry trade association will often collect and publish total industry sales. • A company can evaluate its performance against the whole industry. • Another way to estimate sales is to buy reports from a marketing research firm that audits total sales and brand sales. • These audits give the company valuable information about its total product-category sales as well as brand sales. • It can compare its performance to the total industry or any particular competitor to see whether it is gaining or losing share. • Business goods marketers typically have a harder time estimating industry sales and market shares than consumer goods marketers, and will therefore operate with less knowledge of their market share results.

31. Estimating Future Demand • Survey of Buyers’ Intentions • Composite of Sales Force Opinions • Expert Opinion • Past-Sales Analysis • Market-Test Method

32. Purchase Probability Scale Do you intend to buy an automobile within the next 6 months? 0.00 No 0.20 Slight possibility 0.40 Fair possibility 0.60 Good possibility 0.80 High possibility 1.00 Certain