Chapter 9Chapter 9

Marketing Strategy

Reformulation:

The Control Process

9-2

In this chapter, you will In this chapter, you will learn about…learn about…

1. Strategic Change

Sources of Strategic Change

Strategic Change: Threat or

Opportunity?

2. Operations Control

Nature of Marketing Cost Analysis

Product-Service Mix Control

Sales Control

Marketing Channel Control

9-3

In this chapter, you will In this chapter, you will learn about…learn about…

3. Considerations in Marketing Control

Problems versus Symptoms

Effectiveness versus Efficiency

Data versus Information

9-4

Components of Marketing Components of Marketing ControlControl

MARKETING CONTROLMARKETING CONTROL

Doing the right things

Operations ControlStrategic Control

Doing things right

9-5

Remedial Actions under..Remedial Actions under..

Improving effectiveness in seeking opportunities and mitigating threats

in the environment

StrategicStrategicControlControl

Operations Operations ControlControl

Focus on heightening the marketing effort or

identifying ways to improve efficiency

9-6

Strategic ChangeStrategic Change

Change in the environment that

will affect the long-run well-being

of the organization

9-7

Sources of Strategic Sources of Strategic ChangeChange

Market Evolution(Calcium)

Technological Innovation

(DVDs)

Market Redefinition(Electronic

banking)

Change in Marketing Channels(Internet)

9-8

Dealing with Strategic Dealing with Strategic ChangeChange

Attempt to marshal the resources necessary

to alter its technical and marketing

capabilities to fit market-success

requirements.

Shift emphasis to product markets where

match between success requirements and

the firm’s distinctive competency is clear.

Leave the industry.

Goal of Goal of Operations ControlOperations Control

To Improve the Productivity

of Marketing Efforts

Purpose of Marketing-Purpose of Marketing-Cost AnalysisCost Analysis

To trace, assign, or allocate costs to a

specified marketing activity or entity in a

manner that accurately displays the financial

contribution of activities or entities to the

organization. It is based on the principle that

certain costs are directly or indirectly

assignable to every market segment.

To trace, assign, or allocate costs to a

specified marketing activity or entity in a

manner that accurately displays the financial

contribution of activities or entities to the

organization. It is based on the principle that

certain costs are directly or indirectly

assignable to every market segment.

9-11

Marketing Segment Marketing Segment Variables for Cost Variables for Cost

AnalysisAnalysis

Marketing Channels

Elements of Product-Service

Offering

Sales Divisions, District, or Territories

Type or Size of Customers

9-12

Issues in Issues in Cost AllocationCost Allocation

How should costs be allocated to

separate market segments?

What costs should be allocated?

Should all costs be allocated to

market segments?

9-13

Product-Service Product-Service Mix ControlMix Control

Assessing the performance of the offerings

Sales (Kodak vs. Fuji)

Market Share (Goodyear)

Appraising financial worth of product-service offerings

Assign costs to offerings (red-eye flight)

Contribution-margin approach (gas station)

Sales ControlSales Control

Sales ControlSales Control

Cost Aspects

PerformanceExpenses

Sales-function Administration

Behavioral Aspects

Sales EffortAllocation of Selling-Time

9-15

Measures to Assess Measures to Assess Sales PerformanceSales Performance

Gross ProfitSales Revenue

Sales CallFrequency

Penetration of Accounts in

Sales Territory

Selling and Sales Administration

Expenses

Example of Disaggregating Service Example of Disaggregating Service Station Costs for Product-Service Mix Control Station Costs for Product-Service Mix Control

($’000)($’000)

Department

Total GasolineGeneral

MerchandiseAutomobile

Service

Sales $4000 $2000 $1700 $300

COGS and Variable Expenses

$3000 $1600 $1220 $180

Contribution Margin $1000 $400 $480 $120

Fixed Expenses $900 $500 $310 $90

Net Income $100 ($100) $170 $30

Performance Summary for Two Sales RepsPerformance Summary for Two Sales Reps

(1) (2) (3) (4) (5) (6) (7)

Account Category

Potential Accts in

Sales Dt.

Active Accts.

Sales Volume

Gross Profit

Total Calls

Selling Expenses

Sales Admin.

A 80 60 $48000 $14000 195 $18400

B 60 40 $44000 $15400 200 $17900

C 40 10 $25000 $12250 50 $11250

D 20 6 $33000 $16500 42 $9000

Totals 200 116 $150000 $58550 487 $56550 $10000

Selected Operating Indices of Sales Selected Operating Indices of Sales PerformancePerformance

Account Category

Sales Volume / Active Account

(Col 3 Col 4)

Gross Profit / Active

Account

(Col 4 Col 2)

Selling Expenses /

Active Account

(Col 6 Col 2)

Contribution to Sales Admin.

(Gross Profit – Selling

Expenses)

A $800 $240 $307 -$67

B $1100 $385 $448 -$63

C $2500 $1225 $1125 $100

D $5500 $2750 $1500 $1250

Selected Operating Indices of Sales Selected Operating Indices of Sales PerformancePerformance

Account Category

Account Penetration

(Col 2 Col 3)

Call Frequency /

Active Account

(Col 5Col 2)

Selling Expenses per

Call

(Col 6 Col 5)

Gross Profit % / Active Account (Col 4 Col 3)

A 75% 3.25 $94.36 30%

B 67% 5.00 $89.50 35%

C 25% 5.00 $225.00 49%

D 30% 7.00 $214.29 50%

9-20

Marketing Channel Marketing Channel ControlControl

Assess Environmental and

Organizational Factors

Assess Environmental and

Organizational Factors

Evaluate Profitability of

Marketing Channels

Evaluate Profitability of

Marketing Channels

9-21

Types of Costs in Types of Costs in Marketing Channel Marketing Channel

ControlControl

Include sales expenses and advertising allowances

Order-Order-Getting Getting

CostCost

Include packaging and delivery costs, warehousing costs, and billing costs

Order-Order-Servicing Servicing

CostCost

Marketing ChannelMarketing Channel

TotalFurniture

StoresHardware

Stores

Home Improvement

Stores

Sales $12000 $5000 $5000 $2000

COGS $8000 $3500 $3100 $1400

Gross Margin $4000 $1500 $1900 $600

Expenses

Selling $1000 $617 $216 $167

Advertising $750 $450 $150 $150

Pkg & Delivery $800 $370 $300 $130

Warehousing $400 $200 $150 $50

Billing $600 $300 $250 $50

Total Expenses $3550 $1937 $1066 $547

Net Income (Loss) $450 ($437) $834 $53

Disaggregated Costs of Furniture Improvement Disaggregated Costs of Furniture Improvement Products for Marketing Channel Control ($’000)Products for Marketing Channel Control ($’000)

9-23

Considerations in Considerations in Marketing ControlMarketing Control

Problemsversus

Symptoms

EffectivenessEffectivenessversusversus

EfficiencyEfficiency

DataDataversusversus

InformationInformation