THE MARKETING AUDIT PROCESS

How is a marketing Audit conducted? We recommend that the following simple three-step procedure be followed when carrying out a marketing audit.

Figure 1: Steps in a Marketing Audit

1. Setting the Objectives and Scope

The first step calls for a meeting between the student (the auditor) and a company officer(s) to e plore the nature of the marketing operations and the potential !alue of the marketing audit. "f the company officer is con!inced of the potential benefits of the marketing audit# he and the auditor (student) will then work an agreement on the ob$ecti!es# co!erage# depth# data sources# report format# and the time period of the audit. A %uestionnaire co!ering the entire scope will then be de!eloped ready for the ne t stage

2. Gathering the Data

The bulk of an auditor&s time is spent in gathering data. Although we talk of a single auditor# an auditing team is usually in!ol!ed when the pro$ect is large. A detailed plan as to who is to be inter!iewed# by whom# the %uestions to be asked# the time and place of contact# and so on# ha!e to be carefully prepared so that auditing time and cost are kept to a minimum. 'aily reports of the inter!iews are to be written up and re!iewed so that the indi!idual or team can spot new areas re%uiring e ploration while data are still being gathered.

The cardinal rule in data collection is not to rely solely for data and opinion on those being audited. (ustomers often turn out to be the key group to inter!iew. )any companies do not really understand how their customers see them and their competitors# nor do they fully understand customer needs.

3. Preparing and Presenting the Report

The marketing auditor (or student) will be de!eloping tentati!e conclusions as the data comes in. "t is a sound procedure for him to meet once or twice with the company officer before the data collection ends to outline some initial findings to see what reactions and suggestions they produce. When the data gathering phase is o!er# the student*marketing auditor may need to prepare notes for a !isual and !erbal presentation to the company officer or the small group with whom he*she worked. The presentation will largely consist of restating the ob$ecti!es# showing the main findings# and presenting the ma$or recommendations. Then# the student*auditor is ready to write the final report (si page analysis)# which is largely a matter of putting the !isual and !erbal material into a good written communication. "n some cases the company officer(s) will ask the student*auditor to present the report to other groups in the company. "f the report calls for deep debate and action# the !arious groups hearing the report should organise into subcommittees to do follow-up work with another meeting to take place some weeks later. The most !aluable part of the marketing audit often lies not so much in the auditor&s specific recommendations but in the process that the managers of the company begin to go through to assimilate# debate# and de!elop their own concept of the needed marketing action.

MARKETING AUDIT PROCEDURE FOR AN INSIDE AUDIT (ompanies that conduct internal marketing audits show interesting !ariations from the procedures $ust outlined. "nternational Telephone and Telegraph# for e ample# has a history of forming corporate teams and sending them into weak di!isions to do a complete business audit# with a hea!y emphasis on the marketing component. +ome teams stay on the $ob# often taking o!er the management. ,eneral -lectric&s corporate consulting di!ision offers help to !arious di!isions on their marketing problems. .ne of its ser!ices is a marketing audit in the sense of a broad# independent# systematic look at the marketing picture in a di!ision. Howe!er# the corporate consulting di!ision gets few re%uests for a marketing audit as such. )ost of the re%uests are for specific marketing studies or problem-sol!ing assistance.

COMPONENTS OF T E MARKETING AUDIT The si components and their logical diagnostic se%uence are discussed below. The ma$or auditing %uestions connected with these components are gathered in Appendi A at the end of this lesson. Marketing Environment Audit

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/y marketing en!ironment# we mean both the macro-en!ironment surrounding the industry and the task en!ironment in which the organisation intimately operates. The macro-en!ironment consists of the large scale forces and factors influencing the company&s future o!er which the company has !ery little control. These forces are normally di!ided into economic-demographic factors# technological factors# politicallegal factors# and social-cultural factors. The marketing auditor&s task is to assess the key trends and their implications for company marketing action. Howe!er# if the company has a good long-range forecasting department# then there is less need of need for a macro-en!ironment audit. The marketing auditor may play a more critical role in auditing the company&s task en!ironment. task en!ironment consists of markets# customers# competitors# distributors and dealers# suppliers# marketing facilitators. The marketing auditor can make a contribution by going out into the field inter!iewing !arious parties to assess their current thinking and attitudes and bringing them to attention of management. Marketing Strategy Audit The marketing auditor then proceeds to consider whether the company&s marketing strategy is wellpostured in the light of the opportunities and problems facing the company. The starting point for the marketing strategy audit is the corporate goals and ob$ecti!es followed by the marketing ob$ecti!es. The auditor may find the ob$ecti!es to be poorly stated# or he may find them to be well-stated but inappropriate gi!en the company&s resources and opportunities. 0or e ample# a chemical company had set a sales growth ob$ecti!e for a particular product line at 12 per cent. Howe!er# the total market showed no growth and competition was fierce. Here the auditor %uestioned the basic sales growth ob$ecti!e for that product line. He proposed that the product line be reconsidered for a maintenance or har!est ob$ecti!e at best and that the company should look for growth elsewhere. -!en when a growth ob$ecti!e is warranted# the auditor will want to consider whether management has chosen the best strategy to achie!e that growth. Marketing Organisation Audit A complete marketing audit would ha!e to co!er the %uestion of the effecti!eness of the marketing and sales organisation# as well as the %uality of interaction between marketing and other key management functions such as manufacturing# finance# purchasing# and research and de!elopment. At critical times# a company&s marketing organisation must be re!ised to achie!e greater effecti!eness within the company and in the marketplace. (ompanies without product management systems will want to consider introducing them3 companies with these systems may want to consider dropping them# or trying product teams instead. (ompanies may want to redefine the role concept of the product manager from being a promotional manager (concerned primarily with !olume) to a business manager (concerned primarily with profit). There is the issue of whether decision-making responsibility should be mo!ed up from the brand le!el to the product le!el. There is the perennial %uestion of how to make the organisation more market-responsi!e including the possibility of replacing product di!isions with marketcentred di!isions. 0inally# sales organisations often do not fully understand marketing. "n the other words of one !ice-president of marketing3 4it takes about fi!e years for us to train sales managers.5 The and and the

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Marketing Systems Audit A full marketing audit then turns to e amine the !arious systems being used by marketing management to gather information# plan# and control the marketing operation. The issue is not the company&s marketing strategy or organisation per se but rather the procedures used in some or all of the following systems3 sales forecasting# sales goal and %uota setting# marketing planning# marketing control# in!entory control# order processing# physical distribution# new product de!elopment# and product pruning. The marketing audit may re!eal that marketing is being carried on without ade%uate systems of planning# implementation# and control. An audit of a consumer products di!ision of a large company re!ealed that decisions about which products to carry and which to eliminate were made by the head of the di!ision on the basis of his intuiti!e feeling with little information or analysis to guide the decisions. The auditor recommended the introduction of a new product screening system for new products and an impro!ed sales control system for e isting products. He also obser!ed that the di!ision prepared budgets but did not carry out formal marketing planning and hardly any research into the market. He recommended that the di!ision establish a formal marketing planning system as possible. Marketing Productivity Audit A full marketing audit also includes an effort to e amine key accounting data to determine where the company is making its real profits and what# if any# marketing costs could be trimmed. 'ecision +ciences (orporation starts its marketing audit by looking at the accounting figures on sales and associated costs of sales. 6sing marketing cost accounting principles# it seeks to measure marginal profit contribution of different products# end user segments# marketing channels# and sales territories. We might argue that the firm&s own controller or accountant should do the $ob of pro!iding management with the results of marketing cost analysis. A handful of firms ha!e created the position of marketing controllers who report to financial controllers and spend their time looking at the producti!ity and !alidity of !arious marketing costs. Where an organisation is doing a good $ob of marketing cost analysis# it does not need a marketing auditor to study the same. /ut most companies do not do careful marketing cost analysis. Here a marketing auditor can pay his way by simply e posing certain economic and cost relations which indicate waste or conceal une ploited marketing opportunities. 7ero-based budgeting is another tool for in!estigating and impro!ing marketing producti!ity. "n normal budgeting# top management allots to each business unit a percentage increase (decrease) of what it got last time. The %uestion is not raised whether that basic budget le!el is still makes sense. The manager of an operation should be asked what he would basically need if he started his operation from scratch and what it would cost. What he need ne t and what it cost? "n this way# a budget is built from the ground up reflecting the true needs of the operation. When this was applied to a technical sales group within a large industrial goods company# it became clear that the company had three or four e tra technical salesmen on its payroll. The manager admitted to the redundancy but argued that if a business upturn came# these men would be needed to tap the potential. "n the meantime# they were carried on the payroll for two years in the e pectation of a business upturn. Marketing Function Audit

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The work done to this point might begin to point to certain key marketing functions which are performing poorly. The auditor might spot# for e ample# sales force problems that go !ery deep. .r he might obser!e that ad!ertising budgets are in an arbitrary fashion and such things as ad!ertising themes# media# and timing are not e!aluated for their effecti!eness. "n these and other cases# the issue becomes one of notifying management of the desirability of one or more marketing function audits if management agrees. hich !ompanies !an "ene#it Most #rom a Marketing Audit$ All companies can benefit from a competent audit of their marketing operations. Howe!er# a marketing audit is likely to yield the highest payoff in the following companies and situations3

Production-Oriented and Technical-Oriented Companies. )any manufacturing companies ha!e their start in a lo!e affair with a certain product. 0urther products are added that appeal to the technical interests of management# usually with insufficient attention paid to their market potential. The feeling in these companies is that marketing is paid to sell what the company decides to make. After some failures with its 4better mousetraps#5 management starts getting interested in shifting to a market orientation. /ut this calls for more than a simple declaration by top management to study and ser!e the customer&s needs. "t calls for a great number of organisational and attitudinal changes that must be introduced carefully and con!incingly. An auditor can perform an important ser!ice in recognising that a company&s problem lies in its production orientation# and in guiding management toward a market orientation. Troubled Divisions. )ulti-di!ision companies usually ha!e some troubled di!isions. Top management may decide to use an auditor to assess the situation in a troubled di!ision rather than rely solely on the di!ision management&s interpretation of the problem. High Performing Divisions. )ulti-di!ision companies might want an audit of their top dollar di!isions to make sure that they are reaching their highest potential# and are not on a !erge of a sudden re!ersal. +uch an audit may also yield insights into how to impro!e marketing in their di!isions. Young Companies. )arketing audits of emerging small companies or young di!isions of large companies can help to lay down a solid marketing approach at a time when management faces a great degree of market ine perience. Non- profit Organisations. Administrators of colleges# museums# hospitals# social agencies# and churches are beginning to think in marketing terms# and the marketing audit can ser!e a useful educational as well as diagnostic purpose.

!"at are t"e pr#$%e&s and Pit'a%%s #' Marketing Audits( While the foregoing has stressed the positi!e aspects of marketing audits and their utility in a !ariety of situations# it is important to note some of the problems and pitfalls of the marketing audit process. 8roblems occur in the ob$ecti!e-setting step# the data collection step# or the report presentation step. Setting O$)e*ti+es When the marketing audit effort is being designed by the auditor and the company officer who commissioned the audit# se!eral problems will be encountered. 0or one thing# the ob$ecti!es set for the audit are based upon the company officer&s and the auditor&s best a priori notions of what the key problem areas are for the audit to highlight. Howe!er# new problem areas may emerge once the auditor

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begins to learn more about the company. The original set of ob$ecti!es should not constrain the auditor from shifting his priorities of in!estigation. +imilarly# it may be necessary for the auditor to use different sources of information than en!isioned at the start of the audit. "n some cases this may be because some information sources he had counted on became una!ailable. "n one marketing audit# the auditor had planned to speak to a sample of customers for the company&s electro-mechanical de!ices# but the company officer who hired him would not permit him to do so. "n other cases# a !aluable new source of information may arise that was not recognised at the start of the audit. 0or e ample# the auditor for an air brake system manufacturer found as a !aluable source of market intelligence a long-established manufacturers& representati!es firm that approached the company after the audit had begun. Another consideration at the ob$ecti!e-setting stage of the audit is that the management most affected by the audit must ha!e full knowledge of the purposes and scope of the audit. Audits go much more smoothly when the e ecuti!e who calls in the auditor either brings the affected management into the design stage# or at least has a general introductory meeting where the auditor e plains his procedures and answers %uestions from the people in the affected business. Data C#%%e*ti#n 'espite reassurances by the auditor and the e ecuti!e who brought him in# there will still be some managers in the affected business who will feel threatened by the auditor. The auditor must e pect this# and realise that an indi!idual&s fears and biases may colour his statements in an inter!iew. 0rom the onset of the audit# the auditor must guarantee and maintain confidentiality of each indi!idual&s comments. "n many audits# personnel in the company will see the audit as a !ehicle for unloading their negati!e feelings about the company or other indi!iduals. The auditor can learn a lot from the comments# but he must protect the indi!iduals who make them. The auditor must %uestion inter!iewees in a highly professional manner to build their confidence in him# or else they will not be entirely honest in their statements. Another area of concern during the information collection step is the degree to which the company e ecuti!e who brought in the auditor will try to guide the audit. "t will be necessary for this officer and the auditor to strike the balance in which the e ecuti!e pro!ides some direction# but not too much. While o!er-control is the more likely e cess of the e ecuti!e# it is possible to under-control. When the auditor and the company e ecuti!e do not ha!e open and fre%uent lines of communication during the audit# it is possible that the auditor may place more emphasis on some areas and less on others than the e ecuti!e might ha!e desired. Therefore# it is the responsibility of both the auditor and the e ecuti!e who brought him in to communicate fre%uently during the audit. Rep#rt Presentati#n .ne of the biggest problems in marketing auditing is that the e ecuti!e who brings in the auditor# or the people in the business being audited# may ha!e higher e pectations about what the audit will do for the company than the actual report seems to offer. "n only the most e treme circumstances will the auditor de!elop surprising panaceas or propose startling new opportunities for the company. )ore likely# the main !alue of his report will be that it places priorities on ideas and directions for the company# many of which ha!e already been considered by some people within the audited organisation. "n most successful audits# the auditor# in his recommendations# makes a skilful combination of his general and technical marketing background (e.g.# designs of salesman&s compensation systems# his ability to measure the si9e

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and potential of markets) with some opportunistic ideas that people in the audited organisation ha!e already considered# but do not know how much importance to place upon them. Howe!er# it is only in the company&s implementation of the recommendations that the payoff to the company will come. Another problem at the conclusion of the audit stems from the fact that most audits seem to result in organisational changes. .rganisational changes are common outcome because the audit usually identifies new tasks to be accomplished and new tasks demand people to do them. .ne thing the auditor and the e ecuti!e who brought him in must recognise# howe!er# is that organisational promotions and demotions are e clusi!ely the e ecuti!e&s decision. "t is the e ecuti!e who has to li!e with the changes once the auditor has gone# not the auditor. Therefore# the e ecuti!e should not be lulled into thinking that organisational mo!es are any easier because the auditor may ha!e recommended them. The final problem# and this is one facing the auditor# is that important parts of an audit may be implemented incorrectly or not implemented at all# by the e ecuti!e who commissioned the audit. :onimplementation of key parts of the audit undermines the whole effecti!eness of the audit. S#mmar(

The marketing audit is one important answer to the problem of e!aluating the marketing performance of a company or one of its business units. )arketing audits are distinguished from other marketing e ercises in being comprehensive, independent, s stematic, and periodic. A full marketing audit would co!er the company&s (or di!ision&s) e ternal en!ironment# ob$ecti!es# strategies# organisation# systems# and functions. "f the audit co!ers only one function# such as sales management or ad!ertising# it is best described as a marketing function audit rather than a marketing audit. "f the e ercise is to sol!e a current problem# such as entering a market# setting a price# or de!eloping a package# then it is not an audit at all. The marketing audit is carried out in three steps3 de!eloping an agreement as to ob$ecti!es and scope3 collecting the data3 and presenting the report. The audit can be performed by a competent outside consultant or by a company auditing office at head%uarters. The possible findings of an audit include detecting unclear or inappropriate marketing ob$ecti!es# inappropriate strategies# inappropriate le!els of marketing e penditures# needed impro!ements in organisation# and needed impro!ements in systems for marketing information# planning and control. (ompanies that are most likely to benefit from marketing audit include production-oriented companies# companies with troubled or highly !ulnerable di!isions# young companies# and non-profit organisations. )any companies today are finding that their premises for marketing strategy are growing obsolete in the face of a rapidly changing en!ironment. This is happening to company giants such as ,eneral )otors and +ears as well as smaller firms that ha!e not pro!ided a mechanism for recycling their marketing strategy. The marketing audit is not the full answer to marketing strategy recycling but does offer one ma$or mechanism# for pursuing this desirable and necessary task.

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T"e Marketing En+ir#n&ent Audit Macro%Environment !conomic-Demographic 1. What does the company e pect in the way of inflation# material shortages# unemployment# and credit a!ailability in the short run# intermediate run# and long run? ;. What effect will forecasted trends in the si9e# age distribution# and regional distribution of population ha!e on the business? Technolog 1. What ma$or changes are occurring in the product technology? "n process technology? ;. What are the ma$or generic substitutes that might replace this product? Political-"egal 1. What laws are being proposed that may affect marketing strategy and tactics? ;. What federal# state# and local agency actions should be watched? What is happening in the areas of pollution control# e%ual employment opportunity# product safety# ad!ertising# price control# etc.# that is rele!ant to marketing planning? #ocial-Cultural 1. What attitudes is the public taking toward business and toward products such as those produced by the company? ;. What changes are occurring in consumer life styles and !alues that ha!e a bearing on the company&s target markets and marketing methods? &ask Environment $ar%ets 1. What is happening to market si9e# growth# geographical distribution# and profits? ;. What are the ma$or market segments? What are their e pected rates of growth? Which are high opportunity and low opportunity segments? Customers 1. How do current customers and prospects rate the company and its competitors# particularly with respect to reputation# product %uality# ser!ice# sales force# and price? ;. How do different classes of customers make their buying decisions? <. What are the e!ol!ing needs and satisfactions being sought by the buyers in this market? Competitors 1. Who are the ma$or competitors? What are the ob$ecti!es and strategy of each ma$or competitor? What are their strengths and weaknesses? What are the si9es and trends in market shares? ;. What trends can be seen in future competition and substitutes for this product? Distribution and Dealers 1. What are the main trade channels bringing products to customers?

;. What are the efficiency le!els and growth potentials of different trade channels? #uppliers 1. What is the outlook for the a!ailability of different key resources used in production? ;. What trends are occurring among suppliers in their pattern of selling? &acilitators 1. What is the outlook for ;. What is the outlook for <. What is the outlook for =. How effecti!ely is the agency ser!ices? the cost and a!ailability of transportation ser!ices? the cost and a!ailability of warehousing facilities? the cost and a!ailability of financial resources? ad!ertising agency performing? What trends are occurring in ad!ertising

Marketing Strateg, Audit $ar%eting ob'ectives 1. Are the corporate ob$ecti!es clearly stated and do they lead logically to the marketing ob$ecti!es? ;. Are the marketing ob$ecti!es stated in a clear form to guide marketing to guide marketing planning and subse%uent performance measurement? <. Are the marketing ob$ecti!es appropriate# gi!en the company&s competiti!e position# resources# and opportunities? "s the appropriate strategic ob$ecti!e to build# hold har!est# or terminate this business? #trateg 1. What is the core marketing strategy for achie!ing ob$ecti!es? "s it a sound marketing strategy? 2. Are enough resources (or too many resources) budgeted to accomplish the marketing ob$ecti!es? <. Are the marketing resources allocated optimally to prime market segments# territories# and products of the organisation? =. Are the marketing resources allocated optimally to the ma$or elements of the marketing mi i.e.# product %uality# ser!ice# sales force# ad!ertising# promotion# and distribution? Marketing Organisati#n Audit &ormal #tructure 1. "s there a high le!el marketing officer with ade%uate authority and responsibility o!er those company acti!ities that affect the customer&s satisfaction? ;. Are the marketing responsibilities optimally structured along functional# product# end user# and territorial lines? &unctional !fficienc 1. Are there good communication and working relations between marketing and sales? ;. "s the product management system working effecti!ely? Are product managers able to plan profits or only sales !olume? <. Are there any groups in marketing that need more training# moti!ation# super!ision# or e!aluation? (nterface !fficienc 1. Are there any problems between marketing and manufacturing that need attention? ;. What about marketing and >?'? <. What about marketing and financial management?

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=. What about marketing and purchasing? Marketing S,ste&s Audit $ar%eting (nformation # stem 1. "s the marketing intelligence system producing accurate# sufficient# and timely information about de!elopments in the marketplace? ;. "s marketing research being ade%uately used by company decision makers? $ar%eting Planning # stem 1. "s the marketing planning system well-concei!ed and effecti!e? ;. "s sales forecasting and market potential measurement soundly carried out? <. Are sales %uotas set on a proper basis? $ar%eting Control # stem 1. Are the control procedures (monthly# %uarterly# etc.) ade%uate to ensure that the annual plan ob$ecti!es are being achie!ed? ;. "s pro!ision made to analyse periodically the profitability of different products# markets# territories# and channels of distribution? <. "s pro!ision made to e amine and !alidate periodically !arious marketing costs? Ne) Product Development # stem 1. "s the company well-organised to gather# generate# and screen new product ideas? ;. 'oes the company do ade%uate concept research and business analysis before in!esting hea!ily in a new idea? <. 'oes the company carry out ade%uate product and market testing before launching a new product? Marketing Pr#du*ti+it, Audit Profitabilit *nal sis 1. What is the profitability of the company&s different products# ser!ed markets# territories# and channels of distribution? ;. +hould the company enter# e pand# contract# or withdraw from any business segments and what would be the short- and long-run profit conse%uences? Cost-!ffectiveness *nal sis 1. 'o any marketing acti!ities seem to ha!e e cessi!e costs? Are these costs !alid? (an cost-reducing steps be taken? Marketing Fun*ti#n Audits Products 1. What are the product line ob$ecti!es? Are these ob$ecti!es sound? "s the current product line meeting these ob$ecti!es? ;. Are there particular products that should be phased out? <. Are there new products that are worth adding? =. Are any products able to benefit from %uality# feature# or style impro!ements? Price

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1. What are the pricing ob$ecti!es# policies# strategies# and procedures? To what e tent are prices set on sound cost# demand# and competiti!e criteria? ;. 'o the customers see the company&s prices as being in line or out of line with the percei!ed !alue of its offer? <. 'oes the company use price promotions effecti!ely? Distribution 1. What are the distribution ob$ecti!es and strategies? ;. "s there ade%uate market co!erage and ser!ice? <. +hould the company consider changing its degree of reliance on distributors# sales representati!es and direct selling? #ales &orce 1. What are the organisation&s sales force ob$ecti!es? ;. "s the sales force large enough to accomplish the company&s ob$ecti!es? <. "s the sales force organised along proper principle(s) of specialisation (territory# market# or product)? %. 'oes the sale force show high morale# ability# and effort? Are they sufficiently trained and incenti!i9ed? 2. Are the procedures ade%uate for setting %uotas and e!aluating performance? @. How is the company&s sales force percei!ed in relation to competitors& sales forces? *dvertising, Promotion, and Publicit 1. What is the organisation&s ad!ertising ob$ecti!es? Are they sound? ;. "s the right amount being spent on ad!ertising? How is the budget determined? <. Are the ad themes and copy effecti!e? What do customers and the public think about the ad!ertising? =. Are the ad!ertising media well chosen? 2. "s sales promotion used effecti!ely? @. "s there a well-concei!ed publicity program?

+eference, Aotler# 8.# ,regor# W. and >odgers# W. (Winter 1BCC)# )arketing Audit (omes of Age# +loan )anagement >e!iew.

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