Hewlettpackard

Each division of Hewlett-Packard evaluates Its performance on a pustomer-basEd storecard Ihat monitors IE to 20 "business fundamentals." Some., stich as customer satisfaction and on-time delivery, are rated for all divisions; other indicators are tracked according to tue nature of the division's business. Tbe company is thus able lo gauge Itie effects of its marketing strategies on sales and profits and ta identity areas where :m pigments in performance can leac to improved quantitative results.30

Measuring Marketing Plan Performance

Marketers today have better marketing metritis for measuring the performance of marketing plans.-11 They can use four tools to Check on plan performance: sales analysis, market share analysis, marketing expense-to-sales analysis, aiul financial analysis,

Sales analysis consists of measuring and evaluating actual sales in relation to «oak. P.VO specific tools Sie used in sales analysis.

Sales-variance analysts measures the relative contribution of different factors to a gap in sates performance. Suppose the annual plan called for selling S4.ÜCK) widgets in the first quarterat SI per widget, for total revenue of $4,000, At quarters end, only 3.000 widgets were sold at 5.ÉÎO per widget, for total revenue of $.2.-100. Mow much of the sales performance is due to the price decline and how much I o the volume decline? The following calculation answers this question:

Variance due to price decline - (S1JOO- Î.«J) (3,000) = S 600 37.5% Vanante due to mJurrit? decline = (Si .00) t4.MQ-3.00Q) =- Si .ÛD0 62 5%

Almost two-thirds of the variance ts due to failure to achieve the volume target. The company should look closely at why it failed to achieve expected sales volume.

Mic rosales analysis looks al specific products, territories, and so forth that fa il Lid to produce expected sales. Suppose the company sells in three territories and expected sales were 1,500 units, SQO units, and 2,<J00 units, respectively. The actual sales volume w:ix I..¡00 units, üííí nntis, and 1.075 units, respectively, Thus territory I showed a 7 percent shortfall i tí terms of expected sales; lerrllorv 2, a !» percent improvement over expectations; and territory 3, a ■1(5 percent Shortfall! Territory 3 is causing most of the trouble. 1 lie sale s vice president needs i o check into terri tory 3: Maybe territory 3'ssiilcs rep is underpcrforming: a major competitor has entered this territory; or business is in a recession i it this territory.

Company sales do not reveal how well the company is performing relative to competitors. For this purpose, management needs to track its market share.

Market share + ¡111 lu- measured in diree ivaym Ovcrall market share is thecompany's ^nli-s cxpresscd as a percentage oftotal market sales. Serwd market share ¡s ils sales expressed as a perreiuajjeof the lotul sales io lis served market. Its served market ¡s ail the buyers ivho are aille and willing io buy fis produci. Served tnarkct sIibïc is always larger thitn WeraU market share. a coinpany cou(d capture percent ni ¡es- servçd market and vet have a relativelv small share ol" the total niarkel. Relative market share Catt bt expres sed as market stttre in relation to ils larges! coinpelltttr. A relative market share ovet ionpercent indicatesamarket leader \ relativemarket shareofexactiy 10lt percent menus lhat the contpany is lied fur the le ad. A lise in rcl^ive market share encans a company is gftiiiirigon ils leadingcompetiUW,

Conclusions from market share analysls, hpWcver, ai e subject (n certain qualifications:

|/ir npitimptioii rhat outside fortes offert itl! compatîtes ht the samt n'fjj1 is nften not tnte. t he U .S. Surgeon Générais Report oit thehannftil fcfansoquenees of cigarette smoking caUsed total cigarette sales to lai ht. hut not cqtiaily for ail corn pan ¡es.

Tfie rjssnmptio'i t N j « f e ri cohi/juji/S performance sJionfrf l>e Jnrlged ngniust lUe fiiwnflfje yji'ijfiriiîrfiire ofall rompantes is not alivavs ralitt. A CO'mpany s performance s hou kl t>i -jutiged agalnst the performance of ils closesi compenitors.

If ri newftrm witi'is the htdustty, then every etclstlngfîrnii market siwre miglitfall. \ décliné In market share might not mcan ibat the cortipany is performing any wnrse thau oiher eompanies. Share loss dépends on ihe degrec to which [lie new t'irui Iriiï the Company s spécifié market s.

.Soniefimes A iiirtr+ei s/ntre dechne ts ifefifïerRfWy eiigïrree«îii t-o ïnrproee profits. lr«r exaniple, mariage niçrpi niighi drop unpnifitable eostoniers or products.

Market share eau ftucttia&for tttany ntUtor reastnt*- for example, it can lie affectcd by whfrthêr a large sale occurs on the las t dny of the month or at the bcginniiig of die nexi m on th. Not ail shifts in market share have marketing signiK^canjee.^

A usefol way to aitàlyzc market share nioveirients is in ternisof four en ni pone ni s:

Qv$iïM - Ciistofiiër y Custo/ner Çusltunef X Price tnarite) pcfielrstion loyaily sslectivity $s!ectivity

Slwe tvliere:

Custotm (œitiitfaHon: Qëicetitage ol ait cvstàmets rM buy troni me

Çustofiwr toyafiy: putEhase$ from company by its CustOfms expretsed as a purcenuige o< iïsir total purctwsss trom ail soiipliers ol tne producls. Çusim$r sFtocMG»: $<ie at tftfjver$g$ ctistam pufchase fmi tfà cofnpany expresse as âpercentageirftpâ sue of f/ie Jferaïîi custmef piircltass from an awaçe cflrrwiîiiy.

Price stf&fotif. ôv&ctgè price ùîarg&f bytiie compaRy etytfôsefJ& a percentaqe ol ifl? nvrage [¡rte çbntged ty ail eorrifrinies.

Moiv suppose ihcciirnpany'stkillar market share falls durin^ ihe perioti. '['lté overall market share equEition provides fout possible expia nations; The cornpany Tosi sotne of its eits-tomers (lowcr customeT pcnetraiion); exlsiingcuslomers are buyinR less from the cofhpany IlOlver custoinci lovai tv); the contpUny'S rei nain ing cusltuners are srn aller iti si/e (lower costumer selecliviCyj; or the çornpany's price lias slippçd relative to compétition (Irpver ptice selcctivity],

MARKETING EXPEMSG-TO-SALE5 ANALYSE Annual-plan control requircs making sure thaï the company i^ not overspending to achieve sales goals. The key ralio to wfltch is )!iarki,ih){>i'.viN')ist'-iir-s(tles. tu oiie eotnpany, liiis ratio was.'td pensent and eonsisted office comMnent expense-to-sïlles ratio*; sales force*t0-sales 1. [¡5 percent}; advfcftising^-salos (iî percent); sales promotion-to-sales (fi percent); marketing rescarch-to-sales (i percent); and sales adin1niscrntion*t0-sfiles Ct percent).

Management neeiis to monilor tiiesi1 ratios, ri ne l Initions outside [fie normal range are cause li»r concem. The period-lo-perlori fluctuations in cach ratio can be tracked on a (set: I:iguïB 4.2j.This chart shows'that the advenisitig expe use-to-sa les ralio nortnally lluctuares tietween ft and 12 percent, sa y oui of l^P times. In tlic lift cent h perfod, hûwcver, the ratio exceedcd the upper control Ijmlt. Oneof two hypothèses can

CONDUCTING MARKETING -IlSEARCH AND FORECASTING DEMAND CHAPTER A

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