15-1

Part Four

INVESTING FOR VALUE IN

CUSTOMERS AND YOURSELF
 PART FOUR

Investing for Value

in Customers and Yourself

• Chapter 15
• Evaluating Marketing Efforts
• Chapter 16
• Customer Retention and Maximization
 Chapter Fifteen
Evaluating
Marketing Efforts

McGraw-Hill/Irwin Copyright © 2006 The McGraw-Hill Companies, Inc. All rights reserved.
THE KEY TO SUCCESSFUL EVALUATION
OF MARKETING EFFORTS
INFORMATION

Questions to Answer about Information:

• HOW IT IS CREATED
• HOW IT IS INTERPRETED
• HOW TIMELY IT IS
• WHO GETS IT
• HOW IT IS SHARED
• HOW IT IS ACTED UPON
• WHO IS RESPONSIBLE FOR
TAKING ACTION
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 THREE COMMON-SENSE
PRINCIPLES OF CONTROL

Measure what’s important

Assumptions and goals

determine measures

What gets measured

is what gets done

15-6
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

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 THE PROCESS OF CONTROL SIMPLIFIED

Replicate cause
of high
ve performance
A b o
d ar d?
Compare Stan
Measure performance
performance to standard Belo
Stan w Eliminate cause
dard
? of low
performance

15-8
 CONTROLLED INPUT VARIABLES LEAD
TO MEASURABLE OUTUT VARIABLES

INPUT ACTION MARKET OUTPUT

VARIABLES PHASE REACTION VARIABLES

Sales
Price Market Share
Product R&D Profit
Advertising Communication
THE THE
Promotion results
MARKETING MARKET
Distribution PROGRAM Distribution
Marketing results
Research Buyer
Marketing attitudes
Administration and
behavior

SET COMPARED TO
BY PERFORMANCE
BUDGET STANDARDS

15-9
 THE COMPONENTS MEASURED BY
THE BALANCED SCOREBOARD

FINANCIAL RESULTS CUSTOMER RESULTS

Net income Revenue per customer
Profit margin Account share
Return on investment Customer satisfaction
Return on assets managed Intent to repurchase

INTERNAL BUSINESS LEARNING & GROWTH

PROCESS MEASURES
Employee satisfaction Completed training programs
Data availability New patents obtained
New product development New products introduced
cycle
Credit approval cycle

15-10
DEALING WITH VARIANCE IN OUTCOMES

SOURCES OF VARIANCE

CHANGES
CHANGESBY
BY
CHANGES
CHANGESTO
TOPROCESS
PROCESS RANDOM
RANDOMFACTORS
FACTORS

• TINKERING VARIANCE • EXTERNAL CAUSES

Making minor Identified uncontrollable
adjustments causes, like the economy

• SYSTEMATIC SOURCES • RANDOM CAUSES

Change systems to Both uncontrollable and
create new unidentified causes; how
measures much can be attributed to
known cause

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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

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VARIANCE: HOW DO YOU NARROW THE
DIFFERENCE
Wilcox
200
Young

175 Zorn
Sales in $000

150

125

100

Jan Feb March April May June

TINKERING: Make changes within a sales territory to

narrow the range of variance
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 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 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
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 15-15
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

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 CRITICAL TO DECISION MAKING:
ALLOCATING COSTS

OBJECTIVE: INCREASE CONTROL OVER

EXPENSES
AND INCREASE PROFITS
Contribution Analysis
Full Costing
To work best, all
To work best, must
incremental costs have
allocate every cost to a
to be identifiable and
specific product/cost
allocatable
center

Activity-Based Cost
Accounting
To work best, all
revenues and expenses
have to be allocated to
each activity

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 FULL COSTING ALLOCATION
Assume: Two sales teams, one with six members and the other with nine; one sales office
supporting both teams

PRODUCT A PRODUCT B
Revenues $500 $800
Direct Costs 50 100
Overhead Costs
(say $150 divided 60/40) 60 90
Net Revenue $390 $610

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 CONTRIBUTION ANALYSIS
Sales Sales Sales Total
Office Office Office
A B C
Sales $350 $320 $380 $1,050
Less variable costs 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
Fixed costs identified but not controlled by
sales manager 19 19 19
Sales office contribution $108 $ 89 $132 $328
Common costs $231
Income before taxes $ 97

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 COMPARING CONTRIBUTION
METHOD TO ABC METHOD

Digital Wamometer Tricometer

Sales $545 $545
Less variable costs1 320 335
Contribution margin $225 $210
Contribution Method
Less fixed mfg. costs2 85 50 50 15
Less fixed selling costs3 30 25 25 20
Income using ABC $110 $185
Income using contribution $150 $135

1
Includes sales commissions, direct costs of manufacturing and shipping
2
Total fixed mfg. costs = $100, but allocated based on complexity in mfg. process
3
Total 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

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 BETTER PERFORMANCE:
OUTPUT AND INPUT TOOLS OF CONTROL

Standard Pros Con Comment

Setting Process
Benchmarking Can learn and Hard to find someone Can use industry
improve willing to let you association
benchmark measures

Quotas and Easy to establish Can be difficult to Consider sources of

Targets account for variance variance when
setting

Budgets and Easy to establish Lack of flexibility can Create systems for
Pricing Plans lead to missed opportunity
opportunities evaluation

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 BETTER PERFORMANCE: THREE
MEASUREMENT TOOLS
Measurement Pro Con Comment Sources of Data
Tools

Marketing Complete Difficult and time- Most beneficial when Observation and
Audits process consuming done regularly but survey in the field
review not frequently by the auditors

Customer Can be a Challenge to find Used as a measure of Surveys of

Satisfaction predictor of what or who performance customers,
Measurement future sales caused including decision
(dis)satisfac-tion makers and users

Accounting Enables Hard to apply to Use a variety to Transaction

Systems allocation of specific customers understand customer systems such as
fixed costs and product accounts
profitability receivable,
shipping, and
manufacturing

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 BETTER PERFORMANCE:
FIVE SEARCH TOOLS FOR IDENTIFYING VARIANCE
Search Tools Pro Con Comment Sources of Data
Reporting Method of Can get Companies are Salespeople, trade show
Systems information tradition-bound moving to real-time managers, other marketing
sharing across systems like managers, as well as
work-groups dashboards transaction systems

Information Self-serve Difficult to get Increasing use of Surveys, transaction

Systems reporting data into a data warehouses lets systems, and third-party
format everyone managers access sources such as Dun &
can use data directly Bradstreet

Case Analysis Method of Can be hard to Look for underlying Interviews of people
organizational apply learning principles of success involved
learning to new or failure
situations
Experimentation Establishes Hard to control Used more Marketing systems that
cause and effect for all potential frequently with track source of sale
causes CRM systems
Statistical Can inform Can lead to Often combined with All of the above
Analysis forecasts, as incremental, experimentation for
well as explain rather than more powerful
past success innovative, decision-making
thinking

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 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

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THE REALITY TREE PROCESS FOR DETERMINING
PROBLEMS: FOCUS ON OUTCOMES

Undesirable Effect:
Avg. 52 days, invoice
to payment
Undesirable Effect: Potential Cause:
Accounts Receivable sends Customers are slow
Incorrect invoice payers
Potential Cause:
Accounts Receivable
Potential Cause: misprocesses invoices
Accounts Receivable
receives poor
information Potential Cause:
Credit terms cause Potential Cause:
slow pay Customers can’t pay

Undesirable Effects:
Order-entry misrecords Undesirable Effect:
terms of sales Shipping generates
incorrect records

Core problem:
Information submitted is
incomplete or fragmented

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