Marketing Strategy Reformulation: The Control Process

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9
CHAPTER
Marketing Strategy ReformulationThe Control
Process
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AFTER READING THIS CHAPTERYOU SHOULD BE ABLE TO

• Define the concept of strategic control.

• Describe the nature and sources of strategic
  change.

• Explain each element of operations control.

• Discuss the nature of marketing costs analysis
  and the issues involved.

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AFTER READING THIS CHAPTERYOU SHOULD BE ABLE TO

• Describe product-service (offering) mix analysis
  and its two interrelated tasks.

• Discuss sales and marketing channels analyses and
  their impact on the firm.

• Explain three considerations involved in
  strategic and operations control.

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THE MARKETING CONTROL PROCESS
The marketing control process serves as the
mechanism for achieving

• Strategic adaptation to environmental change.

• Operational adaptation to productivity needs.

Strategic Control
Doing the right things.
OperationsControl
Doing things right.
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THE MARKETING CONTROL PROCESS
Strategic Control

• Assesses the direction of the organization as
  evidenced by its

• Implicit or explicit goals, objectives, strategies

• Capacity to perform in the context of changing
  environments and competitive actions

• Defines the fit between an organizations
  capabilities and objectives and environmental
  threats and opportunities.

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THE MARKETING CONTROL PROCESS
Operations Control

• Assesses how well the firm performs marketing
  activities as it seeks to achieve planned
  outcomes.

• Assumes that

• The direction of the firm is correct

• Only the organizations ability to perform
  specific tasks needs to be improved

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THE MARKETING CONTROL PROCESS
A poorly executed plan can produce undesirable
results just as easily as a poorly conceived
plan.

• Remedial efforts should focus on

Strategic Control
OperationsControl
Improving efficiency by heightening the marketing
effort.
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CHAPTER 9 MARKETING STRATEGY REFORMULATIONTHE
CONTROL PROCESS
STRATEGICCHANGE
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STRATEGIC CHANGE

• Is the change in the environment that will affect
  the long-run well-being of the firm.

• Represents opportunities or threats to an
  organization, depending on its competitive
  posture.

• Example The aging of the U.S. population.

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SOURCES OF STRATEGIC CHANGE
MarketEvolution
Results from changes in primary demand for a
product class.
TechnologicalInnovation
Creates strategic change as newer technologies
replace older ones.
MarketRedefinition
Results from changes in the offering demanded by
buyers or promoted by competitors.
MarketingChannel Change
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STRATEGIC CHANGE THREAT OR OPPORTUNITY?

• Threat severity or opportunity potentialis
  determined by the organizations business
  definition.

• Ask the following questions Does the threat or
  opportunity relate to

• The types of customers served by the firm?

• The needs of these customers?

• The means by which the firm satisfies these needs?

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OPTIONS FOR DEALING WITH STRATEGIC CHANGE

• Marshal the resources necessary to alter the
  firms technical and marketing capabilities
  tofit its market-success requirements.

• Shift its emphasis to product markets where the
  match between success requirements and the firms
  distinctive competency is clear.

• Cut back efforts in those product markets where
  the firm has been outflanked.

• Leave the industry.

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CHAPTER 9 MARKETING STRATEGY REFORMULATIONTHE
CONTROL PROCESS
OPERATIONSCONTROL
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OPERATIONS CONTROL

• The goal of operations control is to improvethe
  productivity of marketing efforts.

• Ways to identify and allocate costs are

Marketing-CostAnalysis
Marketing Channel Analysis
SalesAnalysis
CustomerProfitabilityAnalysis
Product-ServiceMix Analysis
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OPERATIONS CONTROL
Marketing-Cost Analysis
Its purpose is to

• Trace, assign, or allocate costs to a specified
  marketing activity or segment.

• Accurately display the financial contribution of
  activities or entities to the organization.

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OPERATIONS CONTROL
Marketing-Cost Analysis

• Marketing segments are defined based on

Product-ServiceOfferingElements
MarketingChannels
SalesDivisions orTerritories
CustomerType or Size

• Cost allocation principle Certain costs are
  directly or indirectly traceable or assignable to
  every marketing segment.

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OPERATIONS CONTROL
Marketing-Cost Analysis
Cost allocation issues

• How should costs be allocated to each marketing
  segment?

• Assign costs in accordance with an identifiable
  segment.

• What costs should be allocated?

• Those costs that

• Arise from the performance of a marketing activity

• Charged to that activity based on administrative
  policy

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OPERATIONS CONTROL
Marketing-Cost Analysis
Cost allocation issues

• Should all costs be allocated to marketing
  segments?

• It depends

• Allocate if Opting for a whole equals the sum
  of partsincome statement.

• Do not allocate if certain costs

• Have no identifiable measure of application to a
  segment.

• Do not arise from one particular segment.

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OPERATIONS CONTROL
Marketing-Cost Analysis
Guidelines when considering cost allocation

• Maintain fundamental distinctions between cost
  behavior patterns.

• The more joint costs there are, the less exact
  cost allocations will be.

• Greater detail in cost allocation or traceability
  will provide more useful information for remedial
  action.

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OPERATIONS CONTROL
Product-Service Mix Analysis
This analysis involves two interrelated tasks

• Assess the performance of offerings in the
  relevant markets via

Sales VolumeAnalysis
Market ShareAnalysis

• Appraise the financial worth of offerings via

ContributionMarginApproach
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OPERATIONS CONTROL
Product-Service Mix Analysis
Sales Volume Analysis
Is a performance index that can be based on
Growth orDecline in UnitSales Volume
A quantitative indicator of the acceptance of
offerings in their relevant markets.
Proportion ofSales fromEach Offering
Paretos Law or the 8020 rule80 percent of
sales or profits come from 20 percent of the
firms offerings.
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OPERATIONS CONTROL
Product-Service Mix Analysis
Market Share Analysis

• Complements sales volume as a measure of
  performance.

• Indicates whether a firm is gaining or losing
  ground in comparison with competitors.

• Can be computed by geographic area, offering type
  or model, customer or channel type.

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OPERATIONS CONTROL
Product-Service Mix Analysis
Market Share Analysis

• Can lead to misleading results. Example High
  market share in the market whose overall sales
  may be declining or growing.

• Use unit rather than dollar volume in examining
  market share due to price differentials.

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OPERATIONS CONTROL
Product-Service Mix Analysis
Contribution Margin Approach

• Assign costs to offerings that reflects their
  profitability.

• Requires astute managerial judgment

• Can be illusive based on the offerings definition

• Use the contribution margin approach to examine
  the financial worth of offerings.

• Charge the relevant direct and assignable
  overhead costs against the offering

• Break down the costs by those units that
  contribute to the analysis

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EXHIBIT 9.1 DISAGGREGATING SERVICE STATION COSTS
FOR PRODUCT-SERVICE MIX ANALYSIS (000)
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OPERATIONS CONTROL
Sales Analysis
Its purpose is to direct attention to both the
BehavioralAspect of Sales
Consists of sales effort and allocation of
selling time.
CostAspect of Sales
Consists of expenses from the performance and
administration of the sales function.
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OPERATIONS CONTROL
Sales Analysis

• Is based on a performance assessment by

Product-ServiceOfferings
SalesDivisions orTerritories
CustomerType or Size

• Measures to assess sales performance include

• Sales revenue

• Penetration of accountsin a sales territory

• Gross profit

• Selling and sales administration expenses

• Sales call frequency

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EXHIBIT 9.2 PERFORMANCE SUMMARY FOR TWO SALES
REPRESENTATIVES
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EXHIBIT 9.3 SELECTED OPERATING INDICES OF SALES
PERFORMANCE
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OPERATIONS CONTROL
Marketing Channel Analysis
Consists of two complementary processes

• Assess environmental and organizational factors
  that may alter the structure, conduct, and
  performance of marketing channels.

• Evaluate the profitability of marketing channels.

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OPERATIONS CONTROL
Marketing Channel Analysis
Two types of costs to identify and trace to
marketing channels
OrderGettingCosts
Include sales expenses and advertising allowances.
OrderServicingCosts
Include packing and delivery costs, warehousing
expenses, and billing costs.
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EXHIBIT 9.4 DISAGGREGATING COSTS OF FURNITURE
IMPROVEMENT PRODUCTS FOR MARKETING CHANNEL
ANALYSIS (000)
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OPERATIONS CONTROL
Customer Profitability Analysis
A profitable customer is a person, household, or
company that, over time, yields a revenue stream
that exceeds,by an acceptable amount, the
organizations cost of attracting, selling, and
servicing that customer.
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OPERATIONS CONTROL
Customer Profitability Analysis
Is calculated as follows
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OPERATIONS CONTROL
Customer Profitability Analysis

• When this is done for each customer, it is
  possible to classify customers into different
  profit tiers.

• Can cross-sell customers additional offerings.

• Can up-sell customers by introducing them to the
  firms more profitable offerings.

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OPERATIONS CONTROL
Customer Profitability Analysis
To manage low profit or unprofitable customers,
marketers could

• Drop them to eliminate their costs entirely.

• Charge them higher prices to increase profits.

• Reduce the cost of serving them to make them more
  profitable.

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CHAPTER 9 MARKETING STRATEGY REFORMULATIONTHE
CONTROL PROCESS
CONSIDERATIONS IN MARKETING CONTROL
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CONSIDERATIONS IN MARKETING CONTROL
Problemsvs.Symptoms
Effectivenessvs.Efficiency
Datavs.Information