CIM revision cards managing marketing performance by mike willoughby of marketing knowledge

AMSTERDAM l BOSTON PARIS l SAN DIEGO l HEIDELBERG SAN FRANCISCO l l l LONDON l SINGAPORE l Mike Willoughby of Marketing Knowledge NEW YORK SYDNEY l l OXFORD TOKYO Managing Marketing Performance CIM REVISION CARDS 10 www.elsevier.com | www.bookaid.com | www.sabre.com Working together to grow libraries in developing countries 05 06 07 08 09 10 Printed and bound in Great Britain For information on all Butterworth-Heinemann publications visit our web site at http://books.elsevier.com ISBN-13: 978-0-7506-6768-5 ISBN-10: 0-7506-6768-0 Library of Congress Cataloguing in Publication Data A catalogue record for this book is available from the Library of Congress British Library Cataloguing in Publication Data A catalogue record for this book is available from the British Library Permissions may be sought directly from Elsevier’s Science & Technology Rights Department in Oxford, UK: phone: (+44) (0) 1865 843830; fax: (+44) (0) 1865 853333, e-mail: permissions @ elsevier.co.uk You may also complete your request on-line via the Elseiver homepage (http://www.elsevier.com), by selecting ‘Customer Support’ and then ‘Obtaining Permissions’ No part of this publication may be reproduced in any material form (including photocopying or storing in any medium by electronic means and whether or not transiently or incidentally to some other use of this publication) without the written permission of the copyright holder except in accordance with the provisions of the Copyright, Designs and Patents Act 1988 or under the terms of a licence issued by the Copyright Licensing Agency Ltd, 90 Tottenham Court Road, London, England W1T 4LP Applications for the copyright holder’s written permission to reproduce any part of this publication should be addressed to the publisher Copyright ß 2006, Elsevier Ltd All rights reserved First published 2006 Butterworth-Heinemann is an imprint of Elsevier Linacre House, Jordan Hill, Oxford OX2 8DP 30 Corporate Drive, Suite 400, Burlington, MA 01803 Preface Managing marketing performance Creating the organizational context Managing change and internal marketing 13 Managing change and internal marketing 28 Implementing the business strategy through marketing activities 44 Implementing the business strategy through marketing activities 58 Implementing the business strategy through marketing activities 74 Management techniques for the marketing function 88 Management techniques for the marketing function 97 Measurement, evaluation and control 108 TABLE OF CONTENTS To get the most of your revision cards, try to look over them as frequently as you can when taking your CIM course When read alongside the Coursebook they serve as the ideal companion to the main text Good luck – we wish you every success with your CIM qualification! n The compact size ensures the cards are easily transportable, so you can revise any time, anywhere n Key diagrams are featured to aid the learning process n Examination and revision tips are provided to give extra guidance when preparing for the exam n Key topics are summarized, helping you commit the information to memory quickly and easily n Learning outcomes at the start of each chapter identify the main points Welcome to the CIM Revision Cards from Elsevier/Butterworth–Heinemann We hope you will find these useful to revise for your CIM exam The cards are designed to be used in conjunction with the CIM Coursebooks from Elsevier/Butterworth–Heinemann, and have been written specifically with revision in mind They also serve as invaluable reviews of the complete modules, perfect for those studying via the assignment route PREFACE Introduction MANAGING MARKETING PERFORMANCE å When studying and revising for this module, it is helpful to be aware of the context of the module within the Professional Postgraduate Diploma Syllabus å Whilst the Strategic Marketing Decisions Module is, as its name implies, intended to deal with the formulation of strategy, the topics surrounding the creation of an environment in which that strategy can be effectively developed and implemented are covered in this module å It is worthwhile, therefore, to take a few minutes to study the overview of the units on the following page to see how they relate to each other and how they are relevant to the marketing function of an organization å The module covers topics such as team building to ensure that organizations have the people capabilities to develop and implement strategies It covers the management of change because the implementation of strategy implies change It also covers a range of broader management techniques that are required by marketers either directly or in the course of their interactions with other functions within the organization SUMMARY MANAGING MARKETING PERFORMANCE MANAGING MARKETING PERFORMANCE Unit MANAGING MARKETING PERFORMANCE Syllabus Reference: 1.1–1.6 å Appraise the requirements of a given set of tasks and their context, and assess the impact of relevant factors on the creation or development of a team to perform those tasks å Determine the skills, characteristics and roles required within a team to carry out specific tasks effectively å Prepare a plan showing how the team should be structured, selected, formed and developed to ensure effective performance å Demonstrate an ability to manage the work of teams and individuals to achieve objectives, and create effective working relationships within the team and with other teams å Critically evaluate the productivity, satisfaction and effectiveness of teams against their objectives using appropriate techniques å Analyse the causes of any sub-optimal performance and recommend how to improve the team’s performance, including plans to improve motivation, commitment and loyalty LEARNING OUTCOMES CREATING THE ORGANIZATIONAL CONTEXT This unit relates to the role that marketing can play in creating an organizational environment that supports an effective implementation of the strategy developed in the Strategic Marketing Decisions Course Module n The unit calls on the concept of the Learning Organization, which is also relevant to Unit Whilst individuals acquire knowledge, it is important to make this knowledge available where it is needed within the organization At a more sophisticated level, individuals develop mental models; by sharing these across the organization, processes, particularly those involving, for example, innovation, can become more efficient and effective Teams n The unit then considers how teams may be created, developed and managed effectively, often using groups of individuals as a starting point In doing this, the importance of Leadership is also considered n It is then important to consider the current position in terms of skills and resources, as these will impact on the options that the organization has Gaps may be identified at this stage n Logically, the starting point for organizational team building is a definition of the task or tasks to be performed CREATING THE ORGANIZATIONAL CONTEXT Team roles – characteristic behaviour patterns ascribed to team members The objective is to ensure a good balance of different team role types depending Virtual teams – may be considered as ‘geographically virtual’ where team members are not physically located in relatively close proximity, or ‘temporally virtual’ separated by time either due to two or three shifts occurring in the working day, or due to shifts in time zones in global organizations Work roles – may be defined as, ‘The mix of tasks and responsibilities undertaken by individuals or executed within teams’ (Belbin, 2004) KEY DEFINITIONS A team – is a small number of people with complementary skills who are committed to a common purpose, performance goals, and approach for which they hold themselves mutually accountable (Katzenbach and Smith, 1994) MANAGING MARKETING PERFORMANCE Theory of the learning organization – is the basis of an outstanding organization when it is able to tap the commitment and capacity of its members to learn Such learning is particularly effective in teams (Senge (1990) cited in Stacey (2003), p 51) Strategic choice theory – makes a distinction between formulation of strategy and its implementation The formulation of strategy includes preparing a plan, the intended actions required to achieve plan objectives and forecasts the consequences of those actions Implementation is the procedure of designing systems to ensure that plans are carried out (Stacey, 2003, p 51) Gantt charts – a graphical technique for displaying work sequences, usually for a project on the requirements of the project to ensure complementarity and to maximize team performance When developing strategy, trade-offs will be necessary in the majority of decisions at all levels In setting objectives, the following trade-offs may have to be made Goals and objectives – Trade-offs MANAGING MARKETING PERFORMANCE n Risk avoidance versus risk taking n Growth versus stability n Profit versus non-profit objectives (social, ethical, environmental, etc.) n Related versus non-related growth 113 n Market penetration versus market development n Profit margin versus competitive position n Short-term versus long-term Trade-offs in setting objectives Current assets Inventories Debtors Cash Fixed assets Balance sheet New products Promotional decisions Customer service-level decisions Returns policies Efficiency in the handling of customer complaints Decision to outsource marketing services Decision to establish in-house marketing services Decision to develop new products Decision to enter new markets Marketing variables 114 continued Extending credit as part of a promotional decision could increase accounts receivable (debtors) It may also reduce your cash inflows Introduction of new products would increase stockholding costs or the build-up of inventories for a promotion would the same Buy in marketing research rather than establish your own department Effect would be not to increase fixed assets in this case Specific examples The impact of marketing activity on specific element within in the balance sheet Accounting measures of performance MEASUREMENT, EVALUATION AND CONTROL Marketing variables Financed by Equity Debt Company-wide decisions regarding the best way to finance new market development or new product development Current liabilities Trade creditors Purchasing policies Marketing and selling decisions Balance sheet MANAGING MARKETING PERFORMANCE 115 Entering new markets overseas could involve the establishment of new sites (offices, warehousing, retail selling space, etc.) The company has a choice on how to finance this type of expansion either through increasing its debt (loan financing) or through issuing new shares (equity capital) Sourcing of materials/merchandise Decisions taken on what to sell and where to sell It may affect trade creditors (supplier accounts) Specific examples From stock market Declared annually or twice per year by the company Example topline ratios Profitability ratios Gross profit margin ¼ (GP/Sales) Â 100 Net profit margin ¼ (NP/Sakes) Â 100 Fundamental strength of the business Capital structure ratios, also termed ‘gearing’ ratios where; Debt ratio ¼ total debt/total assets Total debt ẳ current liabilities ỵ long-term liabilities Total assets ẳ fixed assets ỵ current assets Operational efficiency of the business Liquidity Current ratio ¼ current assets/current liabilities Liquid ratio ¼ (current assets – stock)/current liabilities Type of ratio 116 Asset utilization Stock turnover ratio ¼ cost of goods sold/stock at cost on balance sheet Debtor turnover ¼ sales turnover/debtors credit turnover ratios ¼ cost of goods sold/trade creditors from the balance sheet Investment performance ratios Price to earnings ratio (i.e P/E ratio) ¼ Market price share1/earnings per share2 Classification of topline financial variables more comments used in strategic planning Ratio analysis MEASUREMENT, EVALUATION AND CONTROL Marketing outputs/ Marketing inputs Change in sales turnover/ Change in communications expenditure Increase in consumer awareness/Change in advertising expenditure General formula Example Example Productivity analysis MANAGING MARKETING PERFORMANCE 117 The general principle is that any output may be expressed as a ratio of any input The particular variable selected depends on the reason for calculating the productivity ratio The assumption behind this ratio is that a communications campaign has been undertaken and that this is the sole, or main, reason behind an increase in sales turnover Additional information must be gathered at the time of collecting ratio data, in order to confirm that another factor has not been the cause of the change For example, poor distribution by a competitor or a competitor withdrawing from the market This provides a useful measure by which to judge, at least in part, the performance of the company This example is to illustrate that the ratio need not always be purely of financial measures It may be of a physical and financial measure (see real indices below) "To achieve our vision, how should we appear to our customers?" The balanced scorecard Customer "To succeed financially, how should we appear to our shareholder?" "To achieve our vision, how will we sustain our ability to change and improve?" Financial Learning and growth Vision and strategy Internal business process "To satisfy our shareholders and customers, what business processes must we excel at?" Ob jec t Me ives asu Tar res ge t Init s iati ves Ob jec tive M e asu s Tar res ge t Init s iati ves Ob jec t Me ives asu Tar res g e t Init s iati ves MEASUREMENT, EVALUATION AND CONTROL Ob jec t Me ives asu Tar res g e t Init s iati ves 118 The balanced scorecard Strategic objectives Financial Customer Internal Strategic measures Customer ranking survey Pricing index Customer satisfaction index Mystery shopping index Value for money Competitive price Customer satisfaction C.1 C.2 C.3 ROCE Cash flow Net margin Volume growth rate vs industry Profit forecast reliability Sales backlog Return on capital Cash flow Profitability Profitability growth Reliability of performance F.1 F.2 F.3 F.4 F.5 MANAGING MARKETING PERFORMANCE Total expenses per unit vs competition Safety incident index 1.2 Manufacturing Lower manufacturing cost Improve project management Pioneer percentage of product portfolio Hours with customer on new work 1.1 Marketing Product and service development Shape customer requirement 1.3 Logistics Reduce delivery costs Inventory management 1.4 119 Innovation and learning I.L.1 I.L.2 I.L.3 I.L.4 I.L.5 Quality Innovate products and services Time to market Empowered workforce Access to strategic information Continuous improvement Delivered cost per unit Inventory level compared to plan and output rate Rework Percentage revenue from pioneer products Cycle time vs industry norm Staff attitude survey Strategic information availability Number of employee suggestions Learning and growth Internal/business Process Customer Financial The balanced scorecard Process quality Employee skills Process cycle time On-time delivery Customer loyalty ROCE MEASUREMENT, EVALUATION AND CONTROL 120 n Communication – e.g the average number of contacts with customers indirectly using technology or less frequently, in person n Satisfaction – e.g direct measurement of satisfaction as well as monitoring of complaints and the number of complaints n Retention – e.g comparing income from existing customers with income from new customers Customer Little and Marandi (2003) suggest Customer and more specific Relationship areas to be monitored Measures Relationship marketing MANAGING MARKETING PERFORMANCE 121 n Relationship returns – literally measure the financial rewards gained by the supplier One cautionary point suggested by Little and Marandi is that the most satisfied and loyal customers not necessarily generate the best returns n Relationship features – which describe the nature of the relationship between the supplier and the customer, e.g customer loyalty n Relationship facilitators – contribute to long-term relationships, e.g satisfaction and trust Relationship n Balance of cognitive styles n Review of policies and practices to support innovation n Current performance  Rate of new product development  Customer satisfaction ratings  Staff turnover  Innovation/value portfolio analysis (see following page) n Organizational climate  Attitude survey  Metaphorical analysis Components of an innovation audit Drummond and Ensor Innovation audit Settlers Me-too businesses Migrators Value improvement Pioneers Value innovations Current portfolio Planned portfolio High growth trajectory The innovation/value matrix MEASUREMENT, EVALUATION AND CONTROL 122 The Payback Period technique simply calculates how long it will take to recover the initial investment A number of methods are available to appraise investments Accounting Rate of Return simply calculates the average return on an investment without taking account of the time value of money Both Discounted Cashflow techniques overcome this disadvantage by applying discount rates (which will usually be provided to you from tables) Measuring financial returns on marketing investments MANAGING MARKETING PERFORMANCE n Discounted cashflow  Net present value  Internal rate of return n Payback period n Accounting rate of return Investment appraisal methods 123 n Future earnings valuation – probably the most appropriate method This is where the discounted n Stock market valuation – the residual value once physical assets, industry factors and other intangible assets have been removed n Replacement cost value – the estimated cost of developing a similar brand n Incremental sales valuation – if brands achieve higher sales than unbranded products these incremental sales can be used to value the brand n Price premium valuation – the price premium over unbranded products is used as the basis for brand valuation As indicated in Unit 5, there are a number of approaches to brand valuation Doyle suggests: Brand valuation 124 present value of future earnings attributable to the brand is estimated MEASUREMENT, EVALUATION AND CONTROL MANAGING MARKETING PERFORMANCE Extent and intensity of coverage Commentary − Report of social mission and aims and some descriptive comments Review − Occasional descriptive reports addressing different stakeholder needs Report − Regular report with stakeholder consultation, indicators, financial data, explicit policies and internal systems Statement − Regular externally verified reports True dialogue with stakeholders, indicators, targets, benchmarks and commitment to comprehensive coverage over time Sustainability development − Regular externally verified sustainability statement with linkages to environmental and financial data Corporate social responsibility Level of reporting 125 Shareholder value added Profit Sales growth Communications Corporate objective Financial performance Results achieved Marketing investment Pricing Price premiums − Risk − Frequency − Distribution Cash flow − Dividends − Capital growth Shareholder returns Shareholder value and marketing activity Product Brand loyalty ROI etc Product/ service alignment to customer requirements MEASUREMENT, EVALUATION AND CONTROL 126 n Ensure that you are familiar not only with the various calculations relating to each technique but also to the justification for employing the n Intangible assets, however, are more difficult to value Consequently, less formal methods of establishing their value have been proposed These allow a value to be attributed to many marketing assets and a financial case for investment in them made n When assets are tangible, accountants have developed methods of calculating their value n The concept of Shareholder Value Analysis is that any activity or asset, and so investment in it, should be evaluated in terms of the Net Present Value of the cashflows attributable to that activity or asset Revision tips MANAGING MARKETING PERFORMANCE 127 techniques, their strengths and weaknesses and, therefore, the times when it is appropriate to employ them ... FRANCISCO l l l LONDON l SINGAPORE l Mike Willoughby of Marketing Knowledge NEW YORK SYDNEY l l OXFORD TOKYO Managing Marketing Performance CIM REVISION CARDS 10 www.elsevier.com | www.bookaid.com... organization SUMMARY MANAGING MARKETING PERFORMANCE MANAGING MARKETING PERFORMANCE Unit MANAGING MARKETING PERFORMANCE Syllabus Reference: 1.1–1.6 å Appraise the requirements of a given set of tasks and... route PREFACE Introduction MANAGING MARKETING PERFORMANCE å When studying and revising for this module, it is helpful to be aware of the context of the module within the Professional Postgraduate