Managing Markets Strategically: Professor Noel Capon

www.axcesscapon.com www.wileyindia.
com
© Noel Capon and Siddharth Shekhar Singh, 2014. All rights reserved. PRESENTATION 22 OF 24 / 1
Managing Markets Strategically

Professor Noel Capon
R.C. Kopf Professor of International Marketing
Columbia Business School
New York, NY, U.S.A.
&
Professor Siddharth Shekhar Singh
Director Fellow Programme in Management & Associate Professor of Marketing
Indian School of Business
Hyderabad & Mohali, India
www.axcesscapon.com www.wileyindia.com Managing Markets Strategically
Section I: Marketing and the Firm

Section II: Fundamental Insights for Strategic Marketing
Section III: Strategic Marketing
Section IV: Implementing the Market Strategy
Chapter 22: Monitoring and Controlling
Firm Functioning and Performance
Section V: Special Marketing Topics
www.axcesscapon.com www.wileyindia.com
CHAPTER 22
Monitoring and Controlling

Firm Functioning and
Performance
www.axcesscapon.com www.wileyindia.com The Fundamental Business Model
Shareholder Value
Organizational Survival and Growth
Current and Potential Profits

Competitors
Attract, Retain, and Grow Customers
Competitors
Customer Value
Company
www.axcesscapon.com www.wileyindia.com Six Marketing Imperatives
• Imperative 1: Determine and recommend which markets to address

• Imperative 2: Identify and target market segments
• Imperative 3: Set strategic direction and positioning
• Imperative 4: Design the market offer
• Imperative 5: Secure support from other functions
• Imperative 6: Monitor and control
www.axcesscapon.com www.wileyindia.com Firm Functioning and Performance
Session Roadmap
• Principles of Monitor and Control
• The Monitor and Control Process
• Types of Control
Session Roadmap
www.axcesscapon.com www.wileyindia.com Principles of Monitor and Control
• Focus on market levers and develop alternative plans

• Implement steering control versus post-action control
• Use the right performance measures at the right organizational levels …
but
• Don’t forget the iceberg principle
• Model the relationship among control measures: input, intermediate, and
output
• Tie compensation to performance
Steering Control and Post-Action Control
plan
actual
Performance
Start End
Time
plan
actual
Post-action
control
Performance
Start End
Time
plan
actual
Performance
Steering
control
Start End
Time
plan
actual
Performance
Steering
control
Start End
Time
The Iceberg Principle
1/7
Waterline Above the surface
Below the surface
6/7
The Iceberg Principle: Illustration – National Sales Force

Relationships Among Control Measures
Intermediate
Input Measures Output Measures
Measures
• Customer behavior
• Customer mental
states
Session Roadmap
www.axcesscapon.com www.wileyindia.com The Monitor and Control Process
Putting It All Together

1
Identify the 2
process to Decide
control and define
measures
8 3
Generate and Develop a
evaluate 9 measurement
alternatives Select system
alternative and
take action
7
Understand and
communicate
performance gaps 4
Set standards
6
Compare results Operating
against standards;
Period
identify gaps and 5
variances Measure results
Session Roadmap
• Firm performance
• Firm functioning
www.axcesscapon.com www.wileyindia.com Types of Control
Firm Functioning Firm Performance
Intermediate
Measures
www.axcesscapon.com www.wileyindia.com Types of Control – Firm Performance
Types of Output Measures

• Hard output measures – internal
• sales volume (units/revenues)
• product profitability
• customer profitability
• Hard output measures – external
• Soft output measures
• Hard and soft output measures
Sales Volume Types

• Continuous
episodic
• Periodic
episodic
• Episodic Performance
periodic
continuous
Time
Sales Revenues: Actual versus Standard

Sales Volume Measures: Cautions

• Revenues versus units
• Sales quality
• Accuracy and consistency of measures
Product Profitability (Rs lakh)
Product X Product Y Product Z Total
Sales revenues Rs 4,330 Rs 6,400 Rs 7,001 Rs 17,731
Less cost of goods sold 3,175 4,120 5,213 12,508
Gross margin 1,155 2,260 1,788 5,223
Less other operating costs 4,023
Net profit 1,200

Alternative Product Profitability Measures

• Gross margin
• Contribution
• Sales revenues less variable costs
• Direct product profit
• Contribution less direct fixed costs
• ROS and ROI
• ROS = Profit/Sales
• ROI = Profit/Investment
• ROI = Profit/Sales x Sales/Investment
• ROI = ROS x Investment Turnover
Customer Profitability (Rs lakh)

Customer* A Customer* B Customer* C Total
Sales revenues Rs 9,380 Rs 4,351 Rs 4,000 Rs 17,731
Less cost of goods sold 4,452 4,353 3,703 12,508
Gross margin 4,928 (2) 297 5,223
Less other operating costs
Sales force 425 225 225 875
Field service 224 325 224 773
Technical assistance 285 285 380 950
Order processing 275 162.5 112.5 550
Delivery 437 233 205 875
Other operating costs 1,646 1,230.5 1,146.5 4,023
Net profit 3,282 (1,232.5) (849.5) 1,200
*Instead of customer, the column headings could equally well be market segments or distribution channels.

• market share
• relative market share
• market occupancy ratio
Measure Calculation Information Provided

Market position versus all
Market share (MS) (%) Firm sales/sales of all competitors
competitors
Relative market share Firm sales/sales of major Market position versus major
(RMS) (%) competitor(s) competitor(s)
Market occupancy ratio Number of firm customers/ Firm fraction of potential
(MOR) (%) Total number of customers customers

• customer satisfaction
• Net Promoter Score (NPS)
• Burke’s Secure Customer Index
Net Promoter Score

Single Question
“How likely is it that you would recommend XXXX to a friend or colleague?”
Scale
“0 = not at all likely; 10 = extremely likely
Scale
Net Promoter Score = Percent of customers scoring 9 or 10 (promoters)
minus
Percent of customers scoring 0 to 6 (detractors)
Burke’s Secure Customer Index

• Five questions
• overall customer satisfaction with the firm
• likelihood of repeat business for the firm
• likelihood to recommend the firm to others
• preference for the firm versus others
• extent to which the firm has earned loyalty
• Scale
• 1 = disagree completely; 5 = agree completely

• brand health check
Brand Health Check

Type of Measure Measure Description of Measure
Purchasing and sales Market breadth Number and type of customers purchasing the brand
Market depth Extent of repeat purchase
Market share Brand sales as a percentage of total market sales (units and/or dollars)
Perceptual Awareness Degree of brand awareness
Brand image Brand associations, congruence with brand identity
Quality Perception of brand quality (from blind tests)
Uniqueness Extent of differentiation from competition
Value Extent to which the brand provides good value for money
Marketing support Market share/advertising share
Advertising
Advertising/total marketing spend
Extent of distribution coverage in target outlets
Distribution
For retail goods, quality of display, especially key accounts
Relative price Price compared to competitive brands
Profitability Gross margin earned from the brand
Profit
Economic value added (EVA) of the brand
Session Roadmap
• Firm performance
• Firm functioning
www.axcesscapon.com www.wileyindia.com Types of Control – Firm Functioning
Firm Performance
Firm Functioning
• Implementation: Is the firm doing what it said it would do?
• Strategy: Is the firm’s strategy well-conceived and on target?
• Managerial processes: Are the firm’s systems and processes the best
they can be?
• marketing audit
• balanced scorecard
Implementation
Firm Functioning Firm Performance
Intermediate
Measures
Input Measures – Sales Force: Illustration

Measure Measure Focus
Implementation of sales planning system Ensure sales force plans time allocations
New product knowledge training Ensure sales force is competent to sell new products
Sales calls per day Ensure sales force is working hard
Sales calls on new accounts Ensure sales force spends time with target accounts
Sales territories vacant Ensure sales managers plan for attrition
Total expenses Manage sales force discretionary costs
Input Measures – New Product Development: Illustration

Measure Measure Focus
Qualified new product ideas generated Creativity is generating high-quality ideas
New concepts tested Success in developing new ideas
Licenses/technology purchases checked out Success in looking outside the firm
Products completing beta tests Success in moving ideas through the new product
development system
Test markets conducted Success in developing products for market readiness
New products launched Entire new product development process
Intermediate Measures – Sales Force: Illustration

Measure Rationale
Commitments to co-op advertising Customers place resources at risk and make best efforts
Customer’s subjective impression of salesperson interaction –
Indicator of future sales
telesales
Distribution breadth Necessary step to making sales
Entry on approved supplier list Customers purchase only from approved suppliers
Factory trials agreed Trials precede purchase
Proposals accepted Necessary step to winning business
Retail displays accepted Good shelf positioning leads to sales
Intermediate Measures – Advertising: Illustration

Measure Information Provided
Awareness Degree of product/brand awareness
Liking Indicates positive feeling toward the product/brand
Interest Indicates likelihood of product/brand purchase
Product quality perception Perception of product/brand quality
Number of press mentions Indicates customer awareness
Message recall Indicates advertising effectiveness
Implementation Inertia
Distribution channels
Product strategy
Difficulty of Alternation
Pricing strategy
Sales force
Advertising
and promotion
Few Many
Years of Unchanging Successful Practice
Strategy and Implementation
Good
Strategy
Poor
Poor Good
Implementation
Managerial Processes
• Marketing audit
• definition – a comprehensive process for evaluating the firm’s marketing
practices
• topics
• typical problems
• Balanced scorecard
• Topics
• Marketing environment
• Market objectives and strategy
• Marketing implementation
• Marketing organization
• Marketing systems
• Marketing productivity
• Typical problems
• Considering marketing as the marketing department’s job
• Cutting prices rather than increasing value
• Failure to invest for the future, especially in human resources
• Failure to segment markets effectively
• Insufficient knowledge of customer attitudes and behavior
• New product development delegated to the developers
Balanced Scorecard
• Monitor and control problems addressed
• too few measures
• too many measures
• short-term focus
• post-action control philosophy
• Candidate measures
• Illustration
• Most commonly used measures
Balanced Scorecard
• financial
• customer
• internal business process
• learning and growth
• Illustration
Balanced Scorecard: Candidate Measures

Financial Internal Business Process
• Year-on-year revenue and profit growth • Percentage of customers with long-term contracts
• Sales expense as a percentage of revenues • Percentage of customers with solutions contracts
• Process improvements from collaboration – summary
billing, product development
Customer Learning and Growth

• Customer satisfaction and loyalty • Number of best practice adopters
• Access to customer at the C-level – • Improved management practices
CEO, CFO, CIO, and COO
Balanced Scorecard
• Illustration
Balanced Scorecard: Illustration – Mobil Gasoline Marketing

Perspective Weighting Objective Measure
Financial 10% Service operating efficiency Budget variance
Client 30% Evaluate organizational effectiveness Client satisfaction service agreement feedback (5-point
scale)
• Gasoline marketing • Fuels support
• Retail dealer operations • Leadership development
• Franchise re-engineering • Real estate
• Training • Strategy implementation
• Retail dealer operations
Internal 40% Excel in channel management Tracking versus channel strategy

• Retail • Wholesale • Fuels support
• Training • Real estate
Optimize sales force management Area manager development index
development
Service integration/alignment Quality service forums
Learning 20% Core competencies and skills Personnel development

and Growth • 360° feedback on all employees
• Competency plan on employees executed
Organizational involvement/ Idea generation index
scorecard understanding Quarterly climate survey
Balanced Scorecard
• Illustration
• market share – hard output measure
• customer satisfaction relative to competition – soft output measure
• customer retention versus industry averages – hard output measure
• investment as a percentage of sales (I/S ratio) – hard input measure
• employee attitudes and retention (especially customer-facing
employees) – soft and hard intermediate measures
Session Roadmap
www.axcesscapon.com www.wileyindia.com
CHAPTER 22

Firm Functioning and
Performance

Managing Markets Strategically: Professor Noel Capon

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www.axcesscapon.com www.wileyindia.

Managing Markets Strategically

Section I: Marketing and the Firm

Monitoring and Controlling

Organizational Survival and Growth

Current and Potential Profits

• Imperative 1: Determine and recommend which markets to address

• Focus on market levers and develop alternative plans

Steering Control and Post-Action Control

Steering Control and Post-Action Control

Steering Control and Post-Action Control

Steering Control and Post-Action Control

The Iceberg Principle

The Iceberg Principle: Illustration – National Sales Force

Relationships Among Control Measures

Putting It All Together

Firm Functioning Firm Performance

Types of Output Measures

Sales Volume Types

Sales Revenues: Actual versus Standard

Sales Volume Measures: Cautions

Product Profitability (Rs lakh)

Product X Product Y Product Z Total

Sales revenues Rs 4,330 Rs 6,400 Rs 7,001 Rs 17,731

Less cost of goods sold 3,175 4,120 5,213 12,508

Gross margin 1,155 2,260 1,788 5,223

Less other operating costs 4,023

Net profit 1,200

Alternative Product Profitability Measures

Customer Profitability (Rs lakh)

Types of Output Measures

Measure Calculation Information Provided

Types of Output Measures

Net Promoter Score

Burke’s Secure Customer Index

Types of Output Measures

Brand Health Check

Input Measures – Sales Force: Illustration

Input Measures – New Product Development: Illustration

Intermediate Measures – Sales Force: Illustration

Intermediate Measures – Advertising: Illustration

Strategy and Implementation

Balanced Scorecard: Candidate Measures

Customer Learning and Growth

Balanced Scorecard: Illustration – Mobil Gasoline Marketing

Internal 40% Excel in channel management Tracking versus channel strategy

Learning 20% Core competencies and skills Personnel development

Monitoring and Controlling

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