5. THE PROCESS OF CONTROL
Replicate cause
of high
e performance
Abov d?
r
Compare St anda
Measure performance
performance to standard Below
Stan Eliminate cause
dard
? of low
performance
Exhibit 15-1
15-5
6. THE FUNCTIONS OF A MARKETING
CONTROL SYSTEM
• MEASURES ACTUAL PERFORMANCE AGAINST PLANNED
PERFORMANCE
• Sensor - The Measuring Tool
• Standard – The Goal To Achieve
• MEASURES PRODUCTIVITY AND PROFITS BY
• Types Of Products
• Customers
• Territories
• MEASURES KEY MARKETING VARIABLES:
• Customer Satisfaction
• Advertising Efforts
• Pricing Strategies
• Distribution/Channel Activities
15-6
7. THREE COMMON-SENSE
PRINCIPLES OF CONTROL
Measure what’s important
Assumptions and goals
determine measures
What gets measured
is what gets done
15-7
8. DIMENSIONS OF CONTROL
Micro Macro
Input Regional Sales Office Expense Total Selling Expenses
Trade Show Budget Promotion Budget
Product X Development Cost Total R&D Budget
Output Regional Sales Office Revenue Total Revenue
Leads from Trade Shows Corporate Position
Sales for Product X Total Division Revenue
Exhibit 15-2
15-8
9. CONTROL OF INPUT AND OUTPUT VARIABLES
INPUT ACTION MARKET OUTPUT
VARIABLES PHASE REACTION VARIABLES
Sales
Price Market Share
Product R&D Profit
Advertising Communication
THE THE
Promotion results
MARKETING MARKET
Distribution PROGRAM Distribution
Marketing results
Research Buyer
Marketing attitudes
Administration and
behavior
SET COMPARED TO
BY PERFORMANCE
BUDGET STANDARDS
Exhibit 15-3
15-9
10. THE COMPONENTS MEASURED BY THE
BALANCED SCOREBOARD
FINANCIAL RESULTS CUSTOMER RESULTS
Net income Revenue per customer
Profit margin Account share
Return on investment Customer satisfaction
Return on assets managed Intent to repurchase
INTERNAL BUSINESS LEARNING & GROWTH
PROCESS MEASURES
Employee satisfaction Completed training
Data availability programs
New product development New patents obtained
cycle New products introduced
Credit approval cycle
Exhibit 15-4
15-10
11. DEALING WITH VARIANCE IN OUTCOMES
FOUR CAUSES OF VARIANCE
CHANGES BY
CHANGES TO PROCESS
RANDOM FACTORS
• TINKERING VARIANCE • EXTERNAL CAUSES
Making minor Identified uncontrollable
adjustments causes, like the economy
• SYSTEMATIC SOURCES • RANDOM CAUSES
Change systems to Both uncontrollable and
create new unidentified causes; how
measures much can be attributed to
known cause
15-11
12. VARIANCE – UNDERSTANDING THE CAUSES
• Tinkering Variance:
• Improving the little things in an existing system/process
• Systematic Variance:
• Out with the old, in with the new
• External Causes of Variance
• The external environment provides all kinds of challenges
beyond management control
• Random Causes of Variance
• Not only are there uncontrollable causes, there are
variables that cannot be identified. Things happen
15-12
13. VARIANCE: HOW DO YOU NARROW THE DIFFERENCE
Wilcox
200
Young
175 Zorn
Sales in $000
150
125
100
0
Jan Feb March April May June
TINKERING: Make changes within a sales territory to narrow the
range of variance
Exhibit 15-5
15-13
14. VARIANCE: HOW DO YOU ADJUST PERFORMANCE
Each dot represents salesperson performance.
A new product brings higher levels of sales.
275
250
Sales in $000
225
200
175
150
125
100
0
Jan Feb Mar Apr May June Jul Aug Sep
New production introduction
Systematic Change: Create new systems with a new range of performance standards
Exhibit 15-6
15-14
15. VARIANCE: HOW DO YOU ADJUST FOR
EXTERNAL ENVIRONMENTAL ACTIVITIES
Each dot is a salesperson’s performance. The range is due to seasonality of
customers’ purchases
275
250
225
Sales in $000
200
175
150
125
100
0
Jan Feb Mar Apr May June Jul Aug Sep Oct Nov Dec
External causes of variance: Create a response to changes caused by things beyond your control
Exhibit 15-7
15-15
16. BETTER PERFORMANCE:
OUTPUT AND INPUT TOOLS OF CONTROL
Standard
Setting Process Pros Con Comment
Benchmarking Can learn and Hard to find Can use
improve someone willing to industry
let you benchmark association
measures
Quotas and Easy to Can be difficult to Consider
Targets establish account for sources of
variance variance when
setting
Budgets and Easy to Lack of flexibility Create systems
Pricing Plans establish can lead to missed for opportunity
opportunities evaluation
Exhibit 15-8
15-16
17. THREE TOOLS FOR BETTER CONTROL OF
SYSTEM PERFORMANCE
• SET OUTPUT AND INPUT STANDARDS Of Performance
That Can Be Observed And Measured
• DEVELOP MEASUREMENT TOOLS Such As Marketing
Audits, Customer Satisfaction Measures And Accounting
Systems
• CREATE SEARCH TOOLS Such As Reporting Systems
And Information Systems To Find Variance And Its Causes
15-17
18. SUMMARY OF MEASUREMENT TOOLS
Measurement
Tools Pro Con Comment Sources of Data
Marketing Complete Difficult Most beneficial Observation and
Audits process and time- when done survey in the
review consuming regularly but not field by the
frequently auditors
Customer Can be a Challenge to Used as a Surveys of
Satisfaction predictor of find what or measure of customers,
Measurement future sales performance including
who caused
decision makers
(dis)satisfac-
and users
tion
Accounting Enables Hard to apply Use a variety to Transaction
Systems allocation of to specific understand systems such as
fixed costs customers customer and accounts
product receivable,
profitability shipping, and
manufacturing
Exhibit 15-9
15-18
19. KEYS TO THE MARKETING AUDIT
CONDUCTING AN EVALUATION OF A FIRM’S
MARKETING ACTIVITIES AND ITS ENVIRONMENT
WILL INCLUDE REVIEWING ITS:
1. External Environment
2. Marketing Strategy
3. Level of Marketing Orientation
4. Marketing Systems and Processes
5. Marketing Functionality
6. Marketing Productivity
15-19
20. CRITICAL TO DECISION MAKING:
ALLOCATING COSTS
OBJECTIVE: INCREASE CONTROL OVER EXPENSES
AND INCREASE PROFITS
Full Costing Contribution Analysis
To work best, must To work best, all
allocate every cost to a incremental costs have to
specific product/cost be identifiable and
center allocatable
Activity-Based Cost
Accounting
To work best, all
revenues and expenses
have to be allocated to
each activity
15-20
21. FULL COSTING ALLOCATION
Assume: Two sales teams, one with six members
and the other with nine; one sales office
supporting both teams
PRODUCT A PRODUCT B
Revenues $500 $800
Direct Costs 50 100
Overhead Costs
(say $150 divided 60/40) 60 90
Net Revenue $390 $610
15-21
22. CONTRIBUTION ANALYSIS
Sales Sales Sales
Office Office Office
A B C Total
Sales $350 $320 $380 $1,050
Less variable costs 170 160 175
Contribution margin $180 $160 $205
Fixed costs controllable by sales manager 53 52 54
Sales manager’s contribution margin $127 $108 $151
Fixed costs identified but not controlled by
sales manager 19 19 19
Sales office contribution $108 $ 89 $132 $328
Common costs $231
Income before taxes $ 97
Exhibit 15-12
15-22
23. COMPARING CONTRIBUTION AND ABC METHODS
Digital Wamometer Tricometer
Sales $545 $545
Less variable costs1 320 335
Contribution margin $225 $210
Contribution Method
Less fixed mfg. costs2 85 50 50 15
Less fixed selling costs3 30 25 25 20
Income using ABC $110 $185
Income using contribution $150 $135
1
Includes sales commissions, direct costs of manufacturing and shipping
2
Total fixed mfg. costs = $100, but allocated based on complexity in mfg. process
3
Total fixed selling costs (administrative overhead and sales office expenses)
= $50, but allocated on the basis of digital wamometer requiring six calls to
every four for the tricometer using ABC
Exhibit 15-12
15-23
24. BETTER PERFORMANCE: SEARCH TOOLS FOR IDENTIFYING VARIANCE
Search Tools Pro Con Comment Sources of Data
Reporting Method of Can get Companies are Salespeople, trade show
Systems information tradition- moving to real-time managers, other marketing
sharing across bound systems like managers, as well as
work-groups dashboards transaction systems
Information Self-serve Difficult to get Increasing use of Surveys, transaction
Systems reporting data into a data warehouses systems, and third-party
format lets managers access sources such as Dun &
everyone can data directly Bradstreet
use
Case Analysis Method of Can be hard to Look for Interviews of people
organizational apply learning underlying involved
learning to new principles of success
situations or failure
Experimentation Establishes Hard to control Used more Marketing systems that
cause and effect for all potential frequently with track source of sale
causes CRM systems
Statistical Can inform Can lead to Often combined with All of the above
Analysis forecasts, as incremental, experimentation for
well as explain rather than more powerful
past success innovative, decision-making
thinking
Exhibit 15-13
15-24
25. THE REALITY TREE PROCESS FOR DETERMINING
PROBLEMS: FOCUS ON OUTCOMES
Undesirable Effect:
Avg. 52 days, invoice
to payment
Undesirable Effect: Potential Cause:
Accounts Receivable sends Customers are slow
Incorrect invoice payers
Potential Cause:
Accounts Receivable
Potential Cause: misprocesses invoices
Accounts Receivable
receives poor
information Potential Cause:
Credit terms cause Potential Cause:
slow pay Customers can’t pay
Undesirable Effects:
Order-entry misrecords Undesirable Effect:
terms of sales Shipping generates
incorrect records
Core problem:
Information submitted is
incomplete or fragmented
Exhibit 15-14
15-25
