Marketing Performance and

Marketing ProfitabilityChapter TwoChapter Two

MMarket-Basedarket-Based ManagementManagement, 4, 4thth editionedition

2-2

Marketing Performance and Marketing Performance and Marketing ProfitabilityMarketing Profitability

Chapter Two

– Financial vs. Market-Based Performance

– Marketing Performance Metrics

– Marketing Profitability

– Strategies to Increase Marketing Profitability

– Marketing Profitability Metrics

2-3

Financial Vs. Market-Based Financial Vs. Market-Based PerformancePerformance

• Financial (Internal) Performance

– Why is it important?– How is it evaluated?

• Sales Revenues• Return on Sales• Gross and Net Profit• Assets• Return on Assets

• Market-Based (External) Performance

– Why is it important?• Strategy Implementation• Profitability• Marketing Effectiveness• Leading Indicators

– How is it evaluated? • Market and Sales Growth• Market Share• Customer Retention and

Acquisition• Customer Satisfaction• Relative Product/Service

Quality

2-4

Financial Vs. Market-Based Financial Vs. Market-Based Performance MetricsPerformance Metrics

2-5

In-Process vs. End-Result In-Process vs. End-Result Performance MetricsPerformance Metrics

2-6

Marketing ProfitabilityMarketing Profitability

• What is marketing profitability?– Net Marketing Contribution

(NMC)

• How is it measured? – Gross Profit – M&S Expenses – Sales Revenue X % Gross

Margin – M&S Expense

• Product vs. Customer focus

Hypothetical Financials

Sales Revenues $10 Million

COGS $8 Million

Gross Profit$2 Million

Marketing and Sales Expenses

$1 Million

NMC $1 Million

Operating Expenses

$2 Million

Net Profit ($1Million)

2-7

[ ( )]

Marketing ProfitabilityMarketing ProfitabilityProduct FocusProduct Focus

NMC Market Market Price Variable Cost Marketing

(P1) Demand Share per Unit per Unit Expenses = X X - -

﹣﹣

2-8

Marketing ProfitabilityMarketing ProfitabilityCustomer FocusCustomer Focus

$55.1$55.1

210,000210,000

$37.8$37.8

6.23%6.23%

1,302,0001,302,000

$95.31$95.31

$124.7$124.7

$60.75$60.75

$34.56$34.56

2-9

[ ( )] NMC Market Market Rev per VC per Marketing

(P1) Demand Share Customer Customer Expenses = X X - -

Strategies to increase Market

Efficiency

Marketing Strategies and Marketing Strategies and Marketing ProfitabilityMarketing Profitability

Strategies to Grow Market

Demand

Strategies to Increase

Market Size

Strategies to Increase

Purchases

Strategies to Enter or Exit

Markets

Strategies to lower VC per

Customer

2-10

Marketing Profitability MetricsMarketing Profitability Metrics

• Marketing ROS– Why is it important?

• Benchmarking

– How is it measured?• NMC/Sales Revenues

• Marketing ROI– Why is it important?

• Assess marketing productivity of investment

– How is it measured?• NMC/M&S Expenses

2-11

Return on Capital and Return on Capital and Marketing ProductivityMarketing Productivity

2-12

TakeawaysTakeaways//ReviewReview

• Financial and Market-Based Performance Evaluation

• Marketing Profitability and Measurement

• Impact of Basic Marketing Strategies

• Marketing Productivity Metrics

• Exercises– Marketing Performance Tools

2-13

Marketing Performance ToolsMarketing Performance Tools

Marketing Profitability: A Product Focus

Product Name: Casual Shorts Casual Shorts Casual Shorts

Area of Performance Current Performance Alternative Strategy Difference

Market Demand 20,000,000 20,000,000 0

Market Share 2.0% 2.0% 0.0%

Unit Volume 400000 400000 0

Price per unit $25.00 $25.00 0.00

Sales Revenues $10,000,000 $10,000,000 0

Cost per unit $20.00 $20.00 0.00

Margin per unit $5.00 $5.00 0.00

Gross Profit $2,000,000 $2,000,000 0

Marketing & Sales Expenses $1,000,000 $1,000,000 0

Mktg & Sales Expenses (% Sales) 10.0% 10.0% 0.0%

Net Marketing Contribution $1,000,000 $1,000,000 0

Marketing ROS 10.0% 10.0% 0.0%

Marketing ROI 100% 100% 0.0%

2-14

Marketing Performance ToolsMarketing Performance Tools

Marketing Profitability: A Customer Focus

Market Segment: Casual Shorts Casual Shorts Trend Setters

Area of Performance Current Performance Alternative Strategy Difference

Market Demand (customers) 8,000,000 8,000,000 0

Market Share 6.0% 6.00% 0.0%

Unit Volume 480000 480000 0

Revenue per Customer $65.00 $65.00 0.00

Sales Revenues $31,200,000 $31,200,000 0

Average Cost per Customer $40.00 $40.00 0.00

Margin per unit $25.00 $25.00 0.00

Gross Profit $12,000,000 $12,000,000 0

Marketing & Sales Expenses $4,500,000 $4,500,000 0

Mktg & Sales Expenses (% Sales) 14.4% 14.4% 0.0%

Net Marketing Contribution $7,500,000 $7,500,000 0

Marketing ROS 24.0% 24.0% 0.0%

Marketing ROI 167% 167% 0.0%