Chapter 2 & 15: Marketing Metrics and Marketing Profitability

Question 1

how is financial (internal) performance evaluated?

Answer 1

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

Question 2

How is market-based (external) performance evaluated?

Answer 2

– Market & Sales Growth
– Market Share
– Customer Retention & Acquisition
– Customer Satisfaction
– Relative Product/Service Quality

Question 3

describe market metrics (what they do and examples)

Answer 3

– measures a market: current performance and profit impact
– Market growth, market share
– i.e: Relative Market Share- M.S. vs. top 3 competitors

Question 4

describe customer metrics

Answer 4

– Measures customer evaluations and perceptions
– Customer retention, satisfaction, NET Promoter
Score

Question 5

describe competitiveness metrics

Answer 5

– Performance metrics relative to benchmark
competitors
– Relative product performance, relative service
quality, relative customer value

Question 6

describe the importance of marketing performance metrics (3)

Answer 6

• Provide measures of performance
• They are correlated with long-term profitability
• They are a barometer of future financial performance

Question 7

what are some forward-looking metrics

Answer 7

– Customer Awareness
– Perceived performance
– Intent to Repurchase
– Customer Satisfaction

Question 8

What are some backwards looking metrics

Answer 8

– Market Share
– Relative market Share
– Revenue Per Customer
– Customer Retention

Question 9

_____________ metrics, in particular, provide key early warning signals

Answer 9

forward-looking metrics

Question 10

what is marketing profitability

Answer 10

Net Profit (Before Taxes)
= Sales Revenue – COGS –Operating Expenses
Or
= Sales Revenues*Percent Gross Profit – Operating Expenses

Question 11

net marketing contribution

Answer 11

sales revenue x % gross profit – marketing expenses

Question 12

marketing return on sales (ROS)

Answer 12

computes marketing profitability as a percent of sales

Marketing ROS = Net Marketing Contribution/Sales * 100%

Question 13

marketing return on investment (ROI)

Answer 13

computes marketing profitability as a percent of expenses

Marketing ROI = Net Marketing Contribution/(Marketing & Sales Expenses) * 100%

Question 14

detailed formula for net marketing contribution

Answer 14

NMC = market demand x market share x avg selling price x channel discount x percent margin – marketing budget

• thus business have many potential strategies at their disposal because they can try to influence any of these components

Question 15

The NMC of any strategy must ___________________ in order to increase net profits.

Answer 15

exceed the current NMC

Question 16

market growth strategy

Answer 16

Bringing more customers into the market while maintaining market share

Question 17

market share strategy

Answer 17

Market penetration

often used but it is dangerous and can hurt margins and cost money (NMC must exceed current NMC)

Question 18

customer revenue strategy

Answer 18

– Usually used in a mature market; focus on current customers
– Offer them new product and services (Share of Wallet)

Question 19

cost reduction strategy

Answer 19

Lower variable costs per unit (transport cost, sales commissions, new distribution strategy)

Question 20

advertising strategy

Answer 20

Using advertising to grow market share

Example of calculating break-even market share

$15.7 million NMC Traditional Buyer
= 7 million Customers * MS * $180 per Customer * 50% Channel Discount * 40% Margin – $9 million Marketing & Sales Expenses

$15.7 million = MS% * $252 million - $9 million MS% = ($15.7 million + $9 million)>$252 million Market Share (MS%)
= 9.8% Market Share
With this market share, the business makes the same marketing profit of $15.7 million.

the strategy would require a 9.8 percent mar- ket share to pay for the increase in marketing and sales expenses just to maintain the same level of marketing profit. Even achieving the goal of a 10 percent market share would provide very little incremental profit. This strategy would lower marketing profit if the market share achieved was less than 9.8 percent. The risk of not obtaining the full 10 percent share outweighs the small profit that would result.

Question 21

channel strategy

Answer 21

bypass channel intermediaries; lower channel cost

• e.g: make use of the Internet as the point of purchase, creating a direct channel strategy

Question 22

what are some benefits to benchmarking marketing profitability

Answer 22

This allows us to see Company performance when compared to competitors in their industry