CHAPTER 9

Marketing
Strategy
Reformulation:
The Control
Process
Slide 9-1
AFTER READING THIS CHAPTER
YOU SHOULD BE ABLE TO:

1. Define the concept of strategic control.

2. Describe the nature and sources of

strategic change.
3. Explain each element of operations
control.
4. Discuss the nature of marketing costs
analysis and the issues involved.
Slide 9-2
AFTER READING THIS CHAPTER
YOU SHOULD BE ABLE TO:

5. Describe product-service (offering) mix

analysis and its two interrelated tasks.

6. Discuss sales and marketing channels

analyses and their impact on the firm.
7. Explain three considerations involved
in strategic and operations control.

Slide 9-3
THE MARKETING CONTROL PROCESS

The marketing control process serves as the

mechanism for achieving:
 Strategic adaptation to environmental change.

 Operational adaptation to productivity needs.

Strategic
“Doing the right things.”
Control

Operations
“Doing things right.”
Control
Slide 9-4
THE MARKETING CONTROL PROCESS

Strategic Control

 Assesses the direction of the organization

as evidenced by its:
• Implicit or explicit goals, objectives, strategies
• Capacity to perform in the context of changing
environments and competitive actions
 Defines the fit between an organization’s
capabilities and objectives and
environmental threats and opportunities. Slide 9-5
THE MARKETING CONTROL PROCESS

Operations Control

 Assesses how well the firm performs

marketing activities as it seeks to achieve
planned outcomes.
 Assumes that:
• The direction of the firm is correct
• Only the organization’s ability to perform
specific tasks needs to be improved
Slide 9-6
THE MARKETING CONTROL PROCESS

A “poorly executed plan can produce

undesirable results just as easily as a poorly
conceived plan.”
 Remedial efforts should focus on:
Improving effectiveness by:
Strategic • Seeking opportunities
Control
• Mitigating environmental threats

Operations Improving efficiency by heightening the

Control marketing effort.
Slide 9-7
CHAPTER 9: MARKETING STRATEGY
REFORMULATION—THE CONTROL PROCESS

STRATEGIC
CHANGE

Slide 9-8
STRATEGIC CHANGE

 Is the change in the environment that will

affect the long-run well-being of the firm.
 Represents opportunities or threats to an
organization, depending on its competitive
posture.

 Example: The aging of the U.S. population.

Slide 9-9
SOURCES OF STRATEGIC CHANGE

Market Results from changes in primary demand

Evolution for a product class.

Technological Creates strategic change as newer

Innovation technologies replace older ones.

Results from changes in the offering

Market
demanded by buyers or promoted by
Redefinition
competitors.

Marketing • The increasing role of Internet technology

Channel • The focus on reducing distribution costs
Change • The power shifts within marketing channels
Slide 9-10
STRATEGIC CHANGE: THREAT OR
OPPORTUNITY?
 Threat severity or opportunity potential
is determined by the organization’s business
definition.
 Ask the following questions: Does the threat or
opportunity relate to:
• The types of customers served by the firm?

• The needs of these customers?

• The means by which the firm satisfies these needs?

Slide 9-11
OPTIONS FOR DEALING WITH
STRATEGIC CHANGE
 Marshal the resources necessary to alter the
firm’s technical and marketing capabilities to
fit its market-success requirements.
 Shift its emphasis to product markets where the
match between success requirements and the
firm’s distinctive competency is clear.
 Cut back efforts in those product markets where
the firm has been outflanked.
 Leave the industry.
Slide 9-12
CHAPTER 9: MARKETING STRATEGY
REFORMULATION—THE CONTROL PROCESS

OPERATIONS
CONTROL

Slide 9-13
OPERATIONS CONTROL

 The goal of operations control is to

improve
the productivity of marketing efforts.
 Ways to identify and allocate costs are:

Marketing
Marketing-Cost
Channel
Analysis
Analysis
Sales
Analysis
Customer
Product-Service
Profitability
Mix Analysis
Analysis
Slide 9-14
OPERATIONS CONTROL

Marketing-Cost Analysis

Its purpose is to:

 Trace, assign, or allocate costs to a specified
marketing activity or segment.
 Accurately display the financial contribution of
activities or entities to the organization.

Slide 9-15
OPERATIONS CONTROL

Marketing-Cost Analysis

 Marketing segments are defined based on:

Product-Service
Marketing
Offering
Channels
Elements

Sales
Customer
Divisions or
Type or Size
Territories

 Cost allocation principle: Certain costs are

directly or indirectly traceable or assignable to
every marketing segment.
Slide 9-16
OPERATIONS CONTROL

Marketing-Cost Analysis

Cost allocation issues:

1. How should costs be allocated to each marketing

segment?
A. Assign costs in accordance with an identifiable segment.

2. What costs should be allocated?

A. Those costs that:
• Arise from the performance of a marketing activity
• Charged to that activity based on administrative policy
Slide 9-17
OPERATIONS CONTROL

Marketing-Cost Analysis

Cost allocation issues:

3. Should all costs be allocated to marketing segments?

A. It depends:
• Allocate if: Opting for a “whole equals the sum of parts”
income statement.
• Do not allocate if certain costs:
 Have no identifiable measure of application to a segment.

 Do not arise from one particular segment.

Slide 9-18
OPERATIONS CONTROL

Marketing-Cost Analysis

Guidelines when considering cost allocation:

 Maintain fundamental distinctions between cost
behavior patterns.
 The more joint costs there are, the less exact cost
allocations will be.
 Greater detail in cost allocation or traceability
will provide more useful information for remedial
action.
Slide 9-19
OPERATIONS CONTROL

Product-Service Mix Analysis

This analysis involves two interrelated tasks:

 Assess the performance of offerings in the relevant
markets via:

Sales Volume Market Share

Analysis Analysis

 Appraise the financial worth of offerings via:

Contribution
Margin
Approach
Slide 9-20
OPERATIONS CONTROL

Product-Service Mix Analysis

Sales Volume Analysis

Is a performance index that can be based on:

Growth or
A quantitative indicator of the acceptance
Decline in Unit
Sales Volume
of offerings in their relevant markets.

Proportion of Pareto’s Law or the “80–20 rule”—

Sales from 80 percent of sales or profits come from
Each Offering 20 percent of the firm’s offerings.
Slide 9-21
OPERATIONS CONTROL

Product-Service Mix Analysis

Market Share Analysis

 Complements sales volume as a measure of

performance.
 Indicates whether a firm is gaining or losing
ground in comparison with competitors.
 Can be computed by geographic area, offering
type or model, customer or channel type.

Slide 9-22
OPERATIONS CONTROL

Product-Service Mix Analysis

Market Share Analysis

 Can lead to misleading results. Example: High

market share in the market whose overall sales
may be declining or growing.
 Use unit rather than dollar volume in examining
market share due to price differentials.

Slide 9-23
OPERATIONS CONTROL

Product-Service Mix Analysis

Contribution Margin Approach

 Assign costs to offerings that reflects their profitability.

• Requires astute managerial judgment
• Can be illusive based on the offering’s definition

 Use the contribution margin approach to examine the

financial worth of offerings.
• Charge the relevant direct and assignable overhead costs against
the offering
• Break down the costs by those units that contribute to the analysis
Slide 9-24
EXHIBIT 9.1: DISAGGREGATING SERVICE STATION COSTS
FOR PRODUCT-SERVICE MIX ANALYSIS ($000)

Department

General
Automobile Total Gasoline Merchandise Service

Sales $4,000 $2,000 $1,700 $300

Cost of goods sold
and variable
$3,000 $1,600 $1,220 $180
expenses
Contibution margin $1,000 $400 $480 $120
Fixed expenses $900 $500 $310 $90
Net income $100 ($100) $170 $30

Slide 9-25
OPERATIONS CONTROL

Sales Analysis

Its purpose is to direct attention to both the:

Behavioral Consists of sales effort and

Aspect of Sales allocation of selling time.

Consists of expenses from the

Cost
Aspect of Sales
performance and administration
of the sales function.

Slide 9-26
OPERATIONS CONTROL

Sales Analysis

 Is based on a performance assessment by:

Sales
Product-Service Customer
Divisions or
Offerings Type or Size
Territories

 Measures to assess sales performance include:

• Sales revenue • Penetration of accounts
• Gross profit in a sales territory
• Selling and sales
• Sales call frequency
administration expenses
Slide 9-27
EXHIBIT 9.2: PERFORMANCE SUMMARY
FOR TWO SALES REPRESENTATIVES
Potential
Accounts
Account in Sales Active Sales Gross Total Selling Sales
Category Districtaa Accountsbb Volumecc Profitdd Callsee Expensesff Admin.gg

A 80 60 $48,000 $14,000 195 $18,400

B 60 40 $44,000 $15,400 200 $17,900

C 40 10 $25,000 $12,250 50 $11,250

D 20 6 $33,000 $16,500 42 $9,000

Totals 200 116 $150,000 $58,150 487 $56,550 $10,000

Expected
Expected Frequency
Frequency
Account
Account Definition
Definition of
of Quarterly
Quarterly Calls
Calls
a
Based on marketing research data identifying potential users of company products.

b
Current accounts. A $1,000 or less in sales 2
c
Based on invoices.
B $1,000 - $1,999 in sales 4
d
Based on invoice price for full mix of products sold.

e
Based on sales call reports cross referenced by customer name.
C $2,000 - $4,999 in sales 6
Direct costs of sales including allocated salaries of two sales representatives.
f

g
Costs not assignable on a meaningful basis; includes office expense. D $5,000 or more in sales 8
Slide 9-28
EXHIBIT 9.3: SELECTED OPERATING
INDICES OF SALES PERFORMANCE
Contribution to
Sales Volume per Gross
Gross Profit
Profit per
per Selling
Selling Expenses
Expenses per
per Sales
Sales Administration
Administration
Active Account Active
Active Account
Account Active Account
Gross Selling
Account
Category
Sales
Volume ÷
Active
Accounts
Gross
Profit ÷
Active
Accounts
Selling
Expenses ÷
Active
Active
Accounts
Profit
Profit per
per
Active Acct
– Expenses per
Active Acct
Accounts Accounts

A $800 $233 $307 –$67

B $1,100 $385 $448 –$63

C $2,500 $1,225 $1,125 $100

D $5,500 $2,750 $1,500 $1,250

Account Call Frequency Selling Expense Gross Profit %

Penetration per
per Active
Active Account
Account per Call per Active Account

Account Active Potential Total Active Selling Total Gross Sales

Category Accounts ÷ Accounts Calls ÷ Accounts
Active
Expenses ÷ Calls Profit ÷ Sales
Volume
Volume

A 75% 3.25 $94.36 29%

B 67% 5.00 $89.50 35%

C 25% 5.00 $225.00 49%

D 30% 7.00 $214.29 50%

Slide 9-29
OPERATIONS CONTROL

Marketing Channel Analysis

Consists of two complementary processes:

 Assess environmental and organizational factors
that may alter the structure, conduct, and
performance of marketing channels.
 Evaluate the profitability of marketing channels.

Slide 9-30
OPERATIONS CONTROL

Marketing Channel Analysis

Two types of costs to identify and trace to

marketing channels:
Order
Getting
Include sales expenses and
Costs advertising allowances.

Order Include packing and delivery costs,

Servicing warehousing expenses, and billing
Costs
costs.
Slide 9-31
EXHIBIT 9.4: DISAGGREGATING COSTS OF FURNITURE
IMPROVEMENT PRODUCTS FOR MARKETING CHANNEL
ANALYSIS ($000)
Marketing Channel
Home
Furniture Hardware Improvement
Total Stores Stores Stores
Sales ###### $5,000 $5,000 $2,000
Cost of goods sold $8,000 $3,500 $3,100 $1,400
Gross margin $4,000 $1,500 $1,900 $600
Expenses
Selling $1,000 $617 $216 $167
Advertising $750 $450 $150 $150
Packing and delivery $800 $370 $300 $130
Warehousing $400 $200 $150 $50
Billing $600 $300 $250 $50
Total expenses $3,550 $1,937 $1,066 $547
Net channel income (loss) $450 ($437) $834 $53
Slide 9-32
OPERATIONS CONTROL

Customer Profitability Analysis

A profitable customer is a person,

household, or company that, over time,
yields a revenue stream that exceeds,
by an acceptable amount, the
organization’s cost of attracting, selling,
and servicing that customer.

Slide 9-33
OPERATIONS CONTROL

Customer Profitability Analysis

Is calculated as follows:

Customer
Profitability =
Customer
Gross
Margin
–
( Customer
Acquisition
Costs
+
Customer
Retention
Costs )

Slide 9-34
OPERATIONS CONTROL

Customer Profitability Analysis

 When this is done for each customer, it is

possible to classify customers into different
profit tiers.
 Can cross-sell customers additional
offerings.
 Can up-sell customers by introducing them
to the firm’s more profitable offerings.
Slide 9-35
OPERATIONS CONTROL

Customer Profitability Analysis

To manage low profit or unprofitable

customers, marketers could:
 Drop them to eliminate their costs entirely.
 Charge them higher prices to increase
profits.
 Reduce the cost of serving them to make
them more profitable.
Slide 9-36
CHAPTER 9: MARKETING STRATEGY
REFORMULATION—THE CONTROL PROCESS

CONSIDERATIONS IN
MARKETING CONTROL

Slide 9-37
CONSIDERATIONS IN MARKETING
CONTROL
• Recognize the difference between root problems
Problems and surface symptoms.
vs.
Symptoms • Must develop causal relationships between
occurrences.

• Effectiveness assesses whether the firm is

Effectiveness achieving its intended goals given its constraints,
vs. capabilities, and environmental opportunities.
Efficiency • Efficiency relates to productivity—the levels of
output given a specified unit of input.

• Data are essentially reports of activities, events, or

Data performance.
vs. • Information is the classification of activities,
Information events, or performance designed to be interpreted
and useful for decision making.
Slide 9-38