McGraw-Hill/Irwin Copyright © 2009 by the McGraw-Hill Companies, Inc. All rights reserved.

Managing Programs

and Customers

Part Four

Part Four

Managing Programs and Customers

• Chapter 15• Evaluating Marketing Efforts

• Chapter 16• Customer Retention and Maximization

Chapter 15

EvaluatingMarketing Efforts

THE PROCESS OF CONTROL

Measureperformance

Compareperformanceto standard

Replicate causeof high

performance

Eliminate causeof low

performance

BelowStandard?

Above

Standard?

Exhibit 15-1

15-5

THE FUNCTIONS OF A MARKETING CONTROL SYSTEM

• MEASURES ACTUAL PERFORMANCE AGAINST PLANNED PERFORMANCE

• 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

15-6

Measure what’s important

THREE COMMON-SENSEPRINCIPLES OF CONTROL

Assumptions and goalsdetermine measures

What gets measuredis what gets done

15-7

DIMENSIONS OF CONTROL

Micro Macro

Input Regional Sales Office Expense

Trade Show Budget

Product X Development Cost

Total Selling Expenses

Promotion Budget

Total R&D Budget

Output Regional Sales Office Revenue

Leads from Trade Shows

Sales for Product X

Total Revenue

Corporate Position

Total Division Revenue

Exhibit 15-2

15-8

Exhibit 15-3

INPUT VARIABLES

Price Product R&D Advertising Promotion Distribution Marketing Research Marketing Administration

SET BY BUDGET

ACTIONPHASE

THEMARKETING

PROGRAM

MARKETREACTION

THEMARKET

OUTPUT VARIABLES

Sales Market Share Profit Communication results Distribution results Buyer attitudes and behavior COMPARED TO PERFORMANCE STANDARDS

CONTROL OF INPUT AND OUTPUT VARIABLES

15-9

THE COMPONENTS MEASURED BY THE 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 BUSINESS PROCESSEmployee satisfaction

Data availability

New product development cycle

Credit approval cycle

LEARNING & GROWTH

MEASURESCompleted training programs

New patents obtained

New products introduced

Exhibit 15-415-10

DEALING WITH VARIANCE IN OUTCOMES

FOUR CAUSES OF VARIANCE

CHANGES TO PROCESSCHANGES BY

RANDOM FACTORS

• TINKERING VARIANCEMaking minoradjustments

• SYSTEMATIC SOURCESChange systems tocreate newmeasures

• EXTERNAL CAUSESIdentified uncontrollablecauses, like the economy

• RANDOM CAUSESBoth uncontrollable andunidentified causes; howmuch can be attributed toknown cause

15-11

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 challenges beyond management control

• Random Causes of Variance

• Not only are there uncontrollable causes, there are variables that cannot be identified. Things happen

15-12

Exhibit 15-5

TINKERING: Make changes within a sales territory to narrow the range of variance

VARIANCE: HOW DO YOU NARROW THE DIFFERENCE

Jan Feb March April May June

0

100

125

150

175

200Wilcox

Young

Zorn

Sale

s in

$00

0

15-13

0

100

125

150

175

Sal

es in

$00

0

200

225

250

275

Jan Feb Mar Apr May June Jul Aug SepNew production introduction

VARIANCE: HOW DO YOU ADJUST PERFORMANCE

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.

Exhibit 15-6

15-14

VARIANCE: HOW DO YOU ADJUST FOREXTERNAL ENVIRONMENTAL ACTIVITIES

Each dot is a salesperson’s 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

Sal

es in

$00

0

0

100

125

150

175

200

225

250

275

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

Exhibit 15-7

15-15

BETTER PERFORMANCE:OUTPUT AND INPUT TOOLS OF CONTROL

Standard

Setting Process Pros Con CommentBenchmarking Can learn and

improveHard to find someone willing to let you benchmark

Can use industry association measures

Quotas and

Targets

Easy to establish

Can be difficult to account for variance

Consider sources of variance when setting

Budgets and

Pricing Plans

Easy to establish

Lack of flexibility can lead to missed opportunities

Create systems for opportunity evaluation

Exhibit 15-815-16

THREE TOOLS FOR BETTER CONTROL OF SYSTEM PERFORMANCE

• SET OUTPUT AND INPUT STANDARDS Of Performance That Can Be Observed And Measured

• DEVELOP MEASUREMENT TOOLS Such As Marketing Audits, Customer Satisfaction Measures And Accounting Systems

• CREATE SEARCH TOOLS Such As Reporting Systems And Information Systems To Find Variance And Its Causes

15-17

SUMMARY OF MEASUREMENT TOOLS

Exhibit 15-9

Measurement Tools Pro Con Comment Sources of Data

Marketing

Audits

Complete processreview

Difficult

and time- consuming

Most beneficial when done regularly but not frequently

Observation and survey in the field by the auditors

Customer Satisfaction Measurement

Can be a predictor of future sales

Challenge to

find what or

who caused (dis)satisfac-tion

Used as a

measure of performance

Surveys of customers, including decision makers and users

Accounting

Systems

Enables allocation of fixed costs

Hard to applyto specific customers

Use a variety to understand customer and product profitability

Transaction systems such as accounts receivable, shipping, and manufacturing

15-18

KEYS TO THE MARKETING AUDIT

1. External Environment

2. Marketing Strategy

3. Level of Marketing Orientation

4. Marketing Systems and Processes

5. Marketing Functionality

6. Marketing Productivity

CONDUCTING AN EVALUATION OF A FIRM’S MARKETING ACTIVITIES AND ITS ENVIRONMENT

WILL INCLUDE REVIEWING ITS:

15-19

CRITICAL TO DECISION MAKING:ALLOCATING COSTS

OBJECTIVE: INCREASE CONTROL OVER EXPENSES AND INCREASE PROFITS

Full CostingTo work best, must

allocate every cost to a specific product/cost

center

Contribution AnalysisTo work best, all

incremental costs have to be identifiable and

allocatable

Activity-Based Cost Accounting

To work best, all revenues and expenses have to be allocated to

each activity

15-20

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 $800

Direct Costs 50 100

Overhead Costs

(say $150 divided 60/40) 60 90

Net Revenue $390 $610

15-21

CONTRIBUTION ANALYSISSales Office

A

Sales Office

B

Sales Office

C 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 manager’s contribution margin $127 $108 $151

Fixed costs identified but not controlled by sales manager 19 19 19

Sales office contribution $108 $ 89 $132 $328

Common costs $231

Income before taxes $ 97

Exhibit 15-12

15-22

COMPARING CONTRIBUTION AND ABC METHODS

Digital Wamometer Tricometer

Sales $545 $545

Less variable costs1 320 335

Contribution margin $225 $210

Contribution Method

Less fixed mfg. costs2 85 50 50 15

Less fixed selling costs3 30 25 25 20

Income using ABC $110 $185

Income using contribution $150 $135

1Includes 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 to every four for the tricometer using ABC

Exhibit 15-1215-23

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 with CRM systems

Hard to control for all potential causes

Establishes cause and effect

Experimentation

Interviews of people involved

Look forunderlying 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 warehouseslets managers access data directly

Difficult to get data into a formateveryone can use

Self-serve reporting

Information Systems

Salespeople, trade show managers, other marketing managers, 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: SEARCH TOOLS FOR IDENTIFYING VARIANCE

Exhibit 15-1315-24

THE REALITY TREE PROCESS FOR DETERMINING PROBLEMS: FOCUS ON OUTCOMES

Undesirable Effect:Avg. 52 days, invoice

to paymentUndesirable Effect:

Accounts Receivable sendsIncorrect invoice

Potential Cause:Accounts Receivablemisprocesses invoices

Potential Cause:Customers are slow

payers

Potential Cause:Customers can’t pay

Potential Cause:Credit terms cause

slow pay

Core problem:Information submitted isincomplete or fragmented

Potential Cause:Accounts Receivable

receives poorinformation

Undesirable Effects:Order-entry misrecords

terms of sales

Undesirable Effect:Shipping generatesincorrect records

Exhibit 15-1415-25