5.2 Budgeting and Control in:

Svend Hollensen, Marc Oliver Opresnik

Marketing, page 388 - 401

A Relationship Perspective

1. Edition 2010, ISBN print: 978-3-8006-3722-5, ISBN online: 978-3-8006-4870-2,

Bibliographic information
5.2 Budgeting and Control 375 Questions for discussion 1. What kind of market information would be necessary for international marketing planning, and how might it be obtained? 2. What are the major challenges faced by marketers in developing and implementing international marketing plans? 3. What are the practical internal issues to be addressed by marketers when developing an international marketing plan? 4. What are the main problems associated with the links between international marketing strategy and organisational structure? 5. What are the principal issues to be considered in organisational design? 6. How does a firm’s size at home and abroad influence the organisational structure? 7. Outline the main organisational structure types that are used by international organisations 8. What are the advantages and disadvantages in adopting a matrix approach in terms of organisational structure? 5.2 Budgeting and Control An organisation needs to budget in order to ensure that its expenditure does not exceed its planned income. Accordingly this section discusses how to use rational process for developing budgets and allocating resources. Marketing control is an essential element of the marketing planning process because it provides a review of how well marketing objectives have been achieved. Consequently, this section will outline the need for a control system to supervise the marketing operations of the company. 5.2.1 Marketing Productivity and Economic Results The productivity of an operation is related to how effectively input resources in a process are transformed into economic results for the service provider and value for its customers. The traditional productivity conception has been developed for manufacturers of physical goods as a production efficiency concept. Existing productivity models and measurement instruments are also geared to the context of manufacturers. Moreover, they are based on assumptions that production and consumption are separate processes and that customers do not participate in the production process (Hollensen, 2006). High productivity is commonly assumed to be a primary goal in so much as a productive operation is more likely to have lower costs. It is the close connection with the cost performance of an operation of process that accounts for the interest in understanding and measuring productivity. Although the definition of productivity appears straightforward, productivity can be difficult to deal with for different reasons, but first of first of all the outputs are usually expressed in different forms to the inputs. Outputs are often measured in physical terms such as units (e.g. cars produced), tonnes (of paper), kilowatts (of electricity), or value (Euros), for example. However, the inputs are usually physically Kapitel_5.indd 375 03.08.2010 12:56:26 Uhr 5. Implementation and Controlling in the Marketing Planning Process376 different and include measures of people (numbers, skills, hours worked or costs), cost of input resources or marketing actions (Johnston and Jones, 2004) – see Figure 5.11. This complexity of relationship between inputs and outputs is affected by both the number of inputs and outputs as well as their measurement units, because different combinations between number and types of units can result in an enormous number of productivity metrics each one having its own information value and reflecting different things. Especially, the intangible nature of many services means that it is difficult to define and measure the service outputs being provided. The measurement and management of inputs and outputs is also complicated because of the simultaneous production and consumption of many services, as well as their perishability and heterogeneity, as service encounters are experienced differently by different people or even by the same people in different circumstances. Because the service (production) process and service consumption are usually simultaneous processes, where customers participate actively, the resources or inputs used to produce services cannot be standardized more than to a certain level. It is difficult to relate a given number of inputs, in volume or value terms, to a given amount of outputs. Frequently, it is even difficult to define ‘one unit of service.’ According to the traditional INPUT PROCESS (VALUE ADDED) OUTPUT Resource structure : ß Human resources (competences of employees) ß Other resources (IT, machinery, buildings) Customer basis: Number and characteristics of: ß Customers Competitor basis: ß Number and characteristics of competitors ß Positioning of offer relative to competition Cost of input resources: ß Human resources ß Other resources Cost drivers via ABC (Activity Based Costing) Customer process: Value added created by: 1. Customer awareness 2. Customer association 3. Customer attitudes 4. Customer loyalty 5. Customer experience Demand Marketing productivity = Output / input Marketing assets: ß Brand equity ß Customer equity Financial impact: ß Sales ß Profits ß Cash flow ß ROI ß EVA Output quantity: ß Volume ß Market share Output quality: ß Customer’s perceived quality Source: Adapted from Hollensen, 2006, modified Figure 5.11: Model of marketing productivity Kapitel_5.indd 376 03.08.2010 12:56:26 Uhr 5.2 Budgeting and Control 377 manufacturing-related productivity concept, productivity is defined as the ratio between outputs produced and inputs used, given that the quality of the outputs is kept constant (the constant quality assumption). = Outputs produced Productivity    Inputs used Only if the quality of the production output is constant and there is no significant variation in the ratio between inputs used and outputs produced with these inputs, productivity can be measured with traditional methods. Productivity cannot be understood without taking into account the interrelationship between the use of inputs or production resources and the perceived quality of the output produced with these resources. The interrelationship between internal efficiency and external efficiency is crucial for understanding and managing service productivity. Marketing actions, such as advertising, service improvements, or new product launches, can help build long-term assets (e.g., brand equity, customer equity). These assets can be leveraged to deliver short-term profitability. Thus, marketing actions both create and leverage market-based assets (Rust et al., 2004). In this context, it is important to distinguish between the ‘effectiveness’ and the ‘efficiency’ of marketing actions. For example, price promotions can be efficient in that they deliver short-term revenues and cash flows. However, to the extent that they invite competitive actions and destroy longterm profitability and brand equity, they may not be effective. Consequently, a company needs to examine both tactical and strategic marketing actions and their implications (Hollensen, 2006). Input Variables Influencing Marketing Productivity We shall now describe the various factors influencing marketing productivity in detail (see Figure 5.11). Marketing Strategy Marketing strategy and its elements play a vital role as input variables for winning and retaining customers, ensuring business growth and renewal, developing sustainable competitive advantages, and driving financial performance through business processes. A significant proportion of the market value of companies today lies in intangible offbalance-sheet assets, such as brands, and intellectual property, rather than in tangible book assets. The leveraging of intangible assets to enhance corporate performance calls managers to move beyond the traditional inputs and outputs of marketing analysis and to incorporate an understanding of the financial consequences of marketing decisions, which include their impact on cash flows. On a rather tactical level, managers implement marketing initiatives to increase short-term profitability. In most settings, this effort requires management of margins and turnover. Because better value to customers (or superior brands) can be tapped in terms of either price or volume, managers need to trade off prices (and therefore margins) against market share. Various programs can be developed to enhance and sustain profitability (e.g., loyalty programs, cross-selling); how managers advance is a matter of strategy. The question is, what type of expenditure has a greater influence on the value of a firm’s customer base: a new campaign for advertisements or improvements in the quality of service? How do elements of a coordinated marketing strategy influence the purchase behaviour of different marketing segments Kapitel_5.indd 377 03.08.2010 12:56:27 Uhr 5. Implementation and Controlling in the Marketing Planning Process378 over time, and how does this affect the firm’s revenue streams? How do marketing and operations elements interact to grow or to diminish customer value? Competition The competition has a profound influence on the nature of marketing productivity. Marketing expenditure decisions, such as those about advertising, are often affected by competitors and their respected strategies. Process Variables Influencing Marketing Productivity To assess the impact of marketing expenditures on customers, it is important to understand the following five key dimensions of the customer process, which can be considered particularly important measures of the customer mind-set (Hollensen, 2006): 1. Customer awareness: the extent to and ease with which customers recall and recognize the company, and the extent to which they can identify the products and services associated with the firm; 2. Customer associations: the strength, favourability, and uniqueness of perceived attributes and benefits for the organisation and the brand; 3. Customer attitudes: the customer’s overall evaluations of the firm and the brand in terms of its quality and the satisfaction it generates; 4. Customer experience: the extent to which customers use the brand overall, talk to others about the brand, and seek out brand and information, promotions, and events; 5. Customer loyalty: how loyal the customer is toward the firm and the brand; Because the strength and length of the customer or brand relationship matters, the firm must consider manifold aspects of each customer’s purchase behaviour, not just retention probabilities. Consequently, researchers have begun to model other purchase behaviours, such as cross-selling, word-of-mouth behaviour, and profitable lifetime duration of customers. These behaviours, at the individual customer level, influence the aggregate level of the marketing assets of the firm. Output Variables Influencing Marketing Productivity There are several output variables influencing marketing productivity. We shall focus on the most important variables and marketing metrics. Marketing Assets Marketing assets are customer focused measures of the value of the company (and its products) that may enhance the firm’s long-term value. We shall focus on two approaches to assessing marketing assets that have received considerable attention in the marketing literature in recent years: brand equity and customer equity. As already describes in earlier sections (see Section 4.1.7) the concept of brand equity emerged as a core concept of marketing. A view of brand equity suggest that its value arises from the incremental discounted cash flow from the sale of a set of products or services, as a result of the brand being associated with those products or services. The concept of customer equity (see Section 4.1.7) takes the company’s customers’ perspective. Building on previous definitions, customer equity can be defined as the total combined customer lifetime values of all of the company’s consumers (Kotler and Armstrong, 2009). In this context, the lifetime value is the discounted profit stream obtained from the customer. The expansion of the service sector over time, combined with the Kapitel_5.indd 378 03.08.2010 12:56:27 Uhr 5.2 Budgeting and Control 379 resultant shift from transaction- to relationship-oriented marketing, has made the consideration of customer lifetime value increasingly important. These events legitimate customer equity as a key metric of the company. Customer lifetime value and customer equity are already in widespread use as marketing asset metrics in some industries, most notably in direct marketing and financial services. Financial Impact Financial benefits from a specific marketing action can be evaluated in several ways. Return on investment (ROI) is a traditional approach to evaluating return relative to the expenditure required to obtain the return. Commonly used retrospectively to measure short-term return, ROI is controversial in the context of marketing effectiveness. Because many marketing expenditures play out over the long run, short-term ROI is often prejudicial against marketing expenditures. The correct usage of ROI measures in marketing requires an analysis of future cash flows. Other financial impact measures include the internal rate of return, which is the discount rate that would make the discounted return exactly equal to the discounted expenditure; the net present value, which is the discounted return minus the net present value of the expenditure; and the economic value-added (EVA), which is the net operating profit minus the cost of capital. Except for the non-financial metrics such as awareness, in each case the measures of financial impact weigh the return generated by the marketing action against the expenditure required to produce that return. The financial impact affects the financial position of the firm, as measured by profits, cash flow, and other measures of financial health. We shall discuss the most important metrics in more detail below. The perceived service quality following from a given resource structure as inputs in a service process creates sales at a certain level. If the resource structure is changed, the costs level changes, and correspondingly perceived quality and the revenue-generating capability of the service provider. As a result the productivity of service processes can be – partly – measured as the ratio between revenues and costs. If revenues increase more than costs, productivity augments. On the other hand, if a cost reduction leads to lost revenues, but the decline in revenues is less than the cost savings that have been achieved, productivity still improves. However, this may be a less recommendable strategy because in the long run it may lead to a negative image and unfavourable word of mouth, which can have an additional negative effect on revenues. Thus, cost reductions may lead to a higher drop in revenues than the savings on the cost side. If this is the case, in the long run service productivity declines. Service-oriented productivity measures could be derived from the formulas above. However, organisations should remember that there are problems with financial measures that have to be observed. Revenues are not constantly an appropriate measure of output, since price does not always reflect perceived service quality. It may also be difficult to assign capital costs accurately to each type of revenues respectively. In addition, if businesses are subsidized by government, if prices are regulated, or if competition is monopolistic, revenues may be a poor measure of quality. In addition, in all industries and competitive situations price may not reflect perceived quality very well (Hollensen, 2006). Kapitel_5.indd 379 03.08.2010 12:56:27 Uhr 5. Implementation and Controlling in the Marketing Planning Process380 5.2.2 Marketing Budgeting The purpose of a marketing budget is to pull all the revenues and costs involved in marketing together into one comprehensive document. This is an important managerial tool that balances what is needed to be spent against what can be afforded and aids in the framework of prioritisation. It is then used in monitoring the performance in practice. Budgeting is also an organisation process that involves making forecasts based on the proposed marketing strategy. The forecasts then are used to construct a budgeted profitand-loss statement (i.e. profitability). An important aspect of budgeting is deciding how to allocate the proposed investments across all of the anticipated programs within the marketing plan. The marketing plans and the annual budget are interlinked in several ways – the sales forecast, the pricing policy, the marketing expenditure budget and the allocation of resources. A budget is a detailed plan outlining the acquisition and use of financial and other resources over some given time period. The annual budget is commonly referred to as the ‘master budget’. Usually, it has three principal parts: the operating budget, the cash budget and the capital expenditure budget. It is driven by the sales forecast. The budget plays a key role in an organisation by moving the organisation from an informal reaction method of management to a formal controlled system of management. It addition, it might act as a motivator and communicator, as well as for functional coordination and performance evaluation (Hollensen, 2006). There are four uses of a budget: to fine-tune the strategic plan• to help co-ordinate the activities of the several parts of the organisation• to assign responsibilities to managers• to obtain a commitment that is a basis for evaluating a manager’s actual perform-• ance. Budgeting has several key advantages: it gives planning top priority• it provides managers with a way to finalize their planning efforts• it overcomes potential bottlenecks before they occur• it coordinates the activities of the entire organisation by integrating the plans and • objectives of the various parts. In summary, there are four main aspects to budget: the motivations aspect; the coordination of resources for their preeminent use; setting benchmarks for performance; and as a cost control mechanism. The marketing plan is put together by members of the marketing team with input from the sales, finance and other departments. It is critical that top executives accept the plan and support it in order to ensure proper implementation. Both the annual budget as well as the marketing plan are used by organisations as a short-term planning and control process. An integrated relationship approach has to enhance an organisation’s planning capabilities. Table 5.1 compares the annual budget and the marketing plan. It is evident that the annual budget and the marketing plan are interwoven and should be part of the same process in organisations. The management implications are significant. An organisation works effectively when there is clear communication and co ordination across functional lines. For effective implementation of an organisation’s strategy, the Kapitel_5.indd 380 03.08.2010 12:56:27 Uhr 5.2 Budgeting and Control 381 firm must serve customers better than the competition. This implies that all management policies and systems should be continuously reviewed. Profitability Analysis Regardless of the organisational level, control involves some form of profitability analysis as already mentioned above when discussing various marketing metrics. In brief, profitability analysis requires that analysts determine the costs associated with specific marketing activities to find out the profitability of such units as different market segments, products customer accounts, and distribution channels (intermediaries). An array of measures (often referred to as marketing metrics) is available to marketing managers who wish to measure the effectiveness of their activities. However, it is often difficult to determine the exact contribution of marketing efforts because outcomes are usually dependent on multiple factors. For example, higher sales may be caused by increased and/or better advertising, a more motivated sales force, weaker competition, and so on. This makes it difficult to justify, for example, increased advertising expenditure, because it is difficult to quantify the effects of advertising. Despite these issues, marketing is requested to become accountable for its activities. In order to assess performance of marketing activities, marketing managers are using marketing metrics, which are quantitative measures of the outcomes of marketing activities and expenditures. Some of the most important marketing metrics will now be assessed, and specific measures identified, together with their calculation (Faris et al., 2006): Profit/profitability/return on investment• = ?Profit   Total revenue total costs = Net profit Return on investment (ROI)    Investment Since profit is the financial objective of most organisations it is unsurprising that it is the most used metric. Marketing plan Annual budget Short term, most often annual Annual, short term Compiled by marketing with input from other areas Compiled by finance with input from other areas Integrated into the strategic plan Integrated into the strategic plan Used to implement and control an organisation’s marketing activities Used to co-ordinate functions and evaluate performances of individuals Concerns the use of company resources Outlines the use of financial and other resources Establishes benchmarks against which marketing accomplishments can be judged Establishes benchmarks against which the company’s performance can be measured Has the sales budget as one of its outputs Has the sales budget as its foundation Source: Adapted from Abratt et al., 1994 Table 5.1: Comparison between the marketing plan and annual budget Kapitel_5.indd 381 03.08.2010 12:56:27 Uhr 5. Implementation and Controlling in the Marketing Planning Process382 Similarly, profitability, which measures the profit return on investments such as products or advertising campaigns, is an extremely popular metric since it relates to the financial objectives of the company. It is usually measured as return on investment (ROI). Although profitability is the single most important measure of performance, it has several limitations. These are that (1) many objectives can best be measured in nonfinancial terms (maintaining market share); (2) profit is a short-term measure and can be manipulated by taking actions that may prove dysfunctional in the longer term (reducing R&D expenses); and (3) profits can be affected by factors over which management has no control (e.g. the weather). Sales • = ?Sales revenue Unit sales  Price =Sales volume Unit sales = ?Sales revenue against target Sales revenue Target sales revenue Processing sales revenue and sales volume is easy and the metrics are important determinants of marketing investments. Sales increases are typically sought to justify higher marketing expenditures, but without equivalent profit metrics can be misleading. This is because sales can be bought with excessive discounting, leading to higher sales but lower profit. Consequently, rewarding sales forces for higher sales without also measuring profits can be damaging. Despite these issues, sales analysis of actual against target revenue can be instrumental for operational control. Negative variance may be due to lower sales volume or lower prices. A change in the product mix could also account for a sales fall, with more lower-priced products being sold. Gross margin• ( ) = ?Gross margin per unit  GMU  Price Cost of products sold ( ) ?= GMU 100Gross margin percentage  GMP   Price The third most popular metric is gross margin. Different industries can achieve widely varying gross margins. Calculated s a percentage, gross margin is an indication of the percentage of the selling price that is a contribution to profit. It is not ultimately actual profit, as other expenses such as sales, marketing, distribution and administrative costs have not been deducted. Contribution analysis is helpful in determining the yield derived from the application of additional resources (for instance, to certain sales territories). Awareness • Awareness is an important non-financial metric because it measures whether a marketing communications campaign is entering target customer’s minds. Typical metrics include recall and recognition. In terms of recall survey respondents are asked to name all the brands in a product category that they can think of. Recognition implies that survey respondents are shown a list of brands and asked to name those that they have heard of. Although awareness measures before and after a campaign are useful, awareness does not automatically raise purchase levels if the brand is not liked. Consequently, this metric is best used alongside other communications-oriented metrics such as measures of beliefs, liking, and purchase intention. Kapitel_5.indd 382 03.08.2010 12:56:27 Uhr 5.2 Budgeting and Control 383 Market share • ( ) = Sales revenueMarket share  value   Total market revenue ( ) = Unit salesMarket share  unit   Total market unit sales ' ' Company s market share Relative market share   Largest competitor s market share = Market share analysis evaluates a company’s performance in comparison to that of its rivals. Sales analysis may indicate a substantial increase in revenues but this may be due to market growth rather than an improved performance over competitors in the market place. An accompanying decline in market share would demonstrate inappropriate relative performance of the company. The relative market share metric was used when calculating a brand’s position on the Boston Consulting Group matrix (see Chapter 3.1.7). There are three ways to build a marketing budget that is based on a specific strategic market plan and the tactical marketing strategy designed to achieve the target level of performance (Hollensen, 2006). Top-down Budget• : a new marketing budget based on projected sales objectives is determined, using past marketing expenses as a percentage of sales. Bottom-up Budget• : each element of the marketing effort is budgeted for specific tasks identified in the marketing plan. Customer Mix Budget• : the cost of customer acquisition and retention and the combination of new and retained customers are used to derive a new marketing budget. As this book has a customer-oriented approach the customer mix budget will be discussed in more detail now. Customer Mix Budgets Recognizing the customer as the primary unit of focus, a marketing-oriented business will expand its focus to customers and markets, not solely to products or units sold. This is an imperative strategic distinction because there are a finite number of potential customers, but a larger range of products and services can be sold to each customer. And, as exposed in Figure 5.12, a business’s volume is its customer share in a market with a finite number of customers at any point in time, not the number of units sold (Hollensen, 2003). Customer volume = Market demand (from customers) * Market share (percentage) Figure 5.12 presents an overall flow chart of how market-based net profits are derived. Customer volume, at the top of this diagram, is derived from a certain level of customer market demand and a business’s share of that customer demand. Without a satisfactory volume of customers, net profit will be impossible to obtain. Marketing strategies that affect customer volume include marketing strategies that: attract new customers to grow market share• grow the market demand by bringing more customers into a market• enter new markets to create new sources of customer volume.• Each of these customer-focused marketing strategies affects net profits, invested assets, cash flow, and shareholder value. Thus, a key component of profitability and financial Kapitel_5.indd 383 03.08.2010 12:56:28 Uhr 5. Implementation and Controlling in the Marketing Planning Process384 performance is customer purchases and the collective customer volume produced. Without customer purchases, there is no positive cash flow or potential for net profits or shareholder value. Figure 5.12 is a ‘DuPont’-like illustration of the different budget element. Figure 5.13 is the illustration of the traditional marketing budget (per customer group or country) and its underlying determinants. Customer-based budgeting recognizes that companies are increasingly turning from traditional accounting methods, which identify costs according to various expense categories, to activity-based costing (ABC), which bases costs on the different tasks involved in performing a given activity. The international marketing budget in Figure 5.13 gives an indication of some of the underlying cost-drivers in activity-based costing. Activity-Based Costing (ABC) To understand ABC systems, it is supportive to view the organisation as an entity that is engaged in performing a series of activities (e.g. research and development, product design, marketing, and customer service) for the purpose of providing products and services to customers. In conducting these activities, the firm incurs costs. To accurately attribute these costs to products, it is essential to determine the consumption of activities by individual products. Accordingly, ABC involves the process of identifying the major Source: Adapted from Hollensen, 2003 Market demand (customers) Market share (per cent) Revenue per customer Variable cost per customer Marketing expenses Operating expenses Customer volume Margin per customer Total contribution Net Marketing contribution Net profits (Before taxes)– – x x – X = multiplied with – = minus Figure 5.12: A customer-based model of marketing contribution and net profits Kapitel_5.indd 384 03.08.2010 12:56:29 Uhr 5.2 Budgeting and Control 385 activities within the company, linking costs to these activities, and measuring the consumption of the activities by the various products (Hollensen, 2006). By using multiple cost drivers, ABC relates to cost with greater accuracy than traditional techniques. Conventional techniques typically rely on one to three volume-based cost drivers to trace overhead costs to products. ABC uses multiple cost drivers to reflect relationships existing between the activities and resources they consume. An ABC analysis enables managers to pinpoint overhead resources to activities, products, services, or customers with the objective of reducing or eliminating resource consumption. This technique can focus on improving the efficiency of an activity by reducing the number of times the activity must be performed, eliminating unnecessary or redundant activities, selecting a less costly alternative, or using a single activity to accomplish multiple functions. ABC implementation provides greater visibility of how differently products, customers, or supply channels impact profitability. The organisation can more accurately trace costs and determine the areas generating the maximum profit or loss. Product and customer profitability analyses performed by the companies using ABC may considerably alter management perceptions of the status quo operation. Managers can target high cost products or services for reduction efforts. In conjunction with ABC, they may use other Source: Adapted from Hollensen, 2003 Examples of underlying determinants Market leader determinants Market potential Market penetration Product/service in general Service quality Product performance Product differentiation Customer support Price perception Market communication Distribution channels Brand image Cost factors (economies of scale etc.) Production technology Acquisition of new customers Retention of existing customers The most interesting figure for Firm X’s marketing department customer x costomer n Total Total market demand Market share (firm X) Customer (sales) volume (units) Price Total revenue (Budget firm X) Variable cost = Total contribution - - Marketing costs = Total net marketing contribution - Operating expenses = Net profit (before taxes) x x … It is the responsibility of the marketing manager/director to maximize this figure It is the responsibility of the CEO to maximize this figure It is the responsibility of the Key Account managers to maximize these figure Figure 5.13: The marketing budget and its underlying determinants Kapitel_5.indd 385 03.08.2010 12:56:29 Uhr 5. Implementation and Controlling in the Marketing Planning Process386 procedures such as re-pricing, minimum buy quantities, or charging by service to improve profitability (Stapleton et al., 2004). 5.2.3 Controlling the Marketing Programme At this point in the marketing planning process, the marketing plan is almost complete. The final step is to plan how the company will control the plan’s implementation. Marketing control keeps both employees and activities on track so the organisation continues in the direction outlined in the marketing plan. However, some employees in the organisation often view ‘control’ as being negative because they tend to fear that the control process will be used to assess their performance and ultimately as a basis for ‘punishment’. In preparing a marketing plan, marketers have to plan for three types of marketing control: annual control, profitability control, and strategic control (Hollensen, 2006): Annual control • Because marketers generally formulate new marketing plans every year, they require annual plan control to assess the progress of the current year’s marketing plan. This includes broad performance measures (e.g. sales results, market share results) to evaluate the company’s overall effectiveness. If a company fails to achieve this year’s marketing plan objectives, it will have difficulty achieving its long-term goals and mission. Although e.g. ‘market share measures’ are driven by sales performance, they reflect relative competitive standing. These measures aid senior managers gauge their organisation’s competitive strength and situation over time. Profitability control • This assesses the organisation’s progress and performance based on key profitability measures. The precise measures differ from company to company, but they frequently include ROI, contribution margin and net profit margins. Various companies measure the monthly and yearly profit-and-loss results of each product, line, and category, as well as each market or segment and each channel. By comparing profitability results over time, marketers can identify significant strengths and weaknesses and recognize problems and opportunities early. Closely related to profitability control, productivity control is measuring the efficiency of the e.g. the sales force, channels and logistics, and product management. The purpose is to measure profitability improvements through reduced costs or higher yield. As productivity is vital to the bottom line some companies appoint marketing controllers to establish marketing productivity standards. Noticeably, productivity control is connected not only with profitability but with customer relationships as well. Strategic control • This considers the organisation’s effectiveness in managing the marketing function, in managing customer relationships, and in managing social responsibility and ethics issues. Whereas profitability control are applied monthly or more often, strategic control may be applied once or twice a year, or as needed to give top management a clearer picture of the organisation’s performance in these strategic areas. Kapitel_5.indd 386 03.08.2010 12:56:30 Uhr 5.2 Budgeting and Control 387 Summary Marketing strategies in different international markets directly affect sales revenues per country. The marketing strategies also affect margins, total contribution, and marketing costs. These effects, in turn, lead to the total net marketing contribution. Because operating (manufacturing) costs and overhead costs are beyond the control of marketing managers, net marketing contribution plays the most important role for the marketing department, to determine the profit impact of a marketing strategy. As marketing plans are being implemented, they have to be monitored and controlled. Control is the process of ensuring that global marketing activities are carried out as intended. It involves monitoring aspects of performance and taking corrective action where necessary. The global marketing control system consists of deciding marketing objectives, setting performance standards, locating responsibility, evaluating performance against standards, and taking corrective or supportive action in each single country and overall. The most obvious areas of control relate to the control of the annual marketing plan, control of profitability and strategic control. The purpose of the global marketing budget is mainly to allocate marketing resources across countries to maximize world-wide total marketing contribution. Questions for discussion 1. How would a non-profit organisation apply financial budget control to its marketing plan implementation? 2. Given the dynamic and uncertain nature of the business environment, why would marketers bother drafting alternative marketing plans and budgets? 3. What are the main factors that affect marketing control systems? 4. Discuss the problems involved in setting up and implementing a marketing control system 5. Why is the outcome of one year’s marketing control an important input to next year’s marketing plan? 6. Please comment the statement: ‘Implementers are the most important country organisations in terms of buy-in for effective global marketing strategy implementation’ 7. Why is customer profitability sometimes a better unit of measurement than market profitability? 8. Assess the complexity of developing marketing metrics for a manufacturing company and a financial services company 9. Which factors can make the interpretation of performance difficult 10. One of the most efficient means of control is self-control. What type of program would you prepare for an incoming employee? Kapitel_5.indd 387 03.08.2010 12:56:30 Uhr 5. Implementation and Controlling in the Marketing Planning Process388 5.3 Ethical, Social and Environmental Aspects of Marketing Planning Responsible marketing-oriented companies discover what customers want and respond with tailored marketing offers that create value for buyers in order to establish relationships with consumers and ultimately profitability. However, not all companies consistently follow this approach and carry out socially responsible strategies and actions: the extensive criticism of such companies as Siemens (bribery), Wal-Mart (allegations of poor employee relations), McDonald’s (health concerns), Coca-Cola (Dasani launch) and many others bear witness to the importance of business and marketing ethics. Revelations about unethical behaviour can lead to negative publicity and the unwillingness of customers to buy from the accused company. Not only should modern enterprises consider and define their standards of ethical behaviour, they should as well use these standards as the underlying basis for designing corporate social responsibility strategies that take into account of how their actions might affect society and the environment. In this last section of the book we shall discuss the meaning of marketing ethics and specific issues that should be considered during the marketing planning process. The relevance of being ethical, social and environmental responsible has grown considerably over the last decades, in the light of public demands and changes in national laws. 5.3.1 Marketing Ethics At the bottom of the idea of corporate social responsibility and shaping its implementation is the concept of ethics. Ethics are the moral principles and values that govern the actions and decisions of an individual group (Berkowitz et al., 2004). Business ethics are the moral principles and values that guide a company’s behaviour. Until recently, for numerous companies, business ethics consisted mainly of compliance-based, legally driven codes and training that outlined what employees should or should not do. Today, an increasing number of enterprises are designing globally consistent ethical programmes based on values. Marketing ethics are the moral principles and values that guide behaviour with the area of marketing, and cover issues such as product safety, truthfulness in communications, honesty in relationships with stakeholders, pricing issues and the impact of marketing decisions on the environment and society (Jobber, 2010). It is an integral part of decisions regarding marketing planning. Recent criticism of the ethics of marketing reflects the increased societal concern about business practices and has focused on specific issues, industries and companies. However, there has been a long-standing suspicion of marketing as many people associate marketing activities, especially selling and advertising with dishonest behaviour. Critics who suggest that marketing heightens materialism, wastes scarce resources and makes consumption an end in itself, often ignore the role of the consumer in this process and that marketing is a response to customer preferences. Also frequently overlooked are the intangible benefits that products may provide, including the psychological and social benefits that often accompany marketing activities such as advertising and branding. Hence, an alternative view, often proclaimed by marketing practitioners, is that appropriate marketing actually serves society. Kapitel_5.indd 388 03.08.2010 12:56:30 Uhr

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Marketing – A Relationship Perspective

Moderne Grundlange zum Marketing

Das Lehrbuch behandelt eines der wichtigsten und aktuellsten Themenfelder des modernen Marketings. Der Ansatz verbindet dabei den klassischen Ansatz der strategischen Marketingplanung und seiner Instrumente mit dem neuen Ansatz des Relationship Marketing. Der ganzheitliche Ansatz des Buches umfasst dabei die aktuellen Marketing-Grundlagen, Praxisbeispiele sowie anwendungsorientierte Fallstudien und eignet sich somit ideal sowohl für Manager und Entscheidungsträger im Marketing-Bereich, Studenten in Bachelor- und Materstudiengängen sowie Dozenten und Trainer.