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Strategic Control — Marketing Control Tools

Audio Version — 9:18

The final of the four primary marketing control tools is strategic control. Every company should occasionally reevaluate its strategic approach to its marketplace. They need to determine if their overall marketing effectiveness — concerning long-term goals — meets their response to the marketing environment by reviewing their approach. Specifically, the review helps determine the firm’s overall strengths and weaknesses and answers the question, 

“How far is company leadership (or marketing leaders) capable of exploiting emerging marketing opportunities and facing potential market challenges and threats?”

Strategic Control Methods

Marketing professionals use four tools to measure strategic control:

Following are brief descriptions of each strategic control tool.

Marketing Effectiveness Review

The marketing effectiveness review involves a thorough analysis of marketing performance to identify if the firm has an effective-performing marketing department or an ineffective one. (See the table on the Traits of a Company with Excellent Marketing Orientation.)

The table below highlights the standards a company should follow when reviewing for marketing effectiveness. Companies that can successfully claim to follow all standards are considered a highly effective marketing organization.

 

Traits of an Excellent Marketing Company
The organization selects target markets it enjoys greater advantages and leaves or avoids markets where it is intrinsically weak.
All company employees are customer-minded and market-minded.
Marketing, R&D, and manufacturing share a good, collaborative working relationship.
The company shares a positive and effective working relationship between marketing, sales, and customer service.
Company incentives are established and lead to the right behavior.
The firm consistently builds and tracks customer satisfaction and customer loyalty.
The organization manages a value delivery system in partnership with strong suppliers and distributors.
The company demonstrates knowledge and skill in developing and promoting its brand name(s) and image.
The company demonstrates flexibility in meeting customers' differing needs.

The Marketing Audit

The marketing audit is a comprehensive, systematic, independent, and periodic examination of an organization’s or business unit’s marketing environment, objectives, strategies, and activities. Its purpose is to determine problem areas and opportunities then recommend a plan of action to improve its overall marketing performance.

As mentioned earlier, a marketing audit is composed of four components:

  • Comprehensive
  • Systematic
  • Independent
  • Periodic

I will examine each of the four components:

Comprehensive

Marketing audits cover all aspects of significant marketing activities, avoiding focus on smaller troubled areas. For example, in a B2B company with a large sales force, suppose the company experiences a significant turnover rate within the sales department. One attribution to the substantial turnover could be poor training. Suppose you conduct a thorough marketing audit. In that case, it may reveal that poor or weak company products and sales and marketing promotions lead to a frustrated sales force, which is the cause of a higher turnover.

Conducting a comprehensive marketing audit allows key stakeholders to identify the actual source of the problem.

Systematic

The marketing audit is an orderly (systematic) examination of the company’s:

  • Macro and micro marketing environments
  • Marketing objectives and strategies
  • Marketing systems
  • Specific activities

The marketing audit identifies the essential improvements and incorporates them into a corrective action plan with short-term and long-term actionable steps.

Independent

Whenever company representatives evaluate their operations for audit purposes, they introduce bias and lose objectivity. However, employing a third-party consultant — not associated with the firm — brings objectivity and experience in varied industries they can draw upon in their marketing audits. 

Periodic

Typical firm-level behavior is to conduct a marketing audit only after issues arise and not during effective and positive performance times. Rather than wait for problems to arise, companies should conduct ongoing marketing audits when they are in good health and when their marketing systems are failing. Periodically conducting an audit can benefit a company and keep them from falling short in its marketing initiatives.

An effective marketing audit requires an explicit agreement between company officers and the marketing auditor regarding the audit’s objectives, timeframe, and who gets to ask the questions.

The marketing audit’s general rule is:

Don’t rely solely on company managers for data and opinions. Ask customers, dealers, and any other outside stakeholder or group.

Most firms are not fully aware of how their customers and dealers view them, nor do they fully understand the needs of their customers. 

Marketing Excellence Review

The marketing excellence review encompasses three performance categories in regards to their level of marketing excellence:

  • Poor 
  • Good
  • Excellent

Each category identifies a list of traits that a firm practices regarding marketing initiatives. Excellent marketing companies initiate a series of best practices that ensure they have achieved marketing excellence. See the Marketing excellence chart in the article titled, Does Your B2B Company Measure up to Marketing Excellence? 

The Ethical and Social Responsibility Review

An ethical and social responsibility review is undertaken by companies that set higher standards for their overall existence and operations. These types of companies are socially conscious toward their employees, customers, community, and environment.

As part of the ethical and social responsibility review, organizations must examine their marketing policies and practices and determine whether they are ethically and socially valid. In the same way, marketing practices should adhere to societal norms and values; a company’s products, policies, and practices must not negatively impact its customers, stakeholders, and the community.

Some standards used to review the ethical and social responsibility of an organization may include the following list.

  • The company should have a clear set of definitions for the meaning of illegal, immoral, and antisocial activities.
  • The firm actively practices, promotes and communicates its moral principles (company values) while holding its employees responsible for observing the values.
  • A company makes contributions to the social welfare of its employees.
  • The company follows all local, state, and federal laws and regulations that relate to social responsibility.
  •  They are actively engaged in business ethics in the product, price, promotion, and distribution (placement).

Companies that fall short in achieving excellence in their ethics and social review can better determine how to correct their actions to serve their employees, customers, and community. 

Summary

Conducting a strategic control review requires a complete commitment from an organization’s leadership. Leadership should conduct strategic control reviews frequently to see if the organization meets its objectives. If they are not meeting their objectives, they should have a plan to improve their strategic goals.

Marketing professionals have four strategic control methods at their disposal to evaluate the company’s strategic readiness. The methods include:

Each method has its own set of criteria to follow in determining its effectiveness. Companies that regularly engage in strategic control review and conduct marketing audits are market-oriented and better positioned to excel in their respective market environments.

 

Efficiency control illustration main header image

Efficiency Control — Marketing Control Tools

Audio Version — 9:18

Efficiency Control

illustration of segmentationThe efficiency control portion of the marketing control process measures spending efficiency as it relates to marketing activities. As you may have read in the Profitability Control Analysis article that profitability control concerns itself with where the firm is making or losing money in regards to:

  • Product
  • Territory
  • Customer
  • Segment
  • Trade channel
  • Order size

Efficiency control aims to evaluate and improve the firm’s spending efficiency and the impact of marketing expenditures such as:

  • Sales force
  • Advertising
  • Sales Promotion
  • Distribution

Larger firms sometimes implement a marketing controller role within the controller’s (finance) office to improve marketing efficiency. The marketing controllers may get involved with one or all of the following activities:

  • Examine adherence to profit plans
  • Help prepare a brand managers’ budget
  • Measure promotional efficiency
  • Perform media production costs analysis
  • Evaluate customer and geographic profitability
  • Staff training on the financial impact of marketing decision’s 

How Efficiency Control Improves Marketing

illustration of business man using archery for efficiency control

In essence, efficiency control may improve a marketing department’s activity efficiencies in two ways.

  1. It may improve the ability of various marketing activities to better contribute toward reaching marketing objectives.
  2. It can help reduce waste and marketing expenses.

Let’s take a closer look at the four different efficiency control tools, sales force efficiency, advertising efficiency, sales promotion, and distribution. Each efficiency control has its set of marketing metrics to determine if the marketing initiative meets its goals or falls short.

Measuring Sales Force Efficiency Control

Sales force efficiency analyzes if a particular salesperson is efficient in meeting their goals through a set of predetermined metrics. Some standard sales metrics may include some or all of the following measures:

  • The average number of sales calls per salesperson per day
  • Average time spent on sales calls per contact
  • Average revenue generated per sales call
  • Average costs incurred per sales call
  • Percentage of orders per group of calls (For example, how many orders did sales receive per 50 sales calls?)
  • The number of new customers created during a specific period
  • The number of customers lost during a specific period
  • The sales force costs as a percentage of total sales

Marketing professionals or controllers may deploy various tactics to gather the necessary information to calculate the above metrics. Information gathering tools such as sales reports, internal databases, questionnaires, meeting discussions, and observations may aid in determining metrics for calculations to determine the sales efficiency.

Conducting a sales force efficiency examination based on the metrics mentioned earlier can lead your marketing management team to discover answers to the following questions.

  1. What role does the sales force contribute to generating revenue? Is online marketing playing a higher position, or are your salespeople in the field generating the bulk of the sales?
  2. Which salespeople are more or less efficient in utilizing resources to convert prospects into buyers?
  3. What are some other reasons for poor efficiency within your sales force, assuming there are inefficiencies.
  4. What is some course of action to take to correct and improve the efficiencies?

Measuring Advertising Efficiency

Advertising is perhaps the most costly expense of the marketing budget. Traditional (offline) marketing typically costs more than online marketing. However, both can become expensive over time. Because of its high costs, it’s essential to determine the advertising efficiency of a given campaign or the efficiency of the overall marketing budget.

While online advertising effectiveness is easier to track, offline advertising proves more challenging. While advertisings efforts and costs contributions are complicated to determine, marketing managers can develop systematic qualitative tools to measure:

  • Increased brand awareness
  • Changing attitudes toward a brand
  • Creating brand loyalty

Some standard advertising metrics for determining advertising efficiency may include:

  • Advertising costs per thousand through a specific communication vehicle such as television or online video ads
  • The percent of a target audience that read or viewed a print media or online advertisement
  • Customer opinion on advertising effectiveness
  • The measurement of an audience’s attitude toward an advertised product
  • The number of leads generated by an offline or online ad campaign.
  • Cost-per-lead
  • Cost-per-acquisition

Marketing managers can use the advertising efficiency metrics to measure internal and external benchmarks that determine if an advertising campaign and its communication channels are efficient in reaching its goals. Should the manager discover inefficiencies, some corrective actions they can initiate are to change:

  • The company’s advertising objectives and policies
  • Ad messages
  • Switch communication channels or media type
  • Media schedule or ad frequency
  • the advertising budget
  • Marketing staff training
  • The advertising agency if the company is using one

Depending on what metrics you measure and their results, you may need to modify or add additional corrective actions to your plan.

Measuring Sales Promotion Efficiency

Depending on the organization’s internal structure, the marketing or sales department may monitor sales promotion efficiency. The sales promotion efficiency process measures the impact of the sales promotion efforts on:

  • Sales
  • Profits
  • Competitiveness
  • Consumer Satisfaction

efficiency control illustrationGenerally, sales promotions offer a range of incentives to customers and vendors (dealers) to stimulate sales and product trials. Running an inefficient sales promotion can end up costing the company money and other resources. That is why marketing and sales managers need to measure the cost and impact of each sales promotion tool. 

Sales promotions are applied at three levels typically. They include the:

  • Customer level
  • Dealer level
  • Sales force level

Some standard sales promotion efficiency metrics used to measure sales effectiveness include:

  • The total sales promotion percentage expense to actual sales
  • The cost of samples, coupons, and other tools per unit selling price
  • The number of inquiries or leads generated from a specific sales promotion

By analyzing the costs and contribution of the sales promotion tools, managers can determine which promotional tool, channel, and level are most efficient. Companies can use their efficiency data results to reduce or eliminate underperforming sales promotions or bolster effective promotions. Additionally, sales promotion metric results can help firms design more efficient promotional strategies in terms of:

  • Costs
  • Level of sales promotion
  • Promotional timing
  • And sales promotion strategies at each level:
    • Customer
    • Dealer
    • Sales force

Measuring Distribution Efficiency

Distribution costs for consumer products, electronics, and apparel can be as high as 35% of retail sales prices. Distributors are the middlemen and are part of the value chain in product distribution. A distributors main assets include their:

  • Sales force
  • Transportation means
  • Storage capabilities

With their assets, distributors will try and optimize margins. In other words, the distribution efficiency control tool allows companies to assess the efficiency of their distribution processes. In essence, the distribution efficiency control tool measures how well a company’s distribution system is to achieve its marketing objectives. From time to time, it may be necessary to make changes to distributors or help distributors better understand the company’s goals and see if distributors may accommodate those goals in their processes and costs.

Some typical criteria used to assess the distribution efficiency process include:

  • The percentage of total distribution costs per unit price
  • The share of physical distribution costs per unit price:
    • Warehousing (storage)
    • Inventory
    • Ordering
    • Transportation
    • Communication
    • Fixed business costs
  • Percentage of channel partners’ cost per unit price:
    • Wholesalers
    • Retailers
    • Agents
  • The costs and contributions associated with direct and indirect channels
  • The potential for using online marketing and network marketing channels or by retail chains
  • Evaluating costs of marketing channels as they relate to offered services to the company and consumers

Companies that regularly evaluate their distribution efficiency costs can determine the effectiveness of their distribution channels and partners. Through their analysis, a marketing manager can minimize distribution costs while maximizing or improving profits and its price and earning competitiveness. Additionally, managers can improve customer satisfaction by adjusting to enhance distribution efficiencies through improved costs and quicker product delivery or service.

Conclusion

The four efficiency control areas, sales force, advertising, sales promotion, and distribution, each have a set of metrics. Marketing managers should measure the metrics and understand the various courses of action to take if any control area is functioning inefficiently. Taking swift action and correcting any issues can boost a company’s profit and keep them competitive.

Firms that fail to establish efficiency control metrics and act on inefficiencies may find themselves bleeding resources and ultimately falling behind their competition or shutting their doors altogether.

 

Financial Analysis Calculations

Profitability Control — Marketing Profitability Analysis

Audio Version — 7:56

Marketing Profitability Analysis Defined

Profitability control is a marketing control tool used to perform marketing profitability analysis. The profitability analysis is a systematic and logical process used to analyze profits earned from various marketing activities and marketing channels. Firms show a growing interest in using marketing profitability analysis to quantify the true profitability of varying marketing activities. Gaining insights to true profitability, marketing managers can:

  • Reduce unnecessary resources required to execute different actions.
  • Increase resource productivity.
  • Acquire resources at a reduced cost.
  • Increase prices of products that consume increased amounts of support resources.

Marketing Profitability Analysis Steps

Marketing profitability analysis involves the following steps:

  1. Identifying functional expenses.
  2. Assigning functional expenses to marketing entities.
  3. Preparing a profit-and-loss statement for each marketing entity.

After marketing managers identify functional expenses, assign those expenses to marketing entities and prepare their respective profit-and-loss statements, the marketing professional then needs to determine if corrective action is necessary based on their profitability analysis.

Marketing Profitability Analysis Example

Using the marketing profitability analysis steps is better explained using an example. In our example, suppose you are the marketing director for a mid-sized vitamin (nutraceutical) manufacturer, and you want to determine the profitability of selling your product direct-to-consumer through three types of retail channels: 

  • Health and wellness centers.
  • Retail supermarket chains.
  • Independent pharmacies.

Below is an oversimplified profit-and-loss statement for the vitamin manufacturer that I’ll use for our marketing profitability analysis example.

simple profit and loss statement chart for marketing profitability analysis article

 

Let’s examine the following steps in determining our marketing profitability analysis.

Step 1: Identify Functional Expenses

Functional expenses are costs incurred for a specific product or service. In our example, the functional expenses are those costs incurred for specific marketing activities for each marketing channel.

In our analysis example, assume that the incurred expenses in the profit-and-loss statement are to:

  • sell the vitamin products
  • advertise them
  • pack and ship the product
  • bill and collect funds

Our first task is to measure the total expense for each activity. We can assume that the sales team incurred most of the costs. The rest of the salary expenses went toward the advertising manager, packing and delivery staff, and the in-house accountant. The Functional Expenses chart below demonstrates the salary, rent, and supplies cost breakdown for each activity.

Functional expenses chart

 

The rent, in our example, is divided amongst the four activities. However, because the sales team works outside of the firm, the rent is not allocated to the sales team but divided by space used, among the other three activities. 

Most of the floor space and rented equipment are for the packing and shipping department. The $7,200 allocated to the supplies activity account covers promotional and packing supplies, delivery fuel purchases, and office supplies.

Step 2: Assigning Functional Expenses to Various Marketing Entities

In step two, we measure how much functional expense is associated with selling through the various marketing channels. The table below, Allocating Functional Expenses to Channels, shows the selling effort made for each channel. The number of sales calls per channel, indicated in the sales column, refers to how many times a salesperson called or visited one of the channel locations. The total selling expense for all three channels was $7,425, and the sales team yielded 675 units. Note that a unit in our marketing profitability analysis example refers to one item, for example, one sales call or one advertisement. In our case, the cost per sales call unit to our marketing channels costs $11 per call.

Respectively, we ran 450 ads with a total expense of $5,400, which yielded $12 per advertisement. The cost for packing, shipping, and billing follows the same formula, generating $18 per package to pack and ship and $9 per order to bill and collect.

marketing profitability analysis chart

 

 

Step 3: Preparing a Profit-and-Loss Statement for Each Marketing Entity 

We can prepare the profit-and-loss statement for each channel partner in the final step. In our profit-and-loss statement example below, the health center channel earned 55% of total sales. The channel had the highest cost of goods, yet the highest gross margin as well. After expenses, the health centers channel netted a profit of $9,150 for the firm.

channel partner profit and loss chart

 

 

The total cost for calls to the health centers was the highest of the three channels, yet its advertising costs were half that of the pharmacy channel, bringing in a meager $430 net profit. On the other hand, total sales calls to retail chains were higher than the pharmacy channel, yet the retail chain channel was at a $2,975 loss for the firm. 

Go through the remaining channel partner data below and see where you might identify areas that can help generate more net profit.

Analysis and Corrective Action

On the surface, it may be easy to eliminate the retail chains channel since they showed a loss compared to the two other channels. Yet, eliminating the retail chain channel may be premature or naive at best. Marketing managers need to determine the possible root causes of revenue loss before removing a channel partner. Marketing managers need answers to the following questions before eliminating a channel:

  • What are the factors that buyers buy based on retail outlets (channel partners) versus the brand?
  • Are there any trends that impact the relative importance of the three channels?
  • Are the firm’s marketing strategies consistent across all three channels, or does the company vary the marketing message based on channel partner?
  • Has the firm conducted a market analysis on competitors currently sold in each of the channels?

Marketing managers can use the answers from the above questions to evaluate the following alternatives:

  1. Establish special charges for handling smaller orders.
  2. Provide more promotional assistance to the retail chains and pharmacies.
  3. Increase ad spending for the retail chain channel.
  4. Evaluate the marketing message and make necessary changes to the messaging strategy for the retail and pharmacy channels.
  5. Remove the poor-performing retail units of each channel.
  6. Create an incentive plan for the retail chain channel to improve total sales.
  7. Do nothing.

Conclusion

Marketing profitability is not without its limitations. Depending on how well marketers understand the analysis methods and constraints, the analysis can lead or mislead marketers. Some advocates argue that the full cost must be allocated to marketing entities, while others say that only direct and traceable costs are necessary for evaluating a marketing entity’s performance. 

Regardless of which side of the argument you stand, marketing profitability analysis does not necessarily prove that the best course of action is to eliminate unprofitable marketing entities, like the retail chain channel in our example. The marketing profitability analysis merely indicates the relative profitability of different channels, products, territories, or other marketing entities. It is up to the marketing manager to ask clarifying questions that lead to effective corrective action of their marketing activities.

futuristic image of man using technology for sales analysis article

Sales Analysis – Annual Plan Control

Audio Version — 3:52

Sales Analysis

In the article titled The Marketing Control Process for your Business – Explained, I outline what marketing controls are: 

“Marketing control is a process where company management or executives analyze and assess their marketing activities and programs.”

Hand-drawn graph for sales analysis post - Allen StaffordThe marketing control process includes four types of marketing control, they are,

  • Annual plan control
  • Profitability control
  • Efficiency control 
  • Strategic control 

This post focuses on the sales analysis part of the annual control plan. The other three types of measuring tools that fall under the annual control plan include,

  • Marketing share analysis,
  • Marketing expense-to-sales analysis,
  • Financial analysis.

The sales analysis measures and evaluates the firm’s actual sales as it relates to its sales goals. The two types of analysis tools used are the sales-variance analysis and the micro-sales analysis.

Sales-Variance Analysis

A sales-variance analysis is a metric that measures the relative contribution of different internal and external factors to a discrepancy in sales performance. The ability to calculate and identify sales variance is an essential metric to understand so that the firm may address issues in expected sales deficiencies.  

Sales-Variance Example

Suppose a manufacturer planned on selling 2,000 units of Product A in the fourth quarter at $2.50 per unit. The expected total revenue is $5,000. At the end of the fourth quarter, 1,700 Product “A” units sold at $1.95 per unit for total revenue of $3,315. The following calculation shows the price decline in performance versus the price decline due to a volume decreasing. 

Sales-Variance Example Calculation

Variance due to price decline:($2.50 - $1.95) (1,700 units) = $93555.5%
Variance due to volume decline:($2.50) (2,000 - 1,700) = $75044.5%
$1,685100%

Metrics Analysis

Notice that almost half of the variance is due to a failure to achieve the volume target. The manufacturer needs to examine why sales failed to reach their expected sales volume. Possible reasons may include poor sales performance, lack of sales staff to cover a region, inferior quality product, or weak or no sales promotion activity. 

Micro-Sales Analysis

pie chart for micro-sales analysis articleThe micro-sales analysis examines specific products, sales regions or territories, and other measurable factors that underperformed the expected sales goals. For example, imagine that the manufacturer in our case above sells Product A into three regions. They set their sales goals for region one at 900 units, region two at 400 units, and region three at 700 units for the fourth quarter. However, the actual sales volumes were 800 units for region one, 498 units for region two, and 325 units for region three. Thus, the sales manager notices a 12% sales reduction for region one, a 22% increase in region two, and a dramatic 73% drop in region three sales.

From the data, the sales manager may come to several possibilities. They may conclude that the salesperson in region three is performing poorly, a new competitor entered the market in that region, or the product is priced too high for the market. Other possibilities may come into play as well.

Summary

The sales analysis is just one tool for managing marketing programs. When used to analyze sales volumes, marketers can learn if internal or external factors are to blame for sales volume deficiencies or surpluses. The data collected can help marketers make adjustments to existing marketing programs and incorporate them into new programs in new markets.