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Market-Based
Management, 4th
edition
Marketing Performance and
Marketing Profitability
Chapter Two
Marketing Performance and
Marketing Profitability
Chapter Two
– Financial vs. Market-Based Performance
– Marketing Performance Metrics
– Marketing Profitability
– Strategies to Increase Marketing Profitability
– Marketing Profitability Metrics
2-2
Financial Vs. Market-Based
Performance
• 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
2-3
Financial Vs. Market-Based
Performance Metrics
2-4
In-Process vs. End-Result
Performance Metrics
2-5
Marketing 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)
2-6
Marketing Profitability
Product Focus
﹣
NMC
(P1)
[
=
Market
Demand
X
Market
Share
X
(
Price
per Unit
-
Variable Cost
per Unit
)]
-
Marketing
Expenses
2-7
Marketing Profitability
Customer Focus
6.23%
1,302,000
$55.1
210,000
$95.31
$37.8
$124.7
$60.75
$34.56
2-8
Marketing Strategies and
Marketing Profitability
Strategies to
Grow Market
Demand
NMC
=
(P1)
[
Market
Strategies to
Increase
Market Size
Market
X
X
Demand
Share
Strategies to
Enter or Exit
Markets
(
Rev per
Customer
Strategies to
Increase
Purchases
-
Strategies to
lower VC per
Customer
VC per
Customer
)]
-
Marketing
Expenses
Strategies to
increase
Market
Efficiency
2-9
Marketing Profitability
Metrics
• Marketing ROI
– Why is it important?
• Assess marketing
productivity of
investment
– How is it measured?
• Marketing ROS
– Why is it important?
• Benchmarking
– How is it measured?
• NMC/Sales Revenues
• NMC/M&S Expenses
2-10
Return on Capital and
Marketing Productivity
2-11
Takeaways/Review
• Financial and Market-Based Performance Evaluation
• Marketing Profitability and Measurement
• Impact of Basic Marketing Strategies
• Marketing Productivity Metrics
• Exercises
– Marketing Performance Tools
2-12
Marketing Performance
Tools
Marketing Profitability: A Product Focus
Product Nam e:
Casual Shorts
Casual Shorts
Casual Shorts
Current Perform ance
Alternative Strategy
Difference
20,000,000
20,000,000
0
2.0%
2.0%
0.0%
Unit Volume
400000
400000
0
Price per unit
$25.00
$25.00
0.00
$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
10.0%
10.0%
0.0%
$1,000,000
$1,000,000
0
Marketing ROS
10.0%
10.0%
0.0%
Marketing ROI
100%
100%
0.0%
Area of Perform ance
Market Demand
Market Share
Sales Revenues
Mktg & Sales Expenses (% Sales)
Net Marketing Contribution
2-13
Marketing Performance
Tools
Marketing Profitability: A Customer Focus
Market Segm ent:
Casual Shorts
Casual Shorts
Trend Setters
Current Perform ance
Alternative Strategy
Difference
8,000,000
8,000,000
0
6.0%
6.00%
0.0%
Unit Volume
480000
480000
0
Revenue per Customer
$65.00
$65.00
0.00
$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
14.4%
14.4%
0.0%
$7,500,000
$7,500,000
0
Marketing ROS
24.0%
24.0%
0.0%
Marketing ROI
167%
167%
0.0%
Area of Perform ance
Market Demand (customers)
Market Share
Sales Revenues
Mktg & Sales Expenses (% Sales)
Net Marketing Contribution
2-14