Key areas for control in marketing - Marketing Management

Kotler and Keller distinguish four types of marketing control, involving different approaches, different purposes and a different allocation of responsibilities.

Annual plan control

The purpose of annual plan control is to determine the extent to which marketing efforts over the year have been successful. Annual plan control activities are the responsibility of senior and middle management. Analysis and control will centre on measuring and evaluating sales in relation to sales goals, market share analysis, expense analysis and financial analysis.

Sales analysis

Sales performance is understandably a key indicator of marketing effectiveness, and hence an essential element of annual plan control. The marketing budget will specify objectives for sales, and according to the individual company these will be broken down into sales targets for individual parts of the business, customer groups, individual products and/or brands and ultimately individual salespeople. In other words, sales analysis and control is likely to comprise a hierarchy of standards and control levels, each of which are interlinked.

We can see that analysis and control of sales may involve considerable time and effort. Any variance in achieving sales targets at the corporate level are ultimately a result of variances in the performance of individual salespeople. At every level of sales analysis and control, variances must be investigated with a view to determining their causes. For example, at the broadest level, variances may be due to one or a combination of volume or price. Put simply, sales revenue may be down on target because the company has not sold enough or because volume has been achieved only on the bias of price cutting. A more detailed analysis of the reasons for volume variances might, in turn, be refined to volume variances by individual members of the sales force due to, say, poor motivation or bad journey planning.

From this example, it can be seen that throughout the control process we may need to provide disaggregated control information so that broad measures of evaluation and control can be investigated in sufficient detail to pinpoint causes of possible variances, both favourable and unfavourable, to take the necessary corrective action.

Types of marketing control

Types of marketing control

Market share analysis

Portfolio techniques of planning and these are underpinned by the relationship between market share and cash flow and profits. In addition, in the context of marketing control, marketing objectives, both short and long term, are set for market share.

The principal reason for measuring and evaluating market share performance is because it allows a company to assess how well it is doing compared with the overall market and competition. A company might find that while sales volume has declined over the year its market share has increased. Clearly, declining sales volume would still represent a cause for concern. Nevertheless, an increase in market share would indicate that a company is faring better than competitors in a market which has declined overall. This observation suggests a very different course of action on the part of marketing management than that suggested by a simple analysis of sales.

As the last millennium came to a close, Marks & Spencer were struggling to maintain the sales and profits they had enjoyed in previous years. Most worrying for Marks & Spencer was their fall in market share. Like most companies, the company realized that even small drops in market share can have a tremendous impact, not only on profitability but also on the market standing and image of a company. Marks & Spencer started the new millennium therefore with a determined effort to recapture lost market share. This has involved substantial restructuring of the company and the introduction of major new lines, the sale of non-M&S branded merchandise and store developments, which the company hopes will restore their standing in the market.

The hierarchy of sales analysis and control

hierarchy of sales analysis and control

As with sales analysis, measurement of market share alone is not sufficient to determine the action(s) to be taken. The evaluation process requires that marketing management determines the reasons for observed levels of company market share and any significant differences and trends. On the basis of this, the marketing manager must then determine the actions required and by whom. Results and conclusions of the evaluation of the annual marketing plan must be discussed with those responsible and a future plan of action agreed.

It is important to recognize that in interpreting market share results, several bases of measuring market share might be needed to provide useful control information for further decision making. For example how various measures of market share for the same product might produce different pictures of the position of the product in the marketplace. The example shows four possible market share percentages for a hypothetical marketer of car tyres. this manufacturer’s percentage market share by volume and value respectively of the total UK car tyre market. We see straight away that very different pictures of market share are obtained using these different measures and they may in themselves provide insights into this company’s market position compared to competitors.

this company’s market share of the replacement (rather than original equipment) UK tyre market. Again we can see that a very different picture of market share is obtained than when using the total UK tyre market as a basis. This simply illustrates that we need to be quite clear about which ‘market’ we are talking about when we set objectives for market share and how we interpret our performance in this respect.

Measuring market share: the UK tyre market

Measuring market share: the UK tyre market

a measure of market share based on this company’s share relative to its largest competitor. relative market share is a key input to many of the ‘portfolio techniques’ of strategic market planning.

Marketing expenses to sales ratios

An important element of the marketing budget is the planned expenditures on the elements of marketing activity designed to achieve budgeted levels of sales. Precisely what these elements comprise, and how they are to be grouped together for the purpose of control and evaluation, will vary from company to company, but common expense areas for marketing would include:

  • sales force expenses;
  • promotional expenses;
  • distribution expenses;
  • market research expenses.

As indicated, each of these groups of expense will comprise a series of activities, each of which may have its own budgeted expense level for the year e.g. promotional expenses may comprise:

  • advertising expenses;
  • sales promotion expenses;
  • public relations expenses.

Finally, budgeted expenses for each activity may comprise expenses for each product, sales area, customer group and so on. For example, sales force expenses might be broken down into budget expenses.

Breaking down sales force expenses

Breaking down sales force expenses

As we have seen throughout the discussion of control, the evaluation process, in the case of marketing expenses to sales ratios, usually starts with broad measures e.g. we should first measure and control the ratio of total marketing expenses to sales. We start by determining the standards for marketing expenses to sales together with upper and lower limits between which we are prepared to allow these expenses to deviate. Ideally, total marketing expenses to sales should be evaluated on a continuous basis throughout the planning year, normally each month. Where total expenses deviate outside the control limits the reasons should be investigated and corrective action taken.

At this stage the broad measure of total marketing expenses to sales will need to be broken down into the previously defined expense areas of sales, promotion, distribution, market research etc. In turn, each of the expense areas can then be further disaggregated in order to pinpoint the precise reasons for deviations from standards. If all this appears to imply a detailed and comprehensive system of marketing expenses control – it does. Provided that the costs of control do not exceed the benefits derived from it, and provided that these benefits are perceived and accepted by those being controlled, then the control system should be as detailed as possible.

Customer tracking

The control elements we have discussed in the context of the annual marketing plan involve quantitative elements of marketing control. Equally important to the control process are the more qualitative elements of marketing control, in particular customer tracking, or the assessment and evaluation of customer feedback and attitudes. Effective marketing control should include systematic and regular tracking of factors that indicate how customers feel about the company’s marketing activities and in particular should highlight any potential problems before they become serious. Examples of information and procedures which form this part of the control system include:

  • consumer panel information;
  • returns and complaints;
  • customer surveys;
  • sales force reports.

This last element, sales force reports, is a valuable source of information on customer attitudes and can highlight early signs of problems. Unfortunately, this element of reporting is often resented by salespersons who view it as a chore and a distraction from what they see as their main task of selling. In addition, it might be regarded with some suspicion by salespeople as to how such information might be used for control purposes, so care should be taken to ensure that they understand the purpose and accept the value of providing such information.

Customer tracking can be carried out typically on a monthly basis for such matters as customer complaints, panel data and sales force reports, backed up by customer surveys on a biannual or annual basis. Although most qualitative control will relate to customers, other important publics, such as the local community, watchdog bodies and shareholders, might also usefully be included as part of the qualitative control system.

Profit control: the marketing budget

In addition to the previously discussed control elements of the annual marketing plan, organizations should be concerned with profit control. We have seen that key areas of marketing control, such as sales analysis and marketing expense analysis, are evaluated against pre-set standards for both sales and costs. These standards for sales and costs derive from the marketing budget. When we combine the notion of profit control with sales and costs we have the basis of a complete system of budgetary control for marketing.

However, when it comes to the analysis of profits in the budgetary control process, a number of complex and controversial issues arise, not only with respect to the control of profits, but also with respect to the compilation of budgets. We can illustrate these contentions by examining the essence of profitability control.

The focus of profitability control begins with the company evaluating the profitability of different marketing entities. Precisely what these entities will be will vary according to the particular company, and how its profit and cost centres are organized. In addition, the entities may also vary according to the precise purpose of the profitability analysis, but examples of marketing entities would include products, channels of distribution, customer groups and so on, with the objective of discovering where the firm is making profits or losses in various parts of its business; e.g. consider a one-product company selling to three distinct customer groups:

  • Customer Group 1: industrial buyers;
  • Customer Group 2: institutional buyers;
  • Customer Group 3: domestic buyers.

A profitability analysis of these marketing entities (i.e. customer groups) would allow marketing management to assess the differences, if any, in profitability between these customer groups and hence the extent to which future strategies and tactics might be designed to reflect this. In order to assess the profitability of these three customer groups we need to be able to associate both costs and revenues with each of them. A simple example serves to illustrate the problems that can arise when we try to do this for this hypothetical company.

First of all, let us assume that the overall profit and loss statement for the company is. As mentioned earlier, if we now want to know the profitability by customer group we have to be able to associate the revenues and costs associated with each. For some elements of the overall profit and loss account, this is relatively straightforward. For example, variable costs, and some elements of marketing expenses, such as sales force costs and marketing research, may be directly attributed to each customer group.

This still leaves us, however, with fixed costs and some of the marketing expenses, such as administration and elements of the promotional expenses, which must be in some way allocated to each customer group. In practice it can be difficult to identify some aspects of marketing costs. Certainly, it is possible to devise a way of allocating these remaining costs to the three customer groups, but often, and particularly with fixed costs, the allocation is arbitrary. We may end up with a ‘profitability’ analysis that is possibly misleading for evaluation and decision making with respect to marketing entities. Related to this, though perhaps more fundamental to the issue of profitability control, is the question of what constitutes an appropriate measure of profitability for marketing entities and marketing effort. Specifically, what we are talking about is the issue of which costs to deduct from revenues for the purpose of marketing profitability control.

In the example, the net profit figure for the company requires the deduction of all costs. Similarly, if we require a net profit figure for each of our customer groups, as we have seen, the total costs associated with each customer group must be deducted from the revenues derived from that group. For purposes of control, evaluation and decision making, perhaps a more useful and relevant measure of marketing profitability is contribution to profit rather than net profit. Although there are some differences between the suggested approaches to using these contribution-based control mechanisms for marketing profitability, for one of our hypothetical customer groups.

The controllable margin represents the contribution to profits of customer group one, taking into account only those revenues and costs that can be directly attributed to this customer group. Clearly this is not to deny the importance of net profit to the organization, nor the fact that in the long run all costs need to be covered. However, the contribution approach to marketing budgeting and profitability control recognizes the fact that non-traceable fixed costs lie outside the control of the marketing manager and that to allocate them to marketing entities potentially distorts the picture of the true profitability of these entities, which, after all, is what we are seeking to establish. Needless to say, a distorted picture also leads to ineffective decision making.

The conventional profit and loss statement

The conventional profit and loss statement

A further broader, but inevitable, issue which the marketing contribution approach raises is whether or not net profits should be included in marketing objectives and budgets, and hence form part of the responsibilities of the marketing department. Many believe they should not, in that so many other factors affect net profits that are clearly outside the direct control of marketing. The view taken here is that the contribution method in fact offers a sounder approach to planning and controlling the profitability element of marketing.

Finally, it is important to stress that profitability control requires a carefully designed, predetermined information and control system. In particular, the accountancy system needs to be designed to provide information on costs that can be easily translated into profit performance by the marketing entities of most relevance to the particular organization. Budgeting can be difficult, but its implementation is facilitated by the use of computer models.

Efficiency control

As the term suggests, efficiency control is concerned with ensuring that each element of the marketing mix, together with their sub-elements, is being utilized as efficiently as possible. Examination of the efficiency of marketing activities may derive from other parts of the control system. For example, we may instigate an examination of efficiency as a result of, say, adverse profitability results for a marketing entity. However, efficiency controls should be built into the marketing planning and control systems so as to make them part of a dynamic system. As an example of how efficiency control might be applied, we can take the example of personal selling.

Personal selling can be evaluated at two levels – first, at the level of the individual salesperson, and second, as we have seen, by looking at the total selling effort. The individual salesperson will be evaluated on how well he or she has met performance targets such as:

  • number of sales calls per day (number of orders);
  • strike rate (number of quotations);
  • average order value;

The contribution approach to measuring marketing profitability

contribution approach to measuring marketing profitability

  • prospective success ratio;
  • expense targets.

In addition to these quantitative aspects of efficiency, we should also include some qualitative aspects such as:

  • sales skills;
  • customer relationships;
  • co-operation and attitudes.

The evaluation of total selling effort is basically derived from the sum of the contributions of all sales personnel. Evaluation of individual sales personnel and the total selling function is often viewed as a negative device for the control of salespeople, which is too narrow a view. A more comprehensive view is that the evaluation process, in addition to providing information about performance, can also be used to motivate and encourage sales personnel to plan their sales campaigns more efficiently and effectively. Hence evaluation brings considerable benefits both to the organization as a whole and to the individual salesperson.

This sort of detailed evaluation and control of marketing efficiency should be applied to each element of marketing mix activity, including advertising, sales promotion and distribution.

Strategic control

The strategic control of marketing planning process pertains to the control of the strategic planning process itself. Two tools are available to marketing management for this process: the marketing effectiveness rating review and the marketing audit.

Control of marketing effectiveness

Control of marketing effectiveness is essentially aimed at evaluating:

  • the extent to which the company is customer oriented;
  • the extent to which the different functions are integrated with the marketing function, and the extent to which the marketing functions themselves are co-ordinated one with another;
  • the effectiveness of the marketing information system;
  • the extent to which there is a strategic perspective to marketing planning, the quality of current strategies and the efficacy of contingency planning;
  • the extent to which marketing plans are communicated to lower levels, the speed of response to marketing developments and the use of marketing resources.

As we can see, control of marketing effectiveness is wide ranging, complex and requires considerable management judgement and skill. A questionnaire approach can be used, with marketing effectiveness being scored against a prepared checklist of questions. Total scores are obtained and the organization scored on a scale of marketing effectiveness ranging from poor to superior.

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