Business / Marketing Minor Marketing Fundamentals M21439 Session 6: Costing The Various Elements of...

Business / Marketing Minor

Marketing FundamentalsM21439

Session 6:

Costing The Various Elements of the Marketing Mix

Key Concepts

• Marketing strategy models

• Pricing issues

• Product costs

• Promotion costs

• Place costs

• Process, Physical Evidence & People costs

Costing the Marketing Mix

In order to prepare a detailed marketing plan

the costs associated with the various

elements of the marketing mix need to be

established.

The Marketing Plan Structure

1. Management or Executive Summary

2. Marketing Objectives

3. Product/Market Background

4. Marketing Analysis

5. Marketing Strategies

6. Statement of Expected Sales Forecasts

& Results

Source: Dibb,S, Simkin, Pride, Ferrell (2001) Marketing: Concepts & Strategies 4th ed, USA:Houghton Mifflin,p.696

The Marketing Plan Structure– cont.

7. Marketing Programmes for Implementation

8. Control & Evaluation: Monitoring of

Performance

9. Financial Implications/Required Budget

10.Operational Considerations

11.Appendices

Source: Dibb,S, Simkin, Pride, Ferrell (2001) Marketing: Concepts & Strategies 4th ed, USA:Houghton Mifflin, p.696

Marketing Strategies

Marketing objectives provide a broad

overview and statement of what is to be

accomplished through marketing activities.

Marketing strategies define the focus achieving

those objectives and developing a marketing

mix.

SWOT Analysis

Performance Trends

Resources and Capabilities

Mission andObjectives

EnvironmentalScanning

Strengths andWeaknesses

Opportunities andThreats

SWOTAnalysis

Source: Mercer,D. (1996) Marketing 2nd ed, UK:Blackwell Business

BCG Growth-Share Matrix

Source: Baker,M.J.(2000) Marketing Strategy and Management 3rd ed, UK:Macmillan Business

High (Strong) Low (Weak)

High

Low

Relative Competitive Position / Market Share (cash generated)

AnnualMarketGrowth

STAR QUESTION MARK

CASH COW DOG

(modest +/- cashflow) (large - cashflow)

?(large + cashflow) (modest +/- cashflow)

£

Justifying Growth / Movement

One of two models can be used to justify

organisational growth/movement.

These are:

- Shell’s (1975) Directional Policy Matrix

- GE (1975) Business Screen

Shell – Directional Policy Matrix (1975)

Source: Baker,M.J.(2000) Marketing Strategy and Management 3rd ed, UK:Macmillan Business

Unattractive AttractiveAverage

Prospects for Sector Profitability

Weak

Average

Strong

Com

pany

’s C

ompe

titiv

e C

apab

ilitie

s

Disinvest

Phased Withdrawal

Custodial

Double or Quit

Phased Withdrawal

Custodial

Growth

Growth

Try Harder

Cash Generation

Leader

Leader

General Electric – Business Screen (1975)

Source: Baker,M.J.(2000) Marketing Strategy and Management 3rd ed, UK:Macmillan Business

No GrowthNo GrowthBorderline

No GrowthBorderlineGrowth

BorderlineGrowthGrowth

High

High

Medium

Medium

Low

Low

Industry Attractiveness

Business Strengths

Costing the Elements of the Marketing Mix

In order to establish a realistic budget for the

marketing plan detailed costings should be

made of the various elements of the

marketing mix.

Profit & Loss Account£000

Turnover (PRICE) 6,000

LESS Cost of Sales (PRODUCT) 4,000

GROSS PROFIT 2,000

Other Costs 100

LESS Operating Expenses 850

950

OPERATING PROFIT 1,050

Examples of ‘Other Costs & Operating Expenses’

• PROMOTION:

- Advertising- PR- Sponsorship- Exhibitions

• PLACE:

- Agents Fees- Distribution costs

• PEOPLE:

- Salaries- Recruitment

• PROCESS:

- Administration costs- Data processing costs

• PHYSICAL PRESENCE:

- Literature- Car costs- Travel

PRICE

Revenue

Of all the elements of the marketing mix

PRICE is the only one that an organisation

can gain revenue from.

All of the other elements are a cost to the

organisation.

Developing a Pricing Strategy

Source: Doyle,P.(2002) Marketing Management and Strategy 3rd ed, Harlow:Prentice Hall, p.220

Assess price competitiveness

Set pricingobjectives

StrategicPrice focus

Target market segment

Selectprice

Product line pricing

Measure value to customer

Evaluate competitive strategies

Determining the Break Even Point

Source: Dibb,S, Simkin, Pride, Ferrell (2001) Marketing: Concepts & Strategies 4th ed, USA:Houghton Mifflin

Price Lining

Source: Dibb,S, Simkin, Pride, Ferrell (2001) Marketing: Concepts & Strategies 4th ed, USA:Houghton Mifflin

PRODUCT

Phases of new product development

Source: Dibb,S, Simkin, Pride, Ferrell (2001) Marketing: Concepts & Strategies 4th ed, USA:Houghton Mifflin

Product Development

Costs considerations:

• What accounting system to be used for costing products?

• Inhouse or agency?• On how many customers will the concept be

tested?• What is the cost of production?• How many do you need to sell?• How often will it need revising?

Product Deletion Process

Source: Martin L. Bell, Marketing: Concepts and Strategies, 3rd ed., p. 267; Houghton Mifflin Company.

PROMOTION

Advertising

Includes TV, radio, cinema, press, posters,

direct mail and internet.

Costs that need be considered include: cost of

creating the advert, which media used, how

often, when and where.

PLACE

Place - Costs

Costs that need to be considered include:

- Agreement costs with wholesalers

- Agents fees

- Retailers placement prices

- Distribution costs

Types of Merchant Wholesalers

Types of Agents and Brokers

Major Store Types

• Major Store Types– Department and Variety Stores– Grocery Supermarkets, Superstores and

Hypermarkets– Discount Sheds, Superstores and Category

Killers– Warehouse Clubs– Speciality Shops– Convenience Stores

PEOPLE

People - Costs

Costs include:

- Recruitment of personnel specifically for the campaign or generally within the organisation – how is this cost

allocated?

- Payments to external stakeholders – direct and indirectly. For example,

consultants.

- Training costs

PROCESS

Process - Costs

Costs include:

- R&D costs associated with making the process of accessing or purchasing the product more efficient – how allocated?

- New equipment purchased – what if the equipment is used for more than one product?

- Research into the customer experience.

PHYSICAL PRESENCE

Physical Presence - Costs

Costs include:

- Cost of fixed assets, for example, buildings, cars, machinery.

- Cost of literature

- Uniforms provided

Are these product costs or physical presence costs?