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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