Chapter 14 Group 6

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CHAPTER 14Aligning Performance with Marketing Strategy

Group 6A. Bramantio, A.J.K. Setiawan, D. Prasuta, I.B. Zorridy





1. Advise management on the importance of a multifunctionaleffort when attempting to align performance with marketingstrategy.

• Aligning marketing performance with marketing strategy involves deciding onappropriate ways of organizing the company’s endeavours and deciding theappropriate performance criteria.

• Involves the entire organization in a multi-functional boundary-spanning effort with a focus onthe conditions that improve performance not just the profile of the leadership of theorganization.



1. Advise management on the importance of a multifunctionaleffort when attempting to align performance with marketingstrategy.

• Crucial factors for organization alignment (multifunctional effort):• Design of the core value provision, communication and delivery used by the organization and

aligning those activities with the supporting activities such as HR, ICT, firm infrastructure, etc.



2. Assist in the implementation of a customer-orientedorganisational structure, avoiding the problems often associatedwith the separation of the front and back offices



What is customer-oriented customer structure?

• A unique, customer-oriented structure which consists of several departments which isformed by the customer groups.

• The needs arise when there are several different customers with different needs and eachpurchases a large quantity of the company’s products to warrant a separate organizationalresponse.

• Each customer segment might need different marketing mixes.• Forms:

• Domestic and international• Consumer and industrial• Etc.



What is customer-oriented customer structure?

• Objectives:• Need for integration of segments.• Create higher value in relationship with customers.

• Feature:• Separating front-end demand from the back-end supply-side.



Examples?• HP

• 2 back-end units (computer and printers)• 2 front-end units (corporate sales and consumer sales)

• ABB• Four customer segments (utilities, process industries, manufacturing, and petrochemical)• Product (technology and automation technology)



Problems in implementing customer-focused structure?• Separation of front-end and back-end

• Back-end businesses are no longer connected to customers.• Often asked to accept lower margins on the product which are usually sold as bundled offering.

• Front-end lacks the level of customization and attention required from the back-end and spendtime to resolve transfer pricing issue between the front and back-end.



How to resolve the problem?• Using market-based transfer pricing that allows front-end units to source from third

parties if necessary.• No disputes of transfer pricing between front-end and back-end.• Back-end business are not forced to lower their product margins.



3. Integrating Marketing andFinancial Criteria in Order to Assess

Marketing Performance• Measuring marketing performance means deciding appropriate measurement criteria.• Criteria used include marketing and financial measures.• Marketing measures deal with causes and include factors such as customer

satisfaction, loyalty, new product introductions, market share and sales growth.• Financial measures deal with effects and include profit, cash flow and return on

investment.





3. Integrating Marketing andFinancial Criteria in Order to Assess

Marketing Performance (cont’d)



3. Integrating Marketing andFinancial Criteria in Order to AssessMarketing Performance (cont’d)• Organizations have discovered that there are three generic ways of increasing profits.



4. Outline the importance of the netmarketing contribution concept.• By evaluating its performance against competitors and predetermined standards, the

organization normally uses external independent benchmarks.

• Net marketing contribution represents the organization’s profitability, at the level of themarket. This is driven by organization’s marketing strategy and is a measure of therevenues derived from that market segment less direct expenses associated withmarketing to and service them.



4. Outline the importance of the netmarketing contribution concept.(cont’d) • Net marketing contribution specifically excludes overhead and operating expenses

that are fixed, indirect or allocated expenses with little relation to performance inindividual markets, e.g. corporate overhead.



4. Outline the importance of the netmarketing contribution concept.(cont’d) Benefits of using the net marketing contribution approach:• It integrates internal and external information that is not dependent on complicated

and costly marketing research.• It can be targeted at key strategic areas of the business, e.g. customer groups, and

may be use din variance analysis – actual compared to plan.



4. Outline the importance of the netmarketing contribution concept.(cont’d) • Distinguishing between the customers lost and the new customers acquired during the

period is important since the profit impact of customer retention strategies is markedlydifferent from the profit impact of new customer acquisition.



4. Outline the importance of the netmarketing contribution concept.(cont’d)





Next step:• Select appropriate criteria to decide the sales level which should fall into each

category.

Organizations:• Might develop an index to measure the importance of each of the categories used.

• The assumption behind a sales control system is that factors causing an expansion orcontraction in the market beyond the influence of the company should not be used inevaluating sales performance.



Using financial controls Having decided to expand the company should:• Ensure that the strategy to be followed is costed properly.• Decide how to finance the strategy, from internal resources or from selected external

sources.

• Good financial management dictates that the expansion strategy should notendanger the survival and growth of the company.



• Cost of entering and expanding slow-growth markets are particularly high.• Expansion for the company, even in industries which are not capital intensive, requires

large cash outlays, the postponement of income, and skilful marketing and financialmanagement.

• Necessary to co-ordinate marketing strategies and financial planning if the company isto avoid the possibility of decline or even collapse.



• Costing and financial control of marketing strategies are difficult tasks for mostcompanies and be very complicated

• Marketing strategies are difficult to:• Quantify; they refer to the longer term and consist of numerous steps with varying

impacts.• Separate costs into fixed costs, variable costs and then to prepare cash flow

projections.



Overcome the obstacles:• Company that success to ensure that control rests with financial, marketing and

general management people since such a team effort is likely to better understand thecost implications of marketing strategy.



Using cash flow management • The significance of cash flow may be gleaned by observing the difference between

profits and cash flow.

• Profit is the difference between the prices customers pay and the total of prices thefirm agrees to pay for all the inputs used in preparing the product or service for sale.

• Profit is the different between agreed prices.



• Cash flow is the difference between money lodged in the bank and the money withdrawnfrom the bank.

• It is possible to have a very profitable business but still fail due to poor cash flowperformance.

• A major benefit of examining the company’s cash flow requirements related to a new

marketing strategy is that the amount of financing required to carry out the anticipatedexpansion programme is determined.

• Sales growth in most business consumes cash.

• During periods of rapid growth the cash flow is characteristically negative.



6 Draw attention to the importance of maintaining andbalancing both short-term and long-term views whenaligning marketing strategy with performance.

• Short run profit and neglect profits are likely to be emphasize by managers ofmarketing operation that evaluate base on the current earnings.

• This is particularly true if managers are frequently moved from brand to brand orproduct to product, which would allow them to avoid the longer-term consequencesof their actions.

• Actions could involve reducing advertising and general marketing expenditures,reducing R&D work under their control, and decrease the number staff training anddevelopment.



• Too emphasis on sales promotion may be symptomatic of longer-term marketingmyopia.

• Because conditions can be different in different markets and outside the control ofmanagement, sales should be the performance measurement because the profits onROI may misslead and sometimes inaccurate.









Q1• What are frequently used strategies to increase profit? And how to implement those

strategies?





Q2•

What is the benefit of using net marketing contribution approach?



A2Integrates internal and external information that is not dependent on complicated and costlymarketing research

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Chapter 14 Group 6

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