measuring and delivering marketing performance chapter 18 mcgraw-hill/irwin copyright © 2010 by the...

Measuring and Delivering Marketing

Performance

Chapter 18

McGraw-Hill/Irwin Copyright © 2010 by The McGraw-Hill Companies, Inc. All rights reserved.

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Designing Marketing Metrics Step By Step

• Performance measurement processes differ at each organizational level.

• It consists of five steps:– Setting performance standards– Specifying feedback– Obtaining data– Evaluating it– Taking corrective action

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• Setting standards of performance– Performance standards derive largely from

the objectives and strategies set forth at the SBU and individual product-market entry level.

– Performance-based measures are often tied to the compensation of those individuals responsible for attaining the specified goals.

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• Setting standards of performance (cont.)– The shift from primarily using financially based

performance measures to treating them as part of a broader array of marketing metrics.

– Balanced scorecard.– Using the SMART acronym (specific,

measurable, attainable, relevant, and timebound).

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• Profitability analysis– Determine the costs associated with specific

marketing activities to find out the profitability of such units as different market segments, products, customer accounts, and distribution channels.

– Limitations:• Many objectives can best be measured in

nonfinancial terms.• Profit is a short-term measure and can be

manipulated.• Profits can be affected by factors beyond control.

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• Full costing: Analysts assign both direct, or variable, and indirect costs to the unit of analysis.– Indirect costs involve certain fixed joint costs

that cannot be linked directly to a single unit of analysis.

– Direct costing involves the use of contribution accounting.

• The shift to activity-based costing (ABC).

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• Measures of customer satisfaction– Understanding and measuring the criteria

used by customers to evaluate the quality of the firm’s relationship with them.

– Some companies ask customers one simple question: How likely is it that you would recommend us to a friend or a colleague?

– Face-to-face approaches– Using CRM data to measure the lifetime value

of customers.

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• Specifying and obtaining feedback data– The sales invoice or other transaction

records.– Marketing research projects.

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• Evaluating feedback gata– To identify any deviation from the plan, and if

so why. – At the line-item level, whether for revenue or

expenses, results are compared with the standards set in step one of the control process.

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• Taking corrective action– Prescribing the needed action to correct the

situation.– In most cases it is difficult to identify the

cause of the problem.– Delayed responses and carry-over effects.

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Design Decisions For Strategic Monitoring Systems

• Identifying key variables

• The key variables to monitor are:– Those concerned with external forces.– Those concerned with the effects of certain

actions taken by the firm to implement the strategy.

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Design Decisions For Strategic Monitoring Systems

• Tracking and monitoring– Specify measures needed on each of the variables to

determine whether the implementation of the strategic plan is on schedule—and if not, why not.

– Real-time monitoring of critical strategic information.

• Strategy reassessment– Can occur when the firm evaluates its performance to

date along with changes in the external environment.– A strategic monitoring system can also alert

management of a significant environmental change.

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Design Decisions For Marketing Metrics

• Who needs what information?

• Sales information is needed by:– Top management.– Functional managers.– Marketing managers.

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• Sales analysis– Involves breaking down aggregate sales data

into various categories.– The objective is to find areas of strength and

weakness.

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• Sales data is grouped under:– Geographical areas.– Product, package size, and grade.– Customer.– Channel intermediary.– Method of sale.– Size of order.

• These breakdowns are not mutually exclusive.

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• Sales analysis by territory– The first step is to decide which geographical

control unit to use.– Next, compare actual sales against a

standard to single out territories that fall below standard for special attention.

– Category and brand development indices are often used.

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• Sales analysis by product– Before deciding which products to abandon,

management must study such variables as: • Market-share trends.• Contribution margins.• Scale effects. • The extent to which a product is complementary

with other items.

– Particularly helpful when combined with account size and sales territory data.

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• Sales analysis by order size– May identify which orders, in monetary size,

are not profitable.– This may lead to:

• Setting a minimum order size.• Charging extra for small orders.• Training sales reps to develop larger orders.• Dropping some accounts.

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• Sales analysis by customer– Typically show that a relatively small

percentage of customers account for a large percentage of sales.

– The key is to find useful decompositions of the sales data that are meaningful in a behavioral way.

– Three useful variables in doing so are: recency, frequency, and monetary value.

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• Line-item margin and expense analysis– Gross and net margins must be tracked, and

the effectiveness and efficiency of all line-item marketing expenses must be measured.

– Budget analysis requires that managers continuously monitor marketing–expense ratios to make certain the company does not overspend in its effort to reach its objectives.

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• When and how often is the information needed?– Buyers and merchandise managers in

retailing firms typically assess item and category sales performance on a weekly basis.

– Performance of industrial salespeople is typically done on a monthly basis.

– Strategic control indicators are likely to be measured and reported less frequently.

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• Media and Format(s) or Levels of Aggregation – Having good and timely information and

reporting it in such a manner that it is easy and quick to use are different things.

– Thoughtful attention to the format in which marketing performance information is reported can be a significant competitive advantage.

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• Getting the metrics aligned with the strategy.

• A good first step is to identify the elements in an informational “dashboard” that the top management team can use to track marketing performance from period to period.

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• What contingencies should be planned for?– Because all strategies and the action plans

designed to implement them are based on assumptions about the future, they are subject to considerable risk.

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The Contingency Planning Process

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• Global marketing control– Measuring the performance is more difficult

than with domestic marketing.– Global companies typically use essentially the

same format for both their domestic and foreign operations.

– Report frequency and extent of detail can vary.

– A single system facilitates comparisons between operating units and communications between home office and local managers.

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The Marketing Audit

• Audits are broader in scope and cover longer time horizons than sales and profitability analyses.

• An SBU-level audit covers both the SBU’s objectives and strategy and its plan of action for each product-market entry.

• It must consider environmental changes that can affect the SBU’s strategy and product-market action programs.

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The Marketing Audit

• Types of Audits– The marketing environment audit– The objectives and strategy audit– The unit’s planning and control system audit– The organization audit– The marketing productivity audit– The marketing functions audit– The company’s ethical audit– The product manager audit

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Measuring And Delivering Marketing Performance

• Measure well—and in a timely and easy-to-use fashion—and performance is likely to follow.

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Take-Aways

• Most managers and entrepreneurs are evaluated primarily on the results they deliver.

• Effective design of control systems, whether for strategic control or for marketing performance measurement, helps ensure the delivery of planned results.

• A step-by-step process for doing so is provided in this chapter.

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Take-Aways

• Control systems that deliver the right information—in a timely manner and in media, formats, and levels of aggregation that users need and can easily use—can be important elements for establishing competitive advantage. – Four key questions that designers of such

systems should address are discussed in this chapter.

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Take-Aways

• From time to time, it is useful to step back from day-to-day results and take a longer view of marketing performance for a company or an SBU. A marketing audit, as outlined in this chapter, is a useful tool for conducting such an assessment.

measuring and delivering marketing performance chapter 18 mcgraw-hill/irwin copyright © 2010 by the...

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