Marketing managers must ensure that their marketing expenditure is being wisely invested.
In the past, many marketers spent freely on big, expensive marketing programmes, often without thinking carefully about the financial returns on their spending. They believed that marketing produces intangible outcomes, which do not lend themselves readily to measures of productivity or return. But all that is changing:
For years, corporate marketers have walked into budget meetings like neighbourhood junk- ies. They couldn’t always justify how well they spent past handouts or what difference it all made. They just wanted more money – for flashy TV ads, for big-ticket events, for, you know, getting out the message and building up the brand. But those heady days of blind budget increases are fast being replaced with a new mantra: measurement and accountability.
Armed with reams of data, increasingly sophisticated tools, and growing evidence that the old tricks simply don’t work, there’s hardly a marketing executive today who isn’t demanding a more scientific approach to help defend marketing strategies in front of the chief financial officer. Marketers want to know the actual return on investment (ROI) of each dollar. They want to know it often, not just annually . . . Companies in every segment of business have become obsessed with honing the science of measuring marketing performance: ‘Marketers have been pretty unaccountable for many years,’ notes one expert. ‘Now they are under big pressure to estimate their impact.’16
In response, marketers are developing better measures of return on marketing. Return on marketing (or marketing ROI) is the net return from a marketing investment divided by the costs of the marketing investment. It measures the profits generated by investments in marketing activities.
It is true that marketing returns can be difficult to measure. In measuring financial ROI, both the R and the I are uniformly measured in money terms. But there is as yet no consist- ent definition of marketing ROI. ‘It’s tough to measure, more so than for other business expenses,’ says one analyst. ‘You can imagine buying a piece of equipment . . . and then
measuring the productivity gains that result from the purchase,’ he says. ‘But in marketing, benefits like advertising impact aren’t easily put into dollar returns. It takes a leap of faith to come up with a number.’17
One recent survey found that although two-thirds of companies have implemented return on marketing investment programmes in recent years, only one-quarter of companies report making good progress in measuring marketing ROI. Another survey of chief financial offic- ers (CFOs) reported that 93 per cent of those surveyed are dissatisfied with their ability to measure return on marketing. The major problem is figuring out what specific measures to use and obtaining good data on these measures.18
A company can assess return on marketing in terms of standard marketing performance measures, such as brand awareness, sales or market share. Many companies are assembling such measures into marketing dashboards – meaningful sets of marketing performance measures in a single display used to monitor strategic marketing performance. Just as auto- mobile dashboards present drivers with details on how their cars are performing, the mar- keting dashboard gives marketers the detailed measures they need to assess and adjust their marketing strategies.
Increasingly, however, beyond standard performance measures, marketers are using customer-centred measures of marketing impact, such as customer acquisition, customer retention, customer lifetime value and customer equity. These measures capture not just current marketing performance but also future performance resulting from stronger cus- tomer relationships. Figure 2.8 views marketing expenditures as investments that produce returns in the form of more profitable customer relationships.19 Marketing investments result in improved customer value and satisfaction, which in turn increases customer attrac- tion and retention. This increases individual customer lifetime values and the firm’s overall customer equity. Increased customer equity, in relation to the cost of the marketing invest- ments, determines return on marketing investment.
Regardless of how it is defined or measured, the return on marketing concept is here to stay. ‘All good marketers live and die by measurements of their results,’ states the marketing productivity consultant. ‘Projections are made, marketing is delivered, results are measured, and the knowledge is applied to guide future marketing . . . The return on marketing invest- ments is integral to strategic decisions at [all levels] of the business.’20
FIGURE 2.8
Return on marketing
Source: Reprinted with permission from Journal of Marketing, published by the American Marketing Association, Roland T. Rust, Katherine N. Lemon and Valerie A. Zeithaml, January 2004, p. 112.
In the previous chapter, we defined marketing and out- lined the steps in the marketing process. In this chapter, we examined company-wide strategic planning and marketing’s role in the organisation. Then, we looked more deeply into marketing strategy and the marketing mix, and reviewed the major marketing management functions. So you’ve now had a pretty good overview of the fundamentals of mod- ern marketing. In future chapters, we’ll expand on these fundamentals.
1 Explain company-wide strategic planning and its four steps
Strategic planning sets the stage for the rest of the com- pany’s planning. Marketing contributes to strategic plan- ning, and the overall plan defines marketing’s role in the company. Although formal planning offers a variety of benefits to companies, not all companies use it or use it well.
Strategic planning involves developing a strategy for long-term survival and growth. It consists of four steps: defining the company’s mission, setting goals and objectives, designing a business portfolio, and develop- ing functional plans. Defining a clear company mission begins with drafting a formal mission statement, which should be market oriented, realistic, specific, motivating and consistent with the market environment. The mission is then transformed into detailed supporting goals and objectives to guide the entire company. Based on those goals and objectives, headquarters designs a business portfolio, deciding which businesses and products should receive more or fewer resources. In turn, each business and product unit must develop detailed marketing plans in line with the company-wide plan.
2 Discuss how to design business portfolios and develop strategies for growth and downsizing
Guided by the company’s mission statement and objec- tives, management plans its business portfolio, or the collection of businesses and products that make up the company. The firm wants to produce a business portfolio that best fits its strengths and weaknesses to opportuni- ties in the environment. To do this, it must analyse and adjust its current business portfolio and develop growth and downsizing strategies for adjusting the future port- folio. The company might use a formal portfolio-plan- ning method. But many companies are now designing more customised portfolio-planning approaches that better suit their unique situations. The product/market
expansion grid suggests four possible growth paths:
market penetration, market development, product devel- opment and diversification.
3 Assess marketing’s role in strategic planning and explain how marketers partner with others inside and outside the firm to build profitable customer relationships Under the strategic plan, the major functional departments – marketing, finance, accounting, purchas- ing, operations, information systems, human resources and others – must work together to accomplish strategic objectives. Marketing plays a key role in the company’s strategic planning by providing a marketing-concept phi- losophy and inputs regarding attractive market opportu- nities. Within individual business units, marketing designs strategies for reaching the unit’s objectives and helps to carry them out profitably.
Marketers alone cannot produce superior value for customers. A company’s success depends on how well each department performs its customer value-adding activities and how well the departments work together to serve the customer. Thus, marketers must practise partner relationship management. They must work closely with partners in other company departments to form an effec- tive value chain that serves the customer. And they must partner effectively with other companies in the marketing system to form a competitively superior value-delivery network.
4 Describe the elements of a customer-driven marketing strategy and mix, and the forces that influence them Consumer relationships are at the centre of marketing strategy and programmes. Through market segmentation, target marketing and market positioning, the company divides the total market into smaller segments, selects segments it can best serve, and decides how it wants to bring value to target consumers. It then designs a mar- keting mix to produce the response it wants in the target market. The marketing mix consists of product, price, place and promotion decisions.
5 List the marketing management functions, includ- ing the elements of a marketing plan, and discuss the importance of measuring and managing return on marketing
To find the best strategy and mix and to put them into action, the company engages in marketing analysis, plan- ning, implementation and control. The main components
THE JOURNEY YOU’VE TAKEN Reviewing the concepts
of a marketing plan are the executive summary, current marketing situation, threats and opportunities, objec- tives and issues, marketing strategies, action programmes, budgets and controls. To plan good strategies is often easier than to carry them out. To be successful, compa- nies must also be effective at implementation – turning marketing strategies into marketing actions.
Much of the responsibility for implementation goes to the company’s marketing department. Marketing departments can be organised in one or a combination of ways: functional marketing organisation, geographic organisation, product management organisation or market management organisation. In this age of cus- tomer relationships, more and more companies are now
changing their organisational focus from product or terri- tory management to customer relationship management.
Marketing organisations carry out marketing control, both operating control and strategic control. They use marketing audits to determine marketing opportunities and problems and to recommend short-term and long- term actions to improve overall marketing performance.
Marketing managers must ensure that their market- ing budget is being well spent. Today’s marketers face growing pressures to show that they are adding value in line with their costs. In response, marketers are develop- ing better measures of return on marketing. Increasingly, they are using customer-centred measures of marketing impact as a key input into their strategic decision making.
NOTES AND REFERENCES
1 ‘BT Group Annual Report and Form 20-F: 2010’, available from www.bt.com, accessed 18 April 2011; ‘British Telecommunications plc A: The Strategic Dilemma’ and ‘British Telecommunications B: Tomorrow the World?’, case studies 1 and 2 in Contemporary Strategic Marketing, by Ross Brennan, Paul Baines, Paul Garneau and Lynn Vos (Basing- stoke: Palgrave Macmillan, 2008); additional material from https://www.globalservices .bt.com, accessed 1 May 2011.
2 For a more detailed discussion of corporate- and business-level strategic planning as they apply to marketing, see Ross Brennan, Paul Baines, Paul Garneau and Lynn Vos, Contemporary Strategic Marketing, 2nd edn (Basingstoke: Palgrave Macmillan, 2008).
3 See Forest David and Fred David, ‘It’s Time to Redraft Your Mission Statement’, Journal of Business Strategy, January/February 2003, pp. 11–15; ‘Crafting Mission Statements’, Association Management, January 2004, p. 23; and Charles N. Toftoy and Joydeep Chart- terjee, ‘Mission Statements and the Small Business’, Business Strategy Review, Autumn 2004, pp. 41–4.
4 http://www.wagggs.org/en/about/About
5 Monsanto Company: http://www.monsanto.com/whoweare/pages/default.aspx, accessed May 2014.
NAVIGATING THE KEY TERMS
Business portfolio 48 Diversification 51 Downsizing 51
Growth–share matrix 49 Market development 51 Market penetration 51 Market positioning 57 Market segment 56 Market segmentation 56
Marketing audit 65 Marketing control 64
Marketing implementation 61 Marketing mix 57
Marketing strategy 55 Mission statement 44 Portfolio analysis 48 Product development 51
Product–market expansion grid 50
Return on marketing (or marketing ROI) 65
Strategic planning 43 SWOT analysis 59 Target marketing 56 Value chain 52
Value-delivery network 53
6 For a general description of the concepts one can go to http://www.bcg.com/about_bcg/
vision/our_heritage/history/history_1968.aspx (December 2014). For more on strategic planning, see Dennis Rheault, ‘Freshening Up Strategic Planning: More than Fill-in-the- Blanks’, Journal of Business Strategy, 24(6), 2004, pp. 33–7; Anthony Lavia, ‘Strategic Planning in Times of Turmoil’, Business Communications Review, March 2004, pp.
56–60; Rita Gunther McGrath and Ian C. MacMillan, ‘Market Busting’, Harvard Busi- ness Review, March 2005, pp. 80–9.
7 H. Igor Ansoff, ‘Strategies for Diversification’, Harvard Business Review, September–
October 1957, pp. 113–24; also see Kevin Lane Keller, Strategic Brand Management, 2nd edn (Upper Saddle River, NJ: Prentice Hall, 2003), pp. 576–8; and Philip Kotler and Kevin Lane Keller, Marketing Management (Upper Saddle River, NJ: Pearson Education, 2011), pp. 47–8.
8 Information about Under Armour in this section is from Stephanie N. Metha, ‘Under Armour Reboots,’ Fortune, 2 February 2009, pp. 29–34; Elaine Wong, ‘Under Armour Makes Long-Run Calculation’, Brandweek, 19 January 2009, p. 28; Liz Farmer, ‘Baltimore-Based Under Armour Says Revenue Will Be Lower’, Daily Record (Baltimore), 15 January 2009; Farmer, ‘This Super Bowl Weekend, Baltimore-Based Under Armour Taking Grass Roots Marketing Approach’, Daily Record (Baltimore), 30 January 2009;
‘Under Armour Reports 20% Top-Line Growth for the Full Year with 3% Growth for the Fourth Quarter’, Under Armour press release, 29 January 2009, accessed at http://investor .underarmour.com; and Under Armour annual reports and other documents accessed at www.underarmour.com, April 2009.
9 Michael E. Porter, Competitive Advantage: Creating and Sustaining Superior Performance (New York: Free Press, 1985); and Michel E. Porter, ‘What is Strategy?’, Harvard Business Review, November–December 1996, pp. 61–78. See also Kim B. Clark, et al., Harvard Busi- ness School on Managing the Value Chain (Boston, MA: Harvard Business School Press, 2000); ‘Buyer Value and the Value Chain’, Business Owner, September–October 2003, p. 1;
and ‘The Value Chain,’ accessed at www.quickmba.com/strategy/value-chain/, July 2005.
10 Philip Kotler, Kotler on Marketing (New York: Free Press, 1999), pp. 20–2. See also Philip Kotler, Marketing Insights from A to Z (Hoboken, NJ: Wiley, 2003), pp. 102–7.
11 Rebecca Ellinor, ‘Crowd Pleaser’, Supply Management, 13 December 2007, pp. 26–29; and information from www.loreal.com/_en/_ww/html/suppliers/index.aspx, accessed August 2009.
12 Jack Trout, ‘Branding Can’t Exist without Positioning’, Advertising Age, 14 March 2005, p. 28.
13 The four Ps classification was first suggested by E. Jerome McCarthy, Basic Marketing: A Managerial Approach (Homewood, IL: Irwin, 1960). For the 4Cs, other proposed classifi- cations and more discussion, see Robert Lauterborn, ‘New Marketing Litany: 4P’s Passé;
C-Words Take Over’, Advertising Age, 1 October 1990, p. 26; Elliott Ettenberg, ‘Goodbye 4Ps, Hello 4Rs’, Marketing Magazine, 14 April 2003, p. 8; Michael R. Hyman, ‘Revising the Structural Framework for Marketing Management’, Journal of Business Research, September 2004, p. 923; and Don E. Schultz, ‘New Definition of Marketing Reinforces Idea of Integration’, Marketing News, 15 January 2005, p. 8.
14 For more on brand and product management, see Keller, Strategic Brand Management, 2nd edn, op. cit.
15 For details, see Kotler and Keller, Marketing Management, 12th edn, pp. 719–25. Also see Neil A. Morgan, Bruce H. Clark and Rich Gooner, ‘Marketing Productivity, Market- ing Audits, and Systems for Marketing Performance Assessment: Integrating Multiple Perspectives’, Journal of Marketing, May 2002, pp. 363–75.
16 Diane Brady, ‘Making Marketing Measure Up’, Business Week, 13 December 2004, pp. 112–13; and ‘Kotler Readies World for One-on-One’, Point, June 2005, p. 3.
17 Mark McMaster, ‘ROI: More Vital than Ever’, Sales & Marketing Management, January 2002, pp. 51–2. Also see Paul Hyde, Ed Landry and Andrew Tipping, ‘Are CMOs Irrelevant?’ Association of National Advertisers/Booz, Allen, Hamilton white paper, p. 4, accessed at http://www.strategyand.pwc.com/media/uploads/Are_CMOs_Irrelevant .pdf, December 2014.
18 For a full discussion of this model and details on customer-centred measures of return on marketing, see Roland T. Rust, Katherine N. Lemon and Valerie A. Zeithaml, ‘Return on Marketing: Using Customer Equity to Focus Marketing Strategy’, Journal of Marketing, January 2004, pp. 109–27; and Roland T. Rust, Katherine N. Lemon and Das Narayandas, Customer Equity Management (Upper Saddle River, NJ: Prentice Hall, 2005).
19 Mark McMaster, ‘ROI: More Vital than Ever’, Sales & Marketing Management, January 2002, pp. 51–2. Also see Steven H. Seggie, Erin Cavusgil and Steven Phelan, ‘Measure- ment of Return on Marketing Investment: A Conceptual Framework and the Future of Marketing Metrics’, Industrial Marketing Management, August 2007, pp. 834–41; and David Armano, ‘The New Focus Group: The Collective’, BusinessWeek Online, 8 January 2009, accessed at www.businessweek.com
20 For more discussion, see Bruce H. Clark, Andrew V. Abela and Tim Ambler, ‘Behind the Wheel’, Marketing Management, May–June 2006, pp. 19–23; Christopher Hosford, ‘Driv- ing Business with Dashboards’, BtoB, 11 December 2006, p. 18; Allison Enwright, ‘Meas- ure Up: Create a ROMI Dashboard That Shows Current and Future Value’, Marketing News, 15 August 2007, pp. 12–13; and Lawrence A. Crosby, Bruce A. Corner and Cheryl G. Rieger, ‘Breaking Up Should Be Hard to Do’, Marketing Management, January/Feb- ruary 2009, pp. 14–16; James D. Lenskold, ‘Marketing ROI: Playing to Win’, Marketing Management, May–June 2002, pp. 30–6. Also see James D. Lenskold, Marketing ROI:
The Path to Campaign, Customer, and Corporate Profitability (New York: McGraw-Hill, 2003); and Rishad Tobaccowala, ‘The High Cost of Arrogance and the Need to Focus on Outputs’, Point, May 2005, p. 6.