Going beyond a marketing plan for soaring profits | Daily News
From crisis to sustenance – Part 40 :

Going beyond a marketing plan for soaring profits

Developing and implementing a marketing plan is not enough to reach marketing objectives. To maximize the return on a marketing plan, there need to be controls in place to monitor the plan’s progress. As a marketing plan moves along, the controls are constantly analysed to determine how the plan’s actual performance compares to the projections.

Any changes that need to be made are done based on the analysis of marketing controls. Understanding what the controls in a marketing plan are will help you develop effective performance measurement indicators

Marketing control is a four-step process: -

1. Decide your marketing objectives and performance standards

2. Regularly compare results against standards

3. Do necessary corrections and alteration

4. Follow-up at regular intervals

Let us study each of them in little depth.

Marketing objectives and performance standards

A Marketing objective is a standard which is used to measure the performance of the ream members. Such Standards may be of two types, Quantitative Standards and Qualitative Standards.

Quantitative Standard can be easily defined and measured. For e.g. number of products, number of customers, cost, net profit, time limits, etc. Qualitative Standard cannot be easily defined and measured. For e.g. measurement of morale, measurement of job satisfaction, measurement of effect of a training program, advertisement program, etc. However, today there are many new techniques for measuring qualitative standards.

Responsibilities

Whatever the standards adapted, they should be easily understood by both managers and team members. The responsibility of each individual should also be clearly defined.

(1) After establishing the standards, the team members should be provided with all the resources for performing the job. They should be properly directed and motivated to perform the job. After each job (or at regular intervals) their performance should be carefully measured.

(2) The actual performances of each person should be compared with established standards, and extract the deviations. They can either be positive or negative. Positive Deviation means that the actual performances are better than the established standards. Positive deviations should be appreciated. The management should pay special attention to the negative deviation. They should find out the causes. Generally, minor (small) deviations are ignored. However, continuing major deviations should be immediately addressed and reported to the higher management.

(3) The managers should take steps to correct these negative deviations by taking corrective actions. Corrective action may include, providing better motivation, giving better training, using better resources, etc. The management should monitor the progress. This follow-up is done to find out whether the corrective actions are taken properly. It also finds out whether the deviations and their causes are removed.

(4) If the corrective action is not effective, higher management need to be alerted for advice.

Measures

Several measures may be taken in effecting marketing control in relation to the marketing plan, including (1) sales analysis, (2) market share analysis, (3) expenses to sales ratios, (4) attitude tracking, (5) profitability and efficiency.

Sales analysis

Actual sales can be compared to sales targets and budgets and an analysis of any variance between the two would be carefully examined. Say, for example, that the managing director of the ABC Canning Company is told by the marketing manager that sales are up by 10% by units on the target and that revenues are five percent above budget, this would be cause for celebration. Or would it? Before approving funds for celebration, the managing director would wish to look at these figures a little more analytically.

Further analysis will reveal that although sales have exceeded expectations, the planned price was not achieved and so the product made a lower contribution than expected. Whilst the Canning Company recorded an increase in unit sales of ten percent, the market as a whole was twenty percent above target. Seen in this light, there is more cause for concern than for celebration.

This approach to sales analysis can be extended to specific products, market segments and/or sales areas, etc. to evaluate the profit contributions of each and to identify those that were poor performers.

Market share analysis

A market share analysis compares the status of a business with competitors in its sales region. There are many types of information collected for this type of analysis, including the names of competitors, indicators of market size, and the study of past and projected market growth. A typical goal of a market share analysis is to determine the portion of market share that the business will target.

An important task of a market share analysis is to determine the value of market share for the type of business being examined. In order to find this value, several factors must be determined. This includes the size of the industry’s market and what kinds of products are sold. The overall size of the market can be determined by revenue and sales volume.

Once the size of the market is known, the next step of a market share analysis is to determine what percentage each business holds. If a small number of businesses makes a high percentage of sales, then the region has a highly concentrated marketed. When sales are more evenly distributed across several different businesses, then the market is fragmented. The primary purpose of this exercise is to determine the top competitors in the field.

An analysis of both the most and least successful competitors in the market can be another important factor of market share analysis. By understanding why one business is succeeding while another is struggling, a company can devise a sound strategy for expanding the business. This includes avoiding the missteps of smaller businesses and learning from the victories and mistakes of the larger businesses.

A market share analysis will show not only the overall percentage a business holds in the market, but also a more detailed analysis of its status in different areas. For example, a business may have a fairly low market share overall, but dominate in the sales of a particular product. Understanding this aspect of market share can help a company to strategize future product development, whether it is to continue to grow a strong sector or to compete more strongly in other areas.

Another aspect of market share analysis is the study of market growth. By anticipating how market demand and the overall economy are expected to change in the next few years, a business can create a growth strategy.

Ratio

In today’s business and economic climate, one of the key metrics for determining the effectiveness of Marketing Management function should be its ability to improve the ratio of marketing expenses to revenue. Let us call it “MEPR.”

Calculating the MEPR is extremely easy; just divide total marketing spending by total revenue from sales. Exclude any revenue that’s not from sales activity, such as royalty earnings or interest on savings. Marketing spending includes all costs of sales and marketing, including advertising, sales staff, marketing materials including your website, marketing consultants and so on.

If your business relies heavily on sales staff you can subdivide the MEPR to get a more granular view. For instance, if you know that with your current advertising budget your sales team gets 500 leads per month, and you make one sale per every 20 leads, you can see that your current marketing budget results in 25 sales per month.

This metric is important to track both during periods of high business growth as well as during tougher economic times when containing costs without disrupting revenue streams is an imperative. It could also be used to help effectively manage the sales and marketing organizations.

Marketing expense analysis

Businesses must continually assess the appropriate levels of marketing expenses based on their return on investment and industry standards. Marketing expenses should be evaluated and measured across common expense to sales ratios to determine their effectiveness. For example, business owners can calculate ratios such as advertising to sales ratio, sales promotion to sales ratio, and sales force cost to sales ratio etc. By keeping a close eye on these ratios and variations over time and comparing them with industry benchmarks, business owners can confirm they are not overspending on marketing costs

Appropriate steps

By demanding continuous improvements in the MEPR, top management can foster a corporate culture that is committed to getting the most out of their sales and marketing investments, regardless of the competitive climate. Furthermore, a focus on the MEPR can instil a high degree of agility in the sales and marketing organization, enabling it to react quickly to rapid competitive manoeuvres or new unforeseen opportunities.

Before a company can decide the steps to take to improve the MEPR, they need to determine how sales and marketing must perform against overall business objectives and strategies. In other words, companies need purpose to determine the focus of MEPR actions.

Is the company more focused on growing top-line revenue or reducing costs? Focusing on either segment can increase productivity. What is the company’s mix of specialty versus commodity products, and how does that mix reflect the needs of the market? How are these conditions likely to change, and given those changes where does the company directionally want to move its business? The answers to these questions can help determine the MEPR agenda.

Significance

Spending more on marketing does not guarantee more sales, but it does generally have a strong influence. Since this correlation is hard to predict, using a marketing to revenue ratio to track the trends in your business over time is a critical means of setting your budget. For example, if you know that Rs.1.0 million in marketing results in revenue of Rs. 10.0 Million, but Rs. 2.0 million only results in sales of Rs. 13.5 million, your current product line might not see a strong benefit from a budget over Rs. 1.0 million.

(Lionel Wijesiri is a retired company director with over 30 years’ experience in senior business management. Presently he is a freelance newspaper business and feature.)


 

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