Management Control Systems (2nd Edition)

Marketing Control : Overview

Marketing profitability is the profitability achieved through the performance of marketing activities and is calculated based on the investment made in these activities. Some of the techniques used for profitability control are Strategic Profit Model, segment margin report, and activity based costing.

Efficiency control is more of a quantitative control and deals with the efficiency with which the marketing activities are directed toward the achievement of the goals of the marketing function. Here, the controls mainly focus on the sales volume, the sales generated by each salesperson, number of accounts handled by each salesperson, etc. Effectiveness control, on the other hand, is qualitative in nature and aims at improving the effectiveness of the marketing activities. The marketing effectiveness of any organization is reflected through its market share, profitability, customer satisfaction, etc. It is not easy to audit, measure, or control. It depends on attributes like customer philosophy, marketing orientation, information about marketing, strategic orientation, and operational efficiency of the organization.

Functional management audit of the marketing function is referred to as marketing audit. It is used as a communication tool, an analytical framework to help take decisions, and for framing policies. Marketing audit can be of two types: external - the factors audited are external to the organization and cannot be controlled; and internal - the factors audited are internal to the organization and can be controlled.

A marketing audit is a detailed and systematic analysis. It helps the senior management to identify the strengths and weaknesses of their organization, along with the opportunities and threats in the marketplace. An effective marketing audit is systematic, comprehensive, independent, and periodic. The audit is conducted in three stages: extensive analysis of the present and past marketing activities of the organization, forecast of the organization's growth relative to the changing market conditions, and suggestions for improving the quality of plans and the marketing performance.

Sales control is a major component of marketing control and involves the control of the sales function as a whole and the sales force in particular. Sales control includes sales budgets, sales quotas, reporting, credit control, performance evaluation and performance-based compensation, and sales force automation.

There are different types of sales budgets - sales revenue budgets, selling-expense budgets, and selling department administrative budgets. A rolling budget provides for an additional time period apart from the actual budget period. Flexible budgets allow managers to revise and update the targets set at the beginning of the budget period.

Selling expense budgets can be developed using different methods like the affordability method, the percentage-of-sales method, the competitive parity method, the objective-and-task method, and the return-oriented method. Budgeting establishes the objectives and responsibilities of all departments and employees and in turn facilitates performance evaluation and control. Budgets are used for achieving coordination between different business segments that they have and for evaluating the performance of those segments. They are also used as controlling tools to ensure that performance does not deviate significantly from the plan.

Quotas are quantitative sales goals assigned to salespeople for a given time period; the quotas could be specified in terms of sales volume or value, profit, expenses, or activities. Sales quotas can be set not only for individual salespersons but also for a sales team or a territory. Sales quotas are used to specify performance targets and standards, communicate change of direction, and motivate the sales force.

Sales analysis involves gathering, classifying, and studying the sales data of an organization. It is one of the means by which an organization can analyze its performance and it helps sales managers to plan and direct the sales efforts. It helps the organization in the overall management of its operations. Marketing cost analysis helps an organization to identify opportunities to increase the effectiveness of its marketing expenditure. The different types of analysis used are - sales variance analysis, market share analysis, and marketing expense-to-sales variance analysis.

Sales reporting is used as a method of tracking and monitoring the performance of the sales force. Information on sales, expenses, sales personnel performance, etc., is collected through a formal reporting system. The two primary types of sales reports are - sales and expense reports and other reports. The sales and expense reports are used by the sales management as an evaluation tool of actual performances. The other reports include sales forecasts and other inputs for planning.

The credit control mechanism involves two steps: analyzing the accounts receivables which helps in finding out why some of the debts have gone bad and also the amount and type of receivables; and credit rating of customers and channel members. Not having a proper credit policy in place will affect the profitability of the organization. Performance evaluation is a formal and planned system for measuring and evaluating the performance of salespersons. Performance evaluation is generally used to assess the performance of a salesperson; it can also be used as a tool by the management to motivate him/her.

Sales force compensation is used as way of controlling the sales force and is often dependent on the sales volume generated. Sales force compensation is generally made up of two components: salary and incentives. There are various factors and situations to be considered to decide when the incentives component should be more and when the salary component should be higher.

Sales force management audit is a cross-functional exercise that evaluates the entire selling operation of an organization. A sales force management audit involves evaluation of the sales management environment (both extra-organizational and intra-organizational), sales management planning system, sales management organization, and sales management functions Distribution control involves channel integration, channel management, evaluating channel performance, and managing channel conflicts. Channel integration can be achieved in two ways - through vertical marketing systems and horizontal marketing systems. Channel management helps organizations reduce costs, reach potential customers, and make profits. It involves four steps - selection and recruitment of channel members, motivating channel members, evaluating the performance of channel members, and modifying the existing channel arrangements to suit the market changes.

Evaluation is done at both the macro-level and the micro-level. At the macro-level, the societal contributions made by the intermediaries are assessed in terms of channel efficiency, productivity, effectiveness, and equity. The objectives of performance management at the micro-level are profitability, goal attainment, pattern maintenance, integration, and adaptation.

Channel conflicts can arise from either structural causes or attitudinal causes. The commonly used conflict resolution strategies are - negotiation and bargaining, problem-solving strategies, persuasion, political strategies, and co-optation. Apart from sales control, marketing communications control includes control of advertising, sales promotion, direct marketing, public relations, and brand management. Advertising effectiveness can be measured through copy testing or message testing and by monitoring recognition, recall, persuasion (attitude change), and purchase behavior. The effectiveness of Internet advertising can be measured by considering four aspects - the purpose of the advertisement, the value of the intended outcome, the number of times the purpose was fulfilled, and the cost incurred on advertising.

The effectiveness of sales promotions can be measured in two ways - direct evaluation and indirect evaluation. In direct evaluation, the sales volume is used as the parameter for measurement, whereas in indirect evaluation, indicators of sales are used as the parameters. Direct marketing involves direct communication with customers to obtain an immediate and measurable response. The steps in direct marketing are developing the framework for the direct marketing campaign; developing the direct marketing campaign; implementing the campaign; and evaluating the campaign. Evaluation of the campaign is done through evaluation of response and profitability. Response needs to be evaluated both qualitatively and quantitatively. Profitability analysis is done by assessing the costs incurred by and the profits generated for the organization.

Public relations (PR) is defined as any effort or measure undertaken to promote a strong image of an organization or its products in the minds of the public. PR measurement and evaluation involve assessment of the success or failure of PR strategies, activities, and tactics in producing the desired outputs, outtakes, and outcomes.

Brand equity can be understood in terms of three underlying concepts: brand assets, brand strength, and brand value. Brand measurement, which is used to evaluate the brand equity of a brand, includes perception measurement, performance measurement, and financial measurement. A balanced scorecard for the brand helps the organization to measure important behavioral dynamics and compare the position of its brands against the competitors. This helps in checking the strengths and weaknesses of the brand and, in turn, helps the organization in strategic marketing and investment planning.

Brand portfolio management is an important activity for organizations. It can be done through brand audit, which helps organizations to rationalize the number of brands in their brand portfolio to achieve better profitability. The Marketing Decision Support System (MDSS) is a set of decision models with supporting hardware and software available to marketing managers to assist them in analyzing relevant business data and making better marketing decisions.

Marketing intelligence offers managers with updated and precise information which helps them to devise and execute strategies that can help the organization increase its competitive advantage. It helps organizations assess the contribution of marketing activities to the profits of the organization and also monitor the performance of the sales force.

Sales force automation helps in improving the relationships with the customers, and monitoring the activities of the sales force. It helps in standardization of processes and procedures that are used in business. Sales force automation can be used for surveillance and control and also to increase the accountability of the salespeople. Some of the ways in which automation is achieved are through mobile CRM and enterprise-wide applications.

Chapter 10 : Overview