Annual Plan Control

The purpose of annual-plan control is to ensure that the company achieves the sales, profits, and other goals established in its annual plan. The heart of annual-plan control is the four-step management by objectives process in which management (1) sets monthly or quarterly goals; (2) monitors the company's marketplace performance; (3) determines the causes of serious performance deviations; and (4) takes corrective action to close the gaps between goals and performance.

This control model applies to all levels of the organization. Top management sets sales and profit goals for the year that are elaborated into specific goals for each lower level. In turn, each product manager commits to attaining specified levels of sales and costs; each regional district and sales manager and each sales representative also commits to specific goals. Each period, top management reviews and interprets performance results at all levels, using these five tools:

^ Sales analysis. Sales analysis consists of measuring and evaluating actual sales in relation to goals, using two specific tools. Sales-variance analysis measures the relative contribution of different factors to a gap in sales performance. Microsales analysis looks at specific products, territories, and other elements that failed to produce expected sales. The point of these analyses is to determine what factors (pricing, lower volume, specific territories, etc.) contributed to a failure to meet sales goals.

^ Market-share analysis. Company sales do not reveal how well the company is performing relative to competitors. To do this, management needs to track its market share. Overall market share is the company's sales expressed as a percentage

Table 1.1 Types of Marketing Control

Type of Control

Prime Responsibility

Purpose of Control

Approaches

I. Annual-plan control

Top management

To examine whether

■ Sales analysis

Middle management

the planned results

■ Market-share

are being achieved

analysis

■ Marketing expense-

to-sales analysis

■ Financial analysis

■ Market-based

scorecard analysis

II. Profitability control

Marketing

To examine where the

Profitability by:

controller

company is making

■ product

and losing money

■ territory

■ customer

■ segment

■ trade channel

■ order size

III. Efficiency control

Line and staff

To evaluate and

Efficiency of:

management

improve the spending

■ sales force

Marketing

efficiency and impact

■ advertising

controller

of marketing

■ sales promotion

expenditures

■ distribution

IV. Strategic control

Top management

To examine whether

■ Marketiing-

Marketing auditor

the company is

effectiveness review

pursuing its best

■ Marketing audit

opportunities in

■ Marketing

markets, products, and

excellence review

channels

■ Company ethical

and social

responsibility review

of total market sales. Served market share is its sales expressed as a percentage of the total sales to its served market—all of the buyers who are able and willing to buy the product. Relative market share can be expressed as market share in relation to the largest competitor; a rise in relative market share means a company is gaining on its leading competitor. A useful way to analyze market-share movements is in terms of customer penetration, customer loyalty, customer selectivity, and price selectivity.

^ Marketing expense-to-sales analysis. This is a key ratio because it allows management to be sure that the company is not overspending to achieve sales goals. Minor fluctuations in the expense-to-sales ratio can be ignored, but major fluctuations are cause for concern.

^ Financial analysis. Management uses financial analysis to identify the factors that affect the company's rate of return on net worth2 The main factors are shown in Figure 1-10, along with illustrative numbers for a large chain-store retailer. To improve its return on net worth, the company must increase its ratio of net profits to its assets or increase the ratio of its assets to its net worth. The company should analyze the composition of its assets (i.e., cash, accounts receivable, inventory, and plant and equipment) and see if it can improve its asset management.30 ^ Market-based scorecard analysis. Companies should also prepare two market-based scorecards that reflect performance and provide possible early warning signals of problems. A customerperformance scorecard records how well the company is doing on such customer-based measures as new customers, dissatisfied customers, lost customers, target market awareness, target market preference, relative product quality, and relative service quality. A stakeholder-performance scorecard tracks the satisfaction of constituencies who have a critical interest in and impact on the company's performance: employees, suppliers, banks, distributors, retailers, and stockholders.31

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