Is Marketing Successful? – It depends what you measure.

Many Marketers see their objective as being to maximize sales, using every means available.  For this they invest in advertising, market research, sales incentives, discounts and competitive pricing. All these are valid marketing tools which are proven in increasing sales and maintaining product and market share. If marketers only measure their increase in sales as an indication of their performance, they need also to be aware and account for the costs incurred in increased sales.

Some years ago, a well known manufacturer of vacuum cleaners launched a promotion which gave free airline tickets to every purchaser of a particular vacuum cleaner. The promotion was a great success. Sales of vacuum cleaners rocketed. Unfortunately, due to some error in the wording of the air ticket offer, the company was obliged to redeem every customer’s ticket claim. The result was that while sales of vacuum cleaners rose substantially, the total cost for redeeming the airline tickets exceeded the sales revenue derived from the promotion. Not only that, the order for vacuum cleaners had increased so much that additional production had to be made at extra cost to meet the demand. It was also found that because the value of the air tickets outweighed the price of the vacuum cleaner, many customers were buying vacuum cleaners as a source of discounted air tickets, before dumping them onto the second hand market, damaging future sales.

Measured on unit sales and increased revenue the promotion had been a major marketing success. However, looked at more closely, the marketing contribution to the business was an expensive disaster. Why? Because the sales revenue generated was less than the marketing costs involved in terms of the total cost of air tickets supplied, but also because of the additional variable production costs incurred when striving to meet the additional demand, as a direct result of Marketing’s activity. In addition there was considerable negative publicity due to customers’ problems in obtaining their promotional tickets that damaged the company’s reputation and image.

The job of the chief marketing executive (CME) is to maximize profitable revenue while minimizing costs and the use of assets.  Marketing performance may be summed up in two principle indicators; the Optimum Marketing Performance (OMP) and Marketing Contribution. The OMP expresses the overall marketing performance by directly relating revenue with marketing investment, while Marketing Contribution, expresses marketing output as the derived from the revenue generated less the direct and indirect costs incurred by marketing activity.

Marketing on its own does not make the profit for a business. All the elements of the business, finance, production, supply, and personnel, directly or indirectly contribute to overall profit. Only marketing provides the source of profitable revenue. However, the illustration of the vacuum cleaner promotion shows that the successful efforts to generate sales revenue, if not thought through carefully can impinge on other areas of the business, creating variable and unforeseen costs outside the marketing area. Any marketing action which results in additional costs in areas outside marketing, is a cost against the marketing budget, and will reduce the value of the overall marketing contribution.

To ensure the efficient planned use of investment and resources, the CME requires a detailed marketing plan to meet the quantified objectives of the business, and ME performs as closely as possible to it. Under performance means that the objectives of the marketing plan will not be achieved and the planned contribution to the overall business plan will not be met. However, over performance while apparently beneficial, means that additional resources particularly financial may be required to meet unplanned requirement. Such situations can produce unplanned costs and reduced profitability, and in extreme cases to situations of overtrading. It is Marketing’s job to plan correctly and to work to ensure that results remain within acceptable limits of the plan.

Successful performance by the marketing function does not guarantee net profit for the business. It is quite possible for other areas in the business, such as finance, production, supply or personnel to turn the profitable revenue and the potential gross profit generated by marketing, into a business net loss. But it is the CMO’s responsibility to ensure any unforeseen costs incurred by other departments are not as a result of Marketing’s activities.

 Marketers must also be aware of and understand the necessary support of the other business activities, as well as the effects and consequences of its actions on them. For marketing to function in satisfying customer demand profitably, it requires funds from the finance department, the provision of a product or service, and personnel able to carry out the marketing activities. All the business functions are interdependent with the ultimate purpose of making profits for the business.

Although there are many and varied measures of aspects of marketing performance, only the values of Marketing Contribution and the Optimum Marketing Performance give a clear measurement of marketing success. However to get a true picture of performance, both these indicators must be viewed in context of other management indicators from elsewhere in the business and not in isolation.

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© N.C.Watkis, Contract Marketing Service 12 Jan 07

Contract Marketing Service, (Specialists in Measuring Marketing Performance and Return on Marketing Investment.)

www.contractmarketingservice.com

www.businessperformancemaximized.com