Metrics for Measuring Performance

PPT13S.Venkat

Discussion Question

1. Planning and implementation are important, but results are what count.

So, what kinds of systems should marketing managers put into place to ensure that planned results are actually delivered? What’s their purpose?

• Systems needed to ensure results• Strategic Control System

• What’s its purpose?• To track relevant changes in the market and

competitive environment that might require changes in the firm’s strategies

• Strategic Control (Monitoring) System• What are some questions that such a system should ask

regularly?• What changes in the environment have positively or

negatively affected the current strategy?• What changes have major competitors made in their

objectives and strategies?• What changes have occurred in the industry in such

attributes as capacity, entry barriers, substitute products?• What new opportunities or threats have derived from

changes in the environment, competitors’ strategies, or the nature of the industry?

• What changes have occurred in the industry’s key success factors?

• To what extent is the firm’s current strategy consistent with the preceding changes?

• Systems needed to ensure results• Marketing Performance Control System

• What’s its purpose?• To track the degree to which planned marketing

performance is delivered

The Control Process (Exhibit 13.2.)

Setting standards of performance

Specifying the necessary feedback data

Obtaining the needed control data

Evaluating feedback data -- explaining gapbetween actual and given standards of performance

Taking corrective action

• Setting performance standards– SMART– Profitability analysis is used at all levels• Single most important measure of performance• Limitations–Many objectives are nonfinancial– Short-term measure that might be manipulated by

taking action detrimental in the long-term– Can be affected by uncontrollable factors

Four Key Questions For Designing Control Systems to Manage Marketing

Performance• Q1: Who needs what information?• Q2: When and how often is it needed?• Q3: In what media and in what formats

should it be provided?• Q4: What contingencies should be planned

for?

Let’s examine each of these questions.

Discussion Question

Q1: The heart of the control system: who needs what information?

Discussion Question

• In most organizations, what sort of information is needed about marketing performance?

• What marketing performance info is needed?• Sales: Just total sales in the aggregate?

• No!• Sales by territory, by product, by customer and

customer type, by distribution channel, by order size, and so on.

• Why is sales analysis, which breaks sales into its component parts, important?

• Breaking down sales into its component parts is central to understanding and responding to changing market demand

• What kinds of marketing decisions might be made as a result of such analyses?

• Change product assortment, change prices, change promotional budgets, change distribution. In other words, all of the 4Ps may change as a result of information produced by the control system.

• What other marketing information should be tracked and analyzed?

• Gross and contribution margins, broken down the same ways sales are broken down

• Marketing expenses against budget and as a percentage of sales: what kinds of expenses? • Product development expenses and product costs• Advertising and sales promotion expenses and their relationship to sales• Personal selling expenses and their relationship to sales

Discussion Question

• In most organizations,who needs information about marketing performance?

• Who needs sales, margin, and expense data?• Top and middle management• Production, procurement• Finance• Marketing managers

• Do they all need the same information, at the same level of detail, with the same frequency? – No.

Discussion Question

• Q2: When and how often is the information needed?

• Does timeliness matter? Why?• Can be a source of competitive advantage

• But what’s the tradeoff?• The tradeoff is between more detailed

information, delivered sooner, on one hand, and information overload on the other. Spending money to provide more information than people can use wastes both time and money.

Discussion Question

• Q3: In what media and in what formats should information be provided?

• What sort of information might the company where you work need in print form? Electronically, on a computer terminal?

• What sort is needed remotely, in the field?• Who in your company needs what sort of

management reports, aggregated how?• What info don’t you receive, or do you receive in

a format that’s not helpful, that would help you manage better?

• Does your system of marketing metrics measure up?

Discussion Question

• Q4: What contingencies should be planned for?

• Most plans are based on sets of assumptions. Contingency plans allow for changes in those assumptions, and require that the most critical ones be monitored.– May not be too specific but lays out possible

options

The Contingency Planning Process (Exhibit 13.14)

Identifying critical assumptions about the future

Assigning probability of each critical assumption’s being right

Rank ordering of critical assumptions

Tracking/monitoring of action plan

Setting triggers to activate contingency plan

Specifying alternative response options

Discussion Questions

• Finally, what are the merits of continuous performance measurement systems versus periodic marketing audits? Are both needed? Why or why not?

• Continuous performance measurement systems • Essential for tracking day-to-day, week-to-week,

and month-to-month performance to see that planned results are actually delivered.

• Marketing audits • A control and planning activity that involves a

comprehensive review of the firm’s total marketing efforts cutting across all products and business units. They are broader in scope and cover longer time horizons than sales and profitability analysis.

• Note: Both continuous performance measurement systems and marketing audits are needed and useful. The first is needed for day-to-day evaluation, while the second is important for reviewing long-term marketing performance.

Types of Audits• Marketing environment audit• Objectives and strategy audit• Planning and control system audit• Organization audit• Marketing productivity audit• Marketing functions audit• Ethical audit• Product manager audit

Some Advice on Designing Control Systems for Managing Marketing

Performance• A well-designed control system can provide

competitive advantage. Ask yourself, “What critical data do my competitors have, and when?” Can I compete based on better or more timely information?

• “What gets measured gets done.” Measure the things you want your people to pay attention to.