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Evaluation and Control Marketing Management

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Evaluation and Control Marketing Management Powered By Docstoc
					   EVALUATION & CONTROL


SUBMITTED TO: Prof. Jacob Alexander


             GROUP -9




          SUBMITTED BY: Angika Sudershan (08PG151)

                         Harris Jamil (08PG163)

                          Naveen J (08PG174)

                          Richa Mehrotra (08PG186)

                          Sundeep Sehgal (08PG199)

                         Varun Kumar Gupta (08PG211)



                         Section C

                      DATE OF SUBMISSION: 13/01/09
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                           CONTENTS


    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




                                                        3
            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
            two tools:

        Sales- variance Analysis- It measures the relative contribution of
               different factors to gap the sales performance.


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 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
  market.
 Relative Market Share – It is the market share in relationship to the largest
  competitor.

   A useful way to analyze market share movements is in terms of four
   components:

   Overall = Customer    * Customer * Customer                    *    Price
   market    Penetration   Loyalty    Selectivity                     Selectivity
   share

   where:
   Customer Penetration : Percentage of all customers who buy from the
                              company
   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




                                                                                    5
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
      cause.

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.


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      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)

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      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
       requirements
      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
                               10.27%                                    39.27%

Return on Capital
Industry Comparison
                               20.33%




MARGIN ANALYSIS - NOKIA OYJ (NOK)

Gross Margin                             Levered Free Cash Flow Margin
Industry Comparison                      Industry Comparison
                               35.99%                                    6.89%

EBITDA Margin                            SG&A Margin
Industry Comparison                      Industry Comparison
                               14.01%                                    10.05%


ASSET TURNOVER - NOKIA OYJ (NOK)

Total Assets Turnover                    Accounts Receivables Turnover
Industry Comparison                      Industry Comparison
                                  1.5x                                     5.2x

Fixed Assets Turnover                    Inventory Turnover
Industry Comparison                      Industry Comparison
                                 27.2x                                    11.2x


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      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
      receivables turnover.



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
effort.


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
for it.

Table 1.

Natural                                        Packing    & Billing    &
                 Total   Selling Advertising
Accounts                                       Delivery     Collecting
                 Rs      Rs
Salaries                         Rs 1200       Rs 1400       Rs 1600
                 9300    5100
Rent             3000    -       400           2000          600
Supplies         3500    400     1500          1400          200
                 15800   5500    3100          4800          2400




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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.

Table 2.

                                                          Packing    & Billing    &
 Channel Types              Total   Selling Advertising
                                                          Delivery     Collecting
 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
 Units                              5500
                                    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).
Table 3.

                    HARDWARE           GARDEN SUPPLY       DEPT. STORE          WHOLE
                                                                                COMPANY
Sales               Rs.30000           10000               20000                60000

Cost of goods 19500                    6500                13000                39000
sold
Gross margin  10500                    3500                7000                 21000

EXPENSES

Selling(rs.20       4000               1300                200                  5500
per call)
                    1550               620                 930                  3100

Packing      and    3000               1260                540                  4800
delivery(rs.60
per order)
Billing(rs.30 per   1500               630                 270                  2400
order)
TOTAL               10050              3810                1940                 15800
EXPENSES
NET PROFIT OR       450                310                 5060                 5200
LOSS

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  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
   brand?
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
   channels?

  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.

  Direct costing

  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).



                                                                                 11
    Common Costs

    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

    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

    include:

    Product 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,

    Utilities, etc.

   Variable Manufacturing Overhead - These are the general and administrative expenses in

    the manufacturing process.



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     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

    inventory levels:

   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.

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   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
   print ad
 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
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   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
   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


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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.


Marketing Audit
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
below.


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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
             impact?




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?
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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
  its objectives?
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
  evaluated?
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?


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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?


Productivity Audit
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
  changes?
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?

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   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
 Capital outlays
 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)
 Marketing audits

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   Informal Controls- unwritten control activities initiated by employees
1. Employee self control – control based on personal expectations and goals
 Job satisfaction
 Organizational commitment
 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
   expectations.
 Organizational culture
 Organizational stories, rituals and legends
 Cultural change




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