Lecture#2

Marketing auditing
and the analysis
of capability
What is a marketing audit?

McDonald (1995, p. 28) has suggested:

“The means by which a company can identify
its own strengths and weaknesses as they
relate to external opportunities and threats.
It is thus a way of helping management to
select a position in that environment based on
known factors.”
 The audit must be comprehensive, systematic,
independent and conducted on a regular basis.
 The structure and focus of the audit

In terms of its structure, the marketing audit

consists of three major and detailed
diagnostic steps. These involve a review of:
1. The organization’s environment
(opportunities and threats)
2 .Its marketing systems (strengths and
weaknesses)
3 .Its marketing activities.
The structure and focus of the audit

It should be apparent from this that, in

conducting an audit, the strategist is
concerned with two types of variable.
 First, there are the environmental or market
variables, over which the strategist has little
or no direct control.
Second, there are the operational variables,
which can be controlled to a greater or lesser
extent.
 The structure and focus of the audit

1. Macro-environmental forces (political/legal,

economic/demographic, social/cultural, and
technological) that affect the business, and
2. Micro-environmental actors (customers,
competitors, distributors and suppliers) who
subsequently influence the organization’s
ability to operate profitably in the
marketplace.
The structure and focus of the audit
The External audit covering the macro-
environmental forces referred to above and
the markets and competitors that are of
particular interest to the company.
The internal audit then builds upon this by
assessing the extent to which the
organization, its structure and resources
relate to the environment and have the
capability of operating effectively within the
constraints that the environment imposes.
Reviewing marketing effectiveness
Marketing effectiveness is determined by
the five major attributes of a marketing
orientation, namely:
1. A customer-oriented philosophy
2. An integrated marketing organization
3. Adequate marketing information
4. A strategic orientation
5. Operational efficiency.
The scoring process
The scoring process
 With a score of 10 or less major questions can be asked
about the organization‘s ability to survive in anything more
than the short term, and any serious competitive challenge
is likely to create significant problems.
 Fundamental changes are needed, both in the
management philosophy and the organizational structure.
For many organizations in this position, however, these
changes are unlikely to be brought about by the existing
management, since it is this group which has led to the
current situation. The solution may therefore lie in major
changes to the senior management.
The scoring process
 With a score of between 11 and 15 there is again a major
opportunity to improve the management philosophy and
organizational structure.
 With a score of between 16 and 25 scope for improvement
exists, although this is likely to be in terms of a series of
small changes and modifications rather than anything more
fundamental. With a score of between 26 and 30 care
needs to be taken to ensure that the proactive stance is
maintained and that complacency does not begin to
emerge.
The role of SWOT analysis
The role of SWOT analysis
The role of SWOT analysis
The role of SWOT analysis
The role of SWOT analysis
The role of SWOT analysis
Marketing Metrics

 It is the set of measures that helps firms to

quantify, compare, and interpret their
marketing performance. Marketing metrics
can be used by brand managers to design
marketing programs and by senior mgnt to
decide on financial allocations. When
marketers can estimate the dollar contribution
of marketing activities, they are better able to
justify the value of marketing investments to
senior management.
Contd….
Many marketing metrics relate to
customer-level concerns such as their
attitudes and behavior; others relate to
brand-level concerns such as market
share, relative price premium, or
profitability. Companies can also
monitor an extensive set of metrics
internal to the company. One important
set of measures relates to a firm's
innovativeness. Another key set relates
to employees.
I. External
Awareness
Market share (volume or value)
Relative price (market share
value/volume)
Number of complaints (level of
dissatisfaction)
Consumer satisfaction
Distribution/availability
Total number of customers
Perceived quality/esteem
Loyalty/retention
Relative perceived Quality
II. Internal
Awareness of goals
Commitment to goals
 Active innovation support
Resource adequacy
Staffing/skill levels
Desire to learn
Willingness to change
Freedom to fail
Autonomy
Relative employee satisfaction
Scorecard

A customer-performance scorecard
records how well the company is doing
year after year on such customer-based
measures such as %age of new
customers etc (See table on next slide).
Norms should be set for each measure,
and management should take action when
results get out of bounds.
Sample Customer-Performance Scorecard
Measures
 Percentage of new customers to average number of
customers.
 Percentage of lost customers to average number of
customers.
 Percentage of win-back customers to average
number of customers.
 Percentage of customers falling into very
dissatisfied, dissatisfied, neutral, satisfied, and very
satisfied categories.
 Percentage of customers who say they would
repurchase the product.
Sample Customer-Performance Scorecard
Measures

 Percentage of customers who say they

would recommend the product to others.
 Percentage of target market customers who
have brand awareness or recall.
 Percentage of customers who say that the
company's product is the most preferred in
its category.
 Percentage of customers who correctly
identify the brand's intended positioning and
differentiation.
 Average perception of company's product
quality relative to chief competitor.
Stakeholder-performance scorecard.

Companies need to track the

satisfaction of various constituencies
who have a critical interest in and
impact on the company's
performance: employees, suppliers,
banks, distributors, retailers,
stockholders.
Measuring Marketing Plan Performance

Sales analysis consists of measuring and

evaluating actual sales in relation to goals.
Two specific tools are used in sales
analysis.

 Sales-variance analysis
 Microsales analysis
Sales-variance analysis
 It measures the relative contribution of different
factors to a gap in sales performance.

 Suppose the annual plan called for selling $

4,000 units in the first quarter at $1 per units, for
total revenue of $4,000. At quarter's end, only
3,000 units were sold at $.80 per units, for total
revenue of $2,400. How much of the sales
performance is due to the price decline and how
much to the volume decline?
Sales-variance analysis

 Variance due to price decline = ($1.00-$.80) (3,000) = $ 600

=37.5%
 Variance due to volume decline = ($1.00) (4,000-3,000) = $1,000
=62.5%
Almost two-thirds of the variance is due to
failure to achieve the volume target. The
company should look closely at why it
failed to achieve expected sales volume.
Microsales analysis
It looks at specific products, territories, and so forth that failed to
produce expected sales.

 Suppose the company sells in three territories and expected sales

were 1,500 units, 500 units, and 2,000 units, respectively.
 The actual sales volume was 1,400 units, 525 units, and 1,075 units,
respectively.
 Territory 1 , showed a 7 percent shortfall in terms of expected
sales;
 Territory 2, a 5 percent improvement over expectations;
 Territory 3, a 46 percent shortfall!

 Territory 3 is causing most of the trouble. The sales vice president

needs to check into territory 3: Maybe territory 3's sales rep is
underperforming; a major competitor has entered this territory; or
business is in a recession in this territory.
MARKET SHARE ANALYSIS
 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 can be measured in three
ways:
1. Overall market share
2. Served market share
3. Relative market share
 Overall market share is the company's sales
expressed as a percentage of total market
sales.

 Served market share is its sales expressed

as a percentage of the total sales to its
served market. Its all the buyers who are able
and willing to buy its product.

 Relative market share can be expressed as

market share in relation to its largest
competitor. A relative highest market share
indicates a market leader.