EVALUATION & CONTROL
SUBMITTED TO: Prof. Jacob Alexander
SUBMITTED BY: Angika Sudershan (08PG151)
Harris Jamil (08PG163)
Naveen J (08PG174)
Richa Mehrotra (08PG186)
Sundeep Sehgal (08PG199)
Varun Kumar Gupta (08PG211)
DATE OF SUBMISSION: 13/01/09
S.No Contents Page No
1 Evaluation & Control 3
2 Annual Plan Control 3
3 Profitability Control 8
4 Determining Corrective Action 5
5 Efficiency Control 12
6 Marketing Strategy 14
7 Strategic Control 15
EVALUATION AND CONTROL
In the light of active market, innovation in technology, informative and active
customers, controlling and monitoring marketing activities is important.
Market is controlled by 4 ways:
a) Annual plan control
b) Profitability control
c) Efficiency control
d) Strategic control
a) ANNUAL PLAN CONTROL –
It ensures the company achieves the sales, profits and other goals established
in its annual plan. It is a 4 step process:
1st step: Management sets monthly or quarterly target
2nd step: Monitors performance in the marketplace
3rd step: Causes of serious performance deviations are determined
4th step: Corrective action to close gaps between goals and performance
Marketing plans performance can be judged by sales metrics, customer
readiness to buy metrics, customer metrics and distribution metrics. The four
tools which checks on the plan performance are:
i) Sales analysis
ii) Market share analysis
iii) Marketing expense- to – sales analysis
iv) Financial analysis
i) SALES ANALYSIS –
It measures and evaluates actual sales in relationship to goals with the help of
Sales- variance Analysis- It measures the relative contribution of
different factors to gap the sales performance.
Microsales Analysis – It looks at specific products, territories, and so
forth that failed to produce expected sales.
ii) MARKET SHARE ANALYSIS – It reveals the hold the company has in
the market. Market share can be tracked by following 3 ways:
Overall Market Share – It expresses the company’s sales as a percentage of
total market sales.
Served Market Share – It is the sales as a percentage of the total sales to the
Relative Market Share – It is the market share in relationship to the largest
A useful way to analyze market share movements is in terms of four
Overall = Customer * Customer * Customer * Price
market Penetration Loyalty Selectivity Selectivity
Customer Penetration : Percentage of all customers who buy from the
Customer Loyalty: Purchases from the company by its customers as a
percentage of their total purchases from all suppliers
of the same products
Customer Selectivity: Size of the average customer purchase from the
company as a percentage of the size of the average
customer purchase from an average company
Price Selectivity: Average price charged by the company as a percentage
of the average price charged by all companies
iii) Expense Analysis
The key ratio to watch in this area is usually the `marketing expense to sales
ratio'; although this may be broken down into other elements like-
Sales force to sales
Advertising to sales
Sales promotion to sales
Marketing research to sales
Sales administration to sales
Fluctuations outside normal range are cause of concern. The advertising
expense to sales ratio normally fluctuates between 8% to 12%.when the ratio
exceeds the upper control limit the two hypotheses can be explained—
1) Company still has good expense control and this situation represents a
rare chance event.
2) The company has lost control over this expense and should find the
If there is no investigation the risk is that some real change might have
occurred and the company will fall behind. An investigation may also uncover
nothing and be a waste of time and effort.
EXAMPLE OF MARKETING EXPENSE TO SALES ANALYSIS
Nokia Sees 10% Unit Growth In Cell Phones; Narrows Operating Margin Target.
Nokia Expects 4 Billion Mobile Phone Subscribers in 2009.
Nokia's goal is to be the world #1 in bringing the Internet to mobile devices. It
forecasts that in 2010, the total Internet services market will be approximately
100 billion euro.Nokia financial targets as per the expense to sales analysis
are(excluding special items, purchase price accounting, and the pending
acquisition of NAVTEQ) are--
Nokia Group operating margin of 16-17% targeted within the next one to
two years. This target is revised from the one to two year 15% operating
margin target Nokia gave in November 2006.
Nokia Devices & Services operating margin targeted to be approximately
20% during the next one to two years.* (see reconciliation below).
Nokia Siemens Networks' target operating margin increasing to 10% by
the end of 2009.
Nokia targets an improvement in the ratio of Nokia Group gross margin
to R&D expenses and an improvement in the ratio of Nokia Group gross
margin to sales and marketing expenses in 2008, compared to 2007.
iv) Financial Analysis
The `bottom line' of marketing activities is the net profit (for all except non-
profit organizations, where the comparable emphasis may be on remaining
within budgeted costs). There are a number of separate performance figures
and key ratios which need to be tracked:
gross contribution<>net profit
gross profit<>return on investment
net contribution<>profit on sales
There can be considerable benefit in comparing these figures with those
achieved by other organizations (especially those in the same industry); using,
for instance, the figures which can be obtained (in the UK) from `The Centre for
Interfirm Comparison'. The most sophisticated use of this approach, however,
is typically by those making use of PIMS (Profit Impact of Management
Strategies), initiated by the General Electric Company and then developed by
Harvard Business School, but now run by the Strategic Planning Institute.
The above performance analyses concentrate on the quantitative measures
which are directly related to short-term performance. But there are a number
of indirect measures, essentially tracking customer attitudes, which can also
indicate the organization's performance in terms of its longer-term marketing
strengths and may accordingly be even more important indicators. Some
useful measures are:
market research - including customer panels (which are used to track
changes over time)
lost business - the orders which were lost because, for example, the
stock was not available or the product did not meet the customer's exact
customer complaints - how many customers complain about the
products or services, or the organization itself, and about what
EXAMPLE OF FINANCIAL ANALYSIS
Ratio data TTM as of 10/2/2008
PROFITABILITY - NOKIA OYJ (NOK)
Return on Assets Return on Equity
Industry Comparison Industry Comparison
Return on Capital
MARGIN ANALYSIS - NOKIA OYJ (NOK)
Gross Margin Levered Free Cash Flow Margin
Industry Comparison Industry Comparison
EBITDA Margin SG&A Margin
Industry Comparison Industry Comparison
ASSET TURNOVER - NOKIA OYJ (NOK)
Total Assets Turnover Accounts Receivables Turnover
Industry Comparison Industry Comparison
Fixed Assets Turnover Inventory Turnover
Industry Comparison Industry Comparison
This helps in analysing various returns. It also does margin analysis which
will in turn help in achieving benchmark. It also calculates various
turnovers like asset turnover, inventory turnover and accounts
b) PROFITABILITY CONTROL
Profitability control and efficiency control allow a company to closely monitor
its sales, profits, and expenditures. Profitability control demonstrates the
relative profit-earning capacity of a company’s different products and
consumer groups. Companies are frequently surprised to find that a small
percentage of their products and customers contribute to a large percentage
of their profits. This knowledge helps a company allocate its resources and
Market Profitability Analysis
This can be done in three steps.
Step 1. Identifying Functional Expenses: As shown in table 1, certain expenses are
incurred to sell the product, advertise it, pack and deliver it, and bill and collect
Natural Packing & Billing &
Total Selling Advertising
Accounts Delivery Collecting
Salaries Rs 1200 Rs 1400 Rs 1600
Rent 3000 - 400 2000 600
Supplies 3500 400 1500 1400 200
15800 5500 3100 4800 2400
Step 2. Assigning functional expenses to Marketing entities. Now we need to
measure how much functional expense was associated with selling through
each type of channel.
Packing & Billing &
Channel Types Total Selling Advertising
Hardware 20 50 50 50
Garden Supply 65 20 21 21
Deptt Stores 10 30 9 9
275 100 80 80
Func. Expense / No. of Rs
Rs 3100 Rs 4800 Rs 2400
275 100 80 80
Equals Rs 20 Rs 31 Rs 60 Rs 30
Step 3. Preparing a Profit-and-Loss Statement for each Marketing entity. Next we
prepare a profit-and-loss statement for each type of channel. (see table 3).
HARDWARE GARDEN SUPPLY DEPT. STORE WHOLE
Sales Rs.30000 10000 20000 60000
Cost of goods 19500 6500 13000 39000
Gross margin 10500 3500 7000 21000
Selling(rs.20 4000 1300 200 5500
1550 620 930 3100
Packing and 3000 1260 540 4800
Billing(rs.30 per 1500 630 270 2400
TOTAL 10050 3810 1940 15800
NET PROFIT OR 450 310 5060 5200
Determining Corrective Action
There are some basic questions which need to be answered for corrective
action to take place :
1) To what extent do buyers buy on the basis of type of retail outlet versus
2) What are the trends with respect to the importance of these three channels?
3) How good are the company marketing strategies directed at the three
The answers to these questions must be analysed fully and then alternatives
must be developed.
To sum up, the profitability of an enterprise in anyone year is the relationship
between the profit made and the funds employed to earn the profit.
Profitability analysis is a useful technique to entrepreneurs to take right
decisions in maximizing profits and to bankers and financial institutions to
arrive at the viability of the enterprise and its financial needs.
Direct Vs Full Costing
Direct costs can be traced directly to a cost object such as a product or a
department. In other words, direct costs do not have to be allocated to a
product, department, or other cost object.
For example, if a company produces artisan furniture, the cost of the wood and
the cost of the craftsperson are direct costs—they are clearly traceable to the
production department and to each item produced—no allocation was
needed. On the other hand, the rent of the building that houses the
production area, warehouse, and office is not a direct cost of either the
production department or the items produced. The rent is an indirect cost—an
indirect cost of operating the production department and an indirect cost of
crafting the product.
Method in which the cost of a product or operation is determined by allocating
to it an appropriate portion of the variable (direct) costs. Direct costing treats
fixed costs (overheads such as administrative and selling costs) as period costs
(associated with time and not output).
Expense a firm incurs as a whole, and which cannot be assigned directly to any
particular department, product, or segment of the business. Common costs
can be further categorised into two:
Traceable Common Costs
Those costs which can be allocated to specific functions
Non Traceable Common Costs
Cost which are allocated on arbitrary basis, because there is no logical criteria
for its assignment to any specific function or product.
Full costing is a method for appraising or valuing a firm's total inventory by including all
the manufacturing costs incurred to produce those goods. These manufacturing costs
Direct Materials - These are the raw materials such as wood, metal, bricks, etc that are
used in order to create a finished usable good which will be demanded by the market.
Direct Labour - Direct Labour is the man work and total factory hours put behind
assembling the raw materials, creating the finished good, etc.
Fixed Manufacturing Overhead - This includes expenses such as rent of factory where the
raw materials are turned into finished goods, amortization of factory building,
Variable Manufacturing Overhead - These are the general and administrative expenses in
the manufacturing process.
Full costing is different from the other costing methods because it takes into account
fixed manufacturing overhead (includes expenses such as factory rent, amortization,
utilities). It is hard to factor in the fixed manufacturing overhead expenses into
calculating the per unit price of goods, therefore other methods such as Variable
Costing does not take it into account.
One drawback of absorption costing is that managers can increase production levels
without taking into account total sales (whether there is enough demand for all the
goods they are producing). With higher production levels, this year's expenses can be
deferred to next year, thus lowering this year's costs. What does this mean? The
managers get a fat bonus and pay raises thanks to more "profits."
When beginning inventory and ending inventory levels are different, profit calculations
using the Absorption costing can be difficult. Here are the effects of fluctuating
If Beginning Inventory = Ending Inventory, then Full Costing = Direct Costing
If Inventory Levels = Low, then Direct Costing Profit > Full Costing Profit
If Inventory Levels = High, then Full Costing Profit >Direct Costing Profit
c) EFFICIENCY CONTROL
Efficiency control involves micro-level analysis of the various elements of the
marketing mix, including sales force, advertising, sales promotion, and
distribution. For example, to understand its sales-force efficiency, a company
may keep track of how many sales calls a representative makes each day, how
long each call lasts, and how much each call costs and generates in revenue.
This type of analysis highlights areas in which companies can manage their
marketing efforts in a more productive and cost-effective manner.
Sales Force Efficiency– Sales managers need to monitor the following key
indicators of efficiency in their territories:
Average number of calls per salesperson per day
Average sales call time per contact
Average revenue per sales call
Average cost per sales call
Entertainment cost per sales call
Percentage of orders per 100 sales calls
Number of new customers per period
Number of lost customers per period
Sales-force cost as a percentage of total sales
Advertising Efficiency – Many managers believe that it is almost impossible to
measure what they are getting for their advertising dollars; but they should try
to keep track of least the following statistics:
Advertising cost per thousand target buyers reached by media vehicle
Percentage of audience who noted, saw, or associated and read most of each
Consumer opinions on the ad’s content and effectiveness
Before and after measures of attitude toward the product
Number of enquiries stimulated by the ad
Cost per inquiry
Sales Promotion Efficiency – It includes lot of devices for stimulating buyer
interest and product trial. To improve sales promotion efficiency, management
should record the cost and sales impact of each promotion and should watch
the following statistics:
Percentage of sales sold on deal
Display cost per sales dollar
Percentage of coupons redeemed
Number of inquiries resulting from a demonstration
A sales-promotion manager can analyse the results of different promotions
and advise product managers on the most cost-effective promotions to use.
Distribution Efficiency – Management needs to find distribution economies in
inventory control, warehouse locations and transportation modes. It should
track measures such as:
Logistics cost as a percent of sales
Percentage of orders filled correctly
Percentage of on-time deliveries
Number of billing errors
Management should try to reduce inventory while at the same time speeding
up the order-to-delivery cycle.
Marketing strategy is the marketing logic by which the business unit hopes to
achieve its marketing objectives. It shows how strategies for target markets
and positioning build upon the firm's differential advantages. It should detail
the market segments on which the company will focus. These segments differ
in their needs and wants, responses to marketing, and profitability. The
company should put its effort into those market segments it can best serve
from a competitive point of view. It should develop a marketing strategy for
each targeted segment
d) STRATEGIC CONTROL
Checking whether the company's basic strategy matches its opportunities and
strengths. Strategic control makes sure that the company's marketing
objectives, strategies and systems fit with the current and forecast marketing
environment. It uses the marketing audit to determine marketing
opportunities and problems, and to recommend short-run and long-run
actions to improve overall marketing performance. The company uses these
resources to watch and adapt to the marketing environment. Strategic Control
can be achieved by conducting marketing audits.
The marketing audit is a systematic and periodic examination of a company's
environment, objectives, strategies and activities to determine problem areas
and opportunities. The objective of the audit is clearly defined, and a detailed
plan is prepared which gives whom to be interviewed and what questions
should asked and the task of auditing is then to questionnaire is then
circulated. The rule in marketing auditing is that don’t rely on only the people
in the organization but also ask customers, dealers and other groups who are
external to the organization so that we get a clear picture.
Marketing Audit examines six major components of the company’s marketing
situation and the list of major questions in each component is presented
Marketing Environment Audit
The Macro Environment
1. Demographic: What primary demographic trends pose threats and
opportunities for this company?
2. Economic: What developments in income, prices, savings and credit will
impact on the company?
3. Natural: What is the outlook for costs and availability of natural resources
and energy? Is the company environmentally responsible?
4. Technology: What technological changes are occurring? What is the
company's position on technology?
5. Political: What current and proposed laws will affect company strategy?
6. Cultural: What is the public's attitude towards business and the company's
products? What changes in consumer lifestyles might have an
The Task Environment
1. Markets: What is happening to market size, growth, geographic distribution
and profits? What are the major market segments?
2. Customers: How do customers rate the company on product quality, service
and price? How do they make their buying decisions?
3. Competitors: Who are the chief competitors? What are their strategies,
market shares, and strengths and weaknesses?
4. Channels: What main channels does the company use to distribute products
to customers? How are they performing?
5. Suppliers: What trends are affecting suppliers? What is the outlook for the
availability of key production resources?
6. Publics: What key publics provide problems or opportunities? How should
the company deal with these publics?
Marketing Strategy Unit
1. Mission, is the mission clearly defined and market-oriented?
2. Objectives, has the company set clear objectives to guide marketing
planning and performance? Do these objectives fit with the company's
opportunities and strengths?
3. Strategy, does the company have a sound marketing strategy for achieving
4. Budgets, has the company budgeted sufficient resources to .segments,
products, territories and marketing-mix elements?
Marketing Organization Unit
1. Formal structure: Does the chief marketing officer have adequate authority
over activities affecting customer satisfaction? Are activities optimally
structured along functional, product, market and territory lines?
2. Functional efficiency: Do marketing, sales and other staff communicate
effectively? Are the staffs well trained, supervised, motivated and
3. Interface efficiency: Do staffs work well across functions: marketing with
manufacturing, R & D, buying, personnel, etc.?
Marketing System Audit
1. Marketing information system: Is the marketing intelligence system providing
accurate and timely information about developments? Are decision makers
using marketing research effectively?
2. Planning system: Does the company prepare annual, long-term and strategic
plans? Are they used?
3. Marketing control system: Are annual plan objectives being achieved? Does
management periodically analyze the sales and profitability of products,
markets, territories and channels?
4. New-product development: Is the company well organized to gather, generate
and screen new product ideas? Does it carry out adequate product and
market testing? Has the company succeeded with new products?
1. Profitability analysis: How profitable are the company's different products,
markets, territories and channels? Should the company enter, expand or
withdraw from any business segments? What would he the consequences?
2. Cost-effectiveness analysis: Do any activities have excessive costs? How can
costs he reduced?
Marketing Function Audit
1. Products: Has the company developed sound product-line objectives?
Should some products be phased out? Should some new products he
added? Would some products benefit from quality, style or feature
2. Price: What are the company's pricing objectives, policies, strategies and
procedures? Are the company's prices in line with customers1 perceived
value? Are price promotions used properly?
3. Distribution: What are the distribution objectives and strategies? Does the
company have adequate market coverage and service? Should existing
channels are changed or new ones added?
4. Advertising, sales promotion and publicity: What are the company's promotion
objectives? How is the budget determined? Is it sufficient? Arc advertising
messages and media well developed and received? Does the company have
well-developed sales promotion and public relations programs?
5. Sales force: What are the company's sales force objectives? Is the sales force
large enough? Is it properly organized? Is it well trained, supervised and
motivated? How is the sales force rated relative to those of competitors?
The framework of marketing control has 2 major types of controls
Formal controls: control activities initiated by the management
1. Input controls- actions taken prior to the implementation of the strategy
Employee recruitment and selection procedures
Employee training programs
Employee manpower allocations
Allocations of the financial resources
Research and development expenditures
2 Process control- actions taken during implementation of the strategy
Employee evaluation and compensation systems
Employee authority and empowerment
Internal communication programs
Lines of authority/structure
Management commitment to the marketing plan
Management commitment to employees
2. Output controls-evaluated after the implementation of the strategy
Formal performance standard ( e.g. sales, market share, profitability, etc)
Informal Controls- unwritten control activities initiated by employees
1. Employee self control – control based on personal expectations and goals
Commitment to the marketing plan
2. Social control – small group control based on group norms and expectation
Shared organizational values
Social and behavioural norms in workgroups
3. Cultural control – cultural control based on organizational norms and
Organizational stories, rituals and legends