Kerin 13 e CH09

CHAPTER 9
Marketing Strategy
Reformulation: The Control
Process
2013 Pearson Education, Inc. publishing as Prentice Hall
Slide 9-1
AFTER READING THIS CHAPTER

YOU SHOULD BE ABLE TO:
1. Define the concept of strategic control.
2. Describe the nature and sources of
strategic change.
3. Explain each element of operations
control.
4. Discuss the nature of marketing costs
analysis and the issues involved.
Slide 9-2
AFTER READING THIS CHAPTER

YOU SHOULD BE ABLE TO:
5. Describe offering mix analysis and
its two interrelated tasks.
6. Discuss sales and marketing
channels analyses and their impact
on the firm.
7. Explain three considerations
involved in strategic and operations
control.
Slide 9-3
THE MARKETING STRATEGY

CONTROL PROCESS
The marketing control process serves as the
mechanism for achieving:
Strategic adaptation to environmental change
Operational adaptation to productivity needs

Strategic
Control
Operations
Control
Doing the right things
Doing things right

Slide 9-4

CONTROL PROCESS
Strategic Control
Assesses the direction of the organization

as evidenced by its:
Implicit or explicit goals and strategies
Capacity to perform in the context of changing
environments and competitive actions
Defines the fit between an organizations

capabilities and objectives and
environmental threats and opportunities
Slide 9-5

CONTROL PROCESS
Operations Control
Assesses how well the firm performs

marketing activities as it seeks to
achieve planned outcomes
Assumes that:
The direction of the firm is correct
Only the organizations ability to perform
specific tasks needs to be improved
Slide 9-6

CONTROL PROCESS
A poorly executed plan can produce
undesirable results just as easily as
a poorly conceived plan.
Remedial efforts should focus on:
Strategic
Control
Operations
Control
Improving effectiveness by:

Seeking opportunities
Mitigating environmental threats
Improving efficiency by heightening

the marketing effort
Slide 9-7
CHAPTER 9: MARKETING STRATEGY

REFORMULATIONTHE CONTROL PROCESS
STRATEGIC
CHANGE
Slide 9-8
STRATEGIC CHANGE
Is the change in the environment
that will affect the long-run well-being
of the organization
Represents opportunities or threats
to an organization, depending on its
competitive posture
Example: The aging of the U.S.
population
Slide 9-9
STRATEGIC CHANGE: SOURCES

Market
Evolution
Technological
Innovation
Market
Redefinition
Marketing
Channel
Change
Results from changes in primary

demand for a product class
Creates strategic change as newer
technologies replace older ones
Results from changes in the offering
demanded by buyers or promoted by
competitors
The increasing role of Internet technology
The focus on reducing distribution costs
The power shifts within marketing channels
Slide 9-10
STRATEGIC CHANGE: THREAT OR

OPPORTUNITY?
The organizations business definition
determines the threat severity or opportunity
potential
Ask the following questions: Does the
threat or opportunity relate to:
The types of customers served?
The needs of these customers?
The means by which these needs are satisfied?
Slide 9-11
OPTIONS FOR DEALING WITH

STRATEGIC CHANGE
Marshal the resources necessary to alter

the firms technical and marketing capabilities
to fit its market-success requirements
Shift emphasis to product markets where the

match between success requirements and the
firms distinctive competency is clear
Cut back efforts in those product markets

where the firm has been outflanked
Leave the industry

Slide 9-12

OPERATIONS
CONTROL
Slide 9-13
OPERATIONS CONTROL
The goal of operations control is to improve
the productivity of marketing efforts
Ways to identify and allocate costs are:
Marketing-Cost
Analysis
Sales
Analysis
Marketing
Channel
Analysis
Customer
Profitability
Analysis
Product-Service
Mix Analysis
Slide 9-14
OPERATIONS CONTROL
Marketing-Cost Analysis
Its purpose is to:

Trace, assign, or allocate costs to a
specified marketing activity or segment
Accurately display the financial contribution
of activities or entities to the organization
Slide 9-15
OPERATIONS CONTROL
Marketing segments are defined based on:

Product-Service
Offering
Elements
Marketing
Channels
Sales
Divisions or
Territories
Customer
Type or Size
Cost allocation principle: Certain costs are directly

or indirectly traceable or assignable to every market
segment
Slide 9-16
OPERATIONS CONTROL
Cost allocation issues:

1. How should costs be allocated to separate market
segments?
A. Assign costs to an identifiable market segment
2. What costs should be allocated?
A. Those costs that:
Arise from the performance of a marketing activity
Charged to that activity based on administrative policy
Slide 9-17
OPERATIONS CONTROL
Cost allocation issues:

3. Should all costs be allocated to market segments?
A. It depends:
Allocate costs if: Opting for a whole equals the sum of
parts income statement
Do not allocate if certain costs:
Have no identifiable measure of application to a segment
Do not arise from one particular segment
Slide 9-18
OPERATIONS CONTROL
Guidelines when considering cost allocation:
Maintain distinctions between cost behavior

patterns
The more joint costs there are, the less exact

cost allocations will be
Greater detail in cost allocation or traceability

will provide more useful info for remedial action
Slide 9-19
OPERATIONS CONTROL
Product-Service Mix Analysis
This analysis involves two interrelated tasks:
Assess the performance of offerings in relevant markets:

Sales Volume Analysis
Market Share Analysis
Appraise the financial worth of offerings via:

Contribution Margin Approach
Slide 9-20
OPERATIONS CONTROL
Sales Volume Analysis
Is a performance index that can be based on:

Growth or
Decline in Unit
Sales Volume
A quantitative indicator of the

acceptance of offerings in their
relevant markets
Proportion of
Sales from
Each Offering
8020 rule80 percent of sales

or profits come from 20 percent
of the firms offerings
Slide 9-21
OPERATIONS CONTROL
Complements sales volume as a

performance measure
Indicates whether a firm is gaining or losing
ground in comparison with competitors
Can be computed by geographic area,
offering or model, customer or channel
Slide 9-22
OPERATIONS CONTROL
Can lead to misleading results, such as

having a high market share in a market
whose overall sales may be declining or
growing
Use unit rather than dollar volume in
examining market share due to price
differentials
Slide 9-23
OPERATIONS CONTROL
Contribution Margin Approach
Assign/trace costs to an offering that reflects its

profitability
Requires astute managerial judgment
Can be illusive based on the offerings definition
Use the contribution margin approach to examine the

financial worth of offerings
Charge relevant direct/assignable overhead costs to the offering
Break down the costs by those units that contribute to the analysis
Slide 9-24
EXHIBIT 9.1: DISAGGREGATING SERVICE STATION COSTS

FOR PRODUCT-SERVICE MIX ANALYSIS ($000)
Department
Gasoline
General
Merchandise
Automobile
$4,000
$2,000
$1,700
$300
$3,000
$1,600
$1,220
$180
$1,000
$400
$480
$120
Fixed expenses
$900
$500
$310
$90
Net income
$100
($100)
$170
$30
Total
Sales
Cost of goods sold
and variable expenses
Contibution Margin
Slide 9-25
OPERATIONS CONTROL
Sales Analysis
Its purpose is to direct attention to both the:

Behavioral
Aspect of Sales
Cost Aspect
of Sales
Consists of sales effort and

allocation of selling time
Consists of expenses from the

performance and administration
of the sales function
Slide 9-26
OPERATIONS CONTROL
Sales Analysis
Is based on a performance assessment by:

Product-Service
Offerings
Sales
Divisions or
Territories
Customer
Type or Size
Measures to assess sales performance include:

Sales revenue
Gross profit
Sales call frequency
Penetration of accounts
in a sales territory
Selling and sales
administration expenses
Slide 9-27
EXHIBIT 9.2: PERFORMANCE SUMMARY

FOR TWO SALES REPRESENTATIVES
Account
Category
Gross
Profitdd
Total
Callsee
Selling
Expensesff
80
60
$48,000
$14,000
195
$18,400
60
40
$44,000
$15,400
200
$17,900
40
10
$25,000
$12,250
50
$11,250
20
$33,000
$16,500
42
$9,000
200
116
$150,000
$58,150
487
$56,550
Account
Account Definition
Definition
Current accounts.
Sales
Admin.gg
$10,000
Expected
Expected Frequency
Frequency
of
of Quarterly
Quarterly Calls
A
A
$1,000 or less in sales
B
B
$1,000 - $1,999 in sales
C
C
$2,000 - $4,999 in sales
D
D
$5,000 or more in sales
Based on invoices.
Sales
Volumecc
Based on marketing research data identifying potential users of company products.
Active
Accountsbb
Totals
Potential
Accounts
in Sales
Districtaa
Based on invoice price for full mix of products sold.
Based on sales call reports cross referenced by customer name.
Direct costs of sales including allocated salaries of two sales representatives.
Costs not assignable on a meaningful basis; includes office expense.
Slide 9-28
EXHIBIT 9.3: SELECTED OPERATING

INDICES OF SALES PERFORMANCE
Sales
Sales Volume
Volume per
per
Active
Active Account
Account
Account
Category
Sales
Sales
Volume
Volume
Active
Active
Accounts
Accounts
Gross
Gross Profit
Profit per
per
Active
Active Account
Account
Gross
Gross
Profit
Profit
Active
Active
Accounts
Accounts
Selling
Selling Expenses
Expenses per
per
Active
Active Account
Account
Selling
Expenses
Expenses
Active
Active
Accounts
Accounts
Contribution
Contribution to
to
Sales
Sales Administration
Administration
Gross
Gross
Profit
Profit per
per
Active
Active Acct
Acct
Selling
Selling
Expenses per
Active
Active Acct
Acct
$800
$240
$307
$67
$1,100
$385
$448
$63
$2,500
$1,225
$1,125
$100
$5,500
$2,750
$1,500
$1,250
Account
Account
Penetration
Penetration
Call
Call Frequency
Frequency
per
per Active
Active Account
Account
Selling
Selling Expense
Expense
per
per Call
Call
Gross
Gross Profit
Profit %
%
per
per Active
Active Account
Account
Account
Category
Active
Active
Accounts
Accounts
Potential
Potential
Accounts
Accounts
Total
Total
Calls
Calls
Active
Active
Accounts
Accounts
Selling
Selling
Expenses
Expenses
Total
Total
Calls
Calls
Gross
Gross
Profit
Profit
75%
3.25
$94.36
30%
67%
5.00
$89.50
35%
25%
5.00
$225.00
49%
30%
7.00
$214.29
50%
Sales
Sales
Volume
Volume
Slide 9-29
OPERATIONS CONTROL
Marketing Channel Analysis
Consists of two complementary processes:
Assess environmental and organizational

factors that may alter the structure, conduct,
and performance of marketing channels
Evaluate the profitability of marketing channels
Slide 9-30
OPERATIONS CONTROL
Marketing Channel Analysis
Two types of costs to identify and trace to

marketing channels:
Order
Getting
Costs
Order
Servicing
Costs
Include sales expenses and

advertising allowances
Include packing and delivery costs,
warehousing expenses, and billing
costs
Slide 9-31
EXHIBIT 9.4: DISAGGREGATED COSTS OF FURNITURE

IMPROVEMENT PRODUCTS FOR MARKETING CHANNEL
ANALYSIS ($000)
Marketing Channel
Total
Furniture
Stores
Hardware
Stores
Home
Improvement
Stores
$12,000
$5,000
$5,000
$2,000
8,000
3,500
3,100
1,400
$4,000
$1,500
$1,900
$600
1,000
617
216
167
Advertising
750
450
150
150
Packing and delivery
800
370
300
130
Warehousing
400
200
150
50
Billing
600
300
250
50
$3,550
$1,937
$1,066
$547
$834
$53
Sales
Cost of goods sold
Gross Margin
Expenses
Selling
Total expenses
Net channel income (loss)
$450
($437)
Slide 9-32
OPERATIONS CONTROL
Customer Profitability Analysis
A profitable customer is a person,

household, or company that, over
time, yields a revenue stream that
exceeds, by an acceptable amount,
the organizations cost of attracting,
selling, and servicing that customer.
Slide 9-33
OPERATIONS CONTROL
Is calculated as follows:
Customer
Profitability
Customer
Gross
Margin
Customer
Acquisition
Costs
Customer
Retention
Costs
)
Slide 9-34
OPERATIONS CONTROL
When this is done for each customer,

t is possible to classify customers into
different profit tiers
Can cross-sell customers additional
offerings
Can up-sell customers by introducing them
to the firms more profitable offerings
Slide 9-35
OPERATIONS CONTROL
To manage low profit or unprofitable

customers, marketers could:
Drop them to eliminate their costs entirely
Charge them higher prices/fees to increase profits
Reduce the cost of serving them to make them

more profitable
Slide 9-36

CONSIDERATIONS IN
MARKETING CONTROL
Slide 9-37
CONSIDERATIONS IN MARKETING
CONTROL
Problems
vs.
Symptoms
Effectiveness
vs.
Efficiency
Data
vs.
Information
Recognize the difference between root problems

and surface symptoms
Must develop causal relationships between
occurrences
Effectiveness assesses whether the firm is
achieving its intended goals given its constraints,
capabilities, and environmental opportunities
Efficiency relates to productivitythe levels of
output given a specified unit of input
Data are essentially reports of activities, events,
or performance
Information is the classification of activities,
events, or performance designed to be interpreted
and useful for decision making
Slide 9-38
All rights reserved. No part of this publication may be reproduced, stored in a

retrieval system, or transmitted, in any form or by any means, electronic,
mechanical, photocopying, recording, or otherwise, without the prior written
permission of the publisher. Printed in the United States of America.
Slide 9-39

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CHAPTER 9

2013 Pearson Education, Inc. publishing as Prentice Hall

AFTER READING THIS CHAPTER

AFTER READING THIS CHAPTER

THE MARKETING STRATEGY

Strategic adaptation to environmental change

Operational adaptation to productivity needs

Doing the right things

Doing things right

THE MARKETING STRATEGY

Assesses the direction of the organization

Defines the fit between an organizations

THE MARKETING STRATEGY

Assesses how well the firm performs

THE MARKETING STRATEGY

Improving effectiveness by:

Improving efficiency by heightening

CHAPTER 9: MARKETING STRATEGY

2013 Pearson Education, Inc. publishing as Prentice Hall

STRATEGIC CHANGE: SOURCES

Results from changes in primary

STRATEGIC CHANGE: THREAT OR

OPTIONS FOR DEALING WITH

Marshal the resources necessary to alter

Shift emphasis to product markets where the

Cut back efforts in those product markets

Leave the industry

CHAPTER 9: MARKETING STRATEGY

2013 Pearson Education, Inc. publishing as Prentice Hall

Its purpose is to:

2013 Pearson Education, Inc. publishing as Prentice Hall

Marketing segments are defined based on:

Cost allocation principle: Certain costs are directly

Cost allocation issues:

Cost allocation issues:

Guidelines when considering cost allocation:

Maintain distinctions between cost behavior

The more joint costs there are, the less exact

Greater detail in cost allocation or traceability

This analysis involves two interrelated tasks:

Assess the performance of offerings in relevant markets:

Market Share Analysis

Appraise the financial worth of offerings via:

Is a performance index that can be based on:

A quantitative indicator of the

8020 rule80 percent of sales

Complements sales volume as a

Can lead to misleading results, such as

Assign/trace costs to an offering that reflects its

Use the contribution margin approach to examine the

EXHIBIT 9.1: DISAGGREGATING SERVICE STATION COSTS

2013 Pearson Education, Inc. publishing as Prentice Hall

Its purpose is to direct attention to both the:

Consists of sales effort and

Consists of expenses from the

Is based on a performance assessment by:

Measures to assess sales performance include:

2013 Pearson Education, Inc. publishing as Prentice Hall

EXHIBIT 9.2: PERFORMANCE SUMMARY

$1,000 or less in sales

$1,000 - $1,999 in sales

$2,000 - $4,999 in sales

$5,000 or more in sales