Investing for Value in Customers and Yourself

8/14/2019 Investing for Value in Customers and Yourself

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Part Four

INVESTING FOR VALUE IN

CUSTOMERS AND YOURSELF


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PART FOUR

Investing for Valuein Customers and Yourself

Chapter 15 Evaluating Marketing Efforts

Chapter 16

Customer Retention and Maximization


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Copyright 2006 The McGraw-Hill Companies, Inc. All rights reservedMcGraw-Hill/Irwin

Chapter Fifteen

Evaluating

Marketing Efforts


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THE KEY TO SUCCESSFUL EVALUATIONOF 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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Measure whats importantMeasure whats important

THREE COMMON-SENSEPRINCIPLES OF CONTROL

Assumptions and goalsAssumptions and goals

determine measuresdetermine measures

What gets measuredWhat gets measuredis what gets doneis what gets done


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THE FUNCTIONS OF A MARKETINGCONTROL SYSTEM

MEASURES ACTUAL PERFORMANCE AGAINST PLANNEDPERFORMANCE

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

Measure

performance

Compare

performance

to standard

Replicate cause

of high

performance

Eliminate cause

of low

performance

BelowStandard?

Above

Standard?


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INPUT

VARIABLES

Price

Product R&D

Advertising

PromotionDistribution

Marketing

Research

Marketing

Administration

SET

BY

BUDGET

ACTION

PHASE

THE

MARKETINGPROGRAM

MARKET

REACTION

THE

MARKET

OUTPUT

VARIABLES

Sales

Market Share

Profit

Communication

resultsDistribution

results

Buyer

attitudes

and

behavior

COMPARED TO

PERFORMANCE

STANDARDS

CONTROLLED INPUT VARIABLES LEAD

TO MEASURABLE OUTUT VARIABLES


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THE COMPONENTS MEASURED BYTHE BALANCED SCOREBOARD

FINANCIAL RESULTSNet income

Profit margin

Return on investment

Return on assets managed

CUSTOMER RESULTSRevenue per customer

Account share

Customer satisfaction

Intent to repurchase

INTERNAL BUSINESSPROCESS

Employee satisfaction

Data availabilityNew product development

cycle

Credit approval cycle

LEARNING & GROWTH

MEASURES

Completed training programs

New patents obtainedNew products introduced


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DEALING WITH VARIANCE IN OUTCOMES

SOURCES OF VARIANCE

CHANGES TO PROCESSCHANGES TO PROCESSCHANGES BY

RANDOM FACTORS

CHANGES BY

RANDOM FACTORS

TINKERING VARIANCE

Making minor

adjustments

SYSTEMATIC SOURCES

Change systems tocreate new

measures

EXTERNAL CAUSES

Identified uncontrollable

causes, like the economy

RANDOM CAUSES

Both uncontrollable andunidentified causes; how

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 challengesbeyond management control

Random Causes of Variance

Not only are there uncontrollable causes, there are variables thatcannot be identified. Things happen


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VARIANCE: HOW DO YOU NARROW THEDIFFERENCE

Jan Feb March April May June

0

100

125

150

175

200 Wilcox

Young

Zorn

TINKERING: Make changes within a sales territory to

narrow the range of variance

Sales

in

$000


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0

100

125

150

175

Sales

in

$00

0

200

225

250

275

Jan Feb Mar Apr May June Jul Aug SepNew production introduction

VARIANCE: HOW DO YOU ADJUSTPERFORMANCE

Systematic Change: Create new systems with a new range of

performance standards

Each dot represents salesperson performance.

A new product brings higher levels of sales.


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VARIANCE: HOW DO YOU ADJUST FOR

EXTERNAL ENVIRONMENTAL ACTIVITIES

Each dot is a salespersons performance. The range is due to

seasonality of customers purchases

EXTERNAL CAUSES OF VARIANCE: Create a response to changes caused

by things beyond your control

Sales

in

$00

0

0

100

125

150

175

200

225

250

275

Jan Feb Mar Apr May June Jul Aug Sep Oct Nov Dec


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THREE TOOLS FOR BETTER CONTROL OFSYSTEM PERFORMANCE

SET OUTPUT AND INPUT STANDARDS OfPerformance That Can Be Observed And Measured

DEVELOP MEASUREMENT TOOLS Such As MarketingAudits, Customer Satisfaction Measures And AccountingSystems

CREATE SEARCH TOOLS Such As Reporting Systems

And Information Systems To Find Variance And ItsCauses


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CRITICAL TO DECISION MAKING:ALLOCATING COSTS

OBJECTIVE: INCREASE CONTROL OVEREXPENSES

AND INCREASE PROFITS

Full Costing

To work best, mustallocate every cost to a

specific product/cost

center

Contribution Analysis

To work best, all

incremental costs haveto be identifiable and

allocatable

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 $800Direct Costs 50 100

Overhead Costs

(say $150 divided 60/40) 60 90

Net Revenue $390 $610


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CONTRIBUTION ANALYSIS

Sales

OfficeA

Sales

OfficeB

Sales

OfficeC

Total

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 managers contribution margin $127 $108 $151

Fixed costs identified but not controlled bysales manager

19 19 19Sales office contribution $108 $ 89 $132 $328

Common costs $231

Income before taxes $ 97

COMPARING CONTRIBUTION


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COMPARING CONTRIBUTIONMETHOD 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 15Less 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 shipping2Total fixed mfg. costs = $100, but allocated based on complexity in mfg. process3Total fixed selling costs (administrative overhead and sales office expenses)

= $50, but allocated on the basis of digital wamometer requiring six calls toevery four for the tricometer using ABC


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BETTER PERFORMANCE:OUTPUT AND INPUT TOOLS OF CONTROL

Standard

Setting Process

Pros Con Comment

Benchmarking Can learn andimprove

Hard to find someonewilling to let youbenchmark

Can use industryassociationmeasures

Quotas and

Targets

Easy to establish Can be difficult toaccount for variance

Consider sources ofvariance whensetting

Budgets andPricing Plans

Easy to establish Lack of flexibility canlead to missedopportunities

Create systems foropportunityevaluation


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BETTER PERFORMANCE: THREEMEASUREMENT TOOLS

Measurement

Tools

Pro Con Comment Sources of Data

Marketing

Audits

Completeprocessreview

Difficult and time-consuming

Most beneficial whendone regularly butnot frequently

Observation andsurvey in the fieldby the auditors

CustomerSatisfactionMeasurement

Can be apredictor offuture sales

Challenge to findwhat or whocaused(dis)satisfac-tion

Used as a measure ofperformance

Surveys ofcustomers,including decisionmakers and users

Accounting

Systems

Enables

allocation offixed costs

Hard to apply to

specific customers

Use a variety to

understand customerand productprofitability

Transaction

systems such asaccountsreceivable,shipping, andmanufacturing

BETTER PERFORMANCE:


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All of the aboveOften combined with

experimentation for

more powerful

decision-making

Can lead to

incremental,

rather than

innovative,

thinking

Can inform

forecasts, as

well as explain

past success

Statistical

Analysis

Marketing systems that

track source of sale

Used more

frequently withCRM systems

Hard to control

for all potentialcauses

Establishes

cause and effect

Experimentation

Interviews of people

involved

Look for underlying

principles of success

or failure

Can be hard to

apply learning

to new

situations

Method of

organizational

learning

Case Analysis

Surveys, transaction

systems, and third-party

sources such as Dun &

Bradstreet

Increasing use of

data warehouses lets

managers access

data directly

Difficult to get

data into a

format everyone

can use

Self-serve

reporting

Information

Systems

Salespeople, trade show

managers, other marketingmanagers, as well as

transaction systems

Companies are

moving to real-time

systems like

dashboards

Can get

tradition-bound

Method of

information

sharing across

work-groups

Reporting

Systems

Sources of DataCommentConProSearch Tools

BETTER PERFORMANCE:

FIVE SEARCH TOOLS FOR IDENTIFYING VARIANCE


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KEYS TO THE MARKETING AUDIT

1. External Environment

2. Marketing Strategy

3. Level of Marketing Orientation

4. Marketing Systems and Processes

5. Marketing Functionality6. Marketing Productivity

Conducting an evaluation of a firms marketingactivities and its environment will include reviewing

its:


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THE REALITY TREE PROCESS FOR DETERMININGPROBLEMS: FOCUS ON OUTCOMES

Undesirable Effect:Avg. 52 days, invoice

to paymentUndesirable Effect:

Accounts Receivable sends

Incorrect invoicePotential Cause:

Accounts Receivable

misprocesses invoices

Potential Cause:

Customers are slow

payers

Potential Cause:

Customers cant pay

Potential Cause:

Credit terms cause

slow pay

Core problem:

Information submitted is

incomplete or fragmented

Potential Cause:Accounts Receivable

receives poor

information

Undesirable Effects:

Order-entry misrecordsterms of sales

Undesirable Effect:Shipping generates

incorrect records

Documents

Investing for Value in Customers and Yourself