Measuring marketing plan performance


Marketers today have better marketing metrics for measuring the performance of marketing plans. They can use four tools to check on plan performance: sales analysis, market share analysis, marketing expenses-to-sales analysis, and financial analysis.


Sales analysis consists of measuring and evaluating actual sales in relation to goals. Two specific tools are used in sales analysis

Sales-variance analysis measures the relative contribution of different factors to a gap in sales performance. Suppose the annual plan called for selling $4,000 widgets in the first quarter at $1 per widget, for total revenue of $4,000. At quarter’s end, only 3,000widgets were sold at $0.80 per widget, for total revenue of $2,400. How much of the sales performance is due to the price decline and how much to the volume decline? The following calculation answers this question:

Variance due to price decline =
($1.00– $0.80) (3,000) = $ 600 — 37.5%

Variance due to volume decline =
($1.00) (4,000-3,000)= $ 1,000 — 62.5 %

$600 + $ 1,000 = $1600 — 100%

Almost two-thirds equal to 62.5% of the variance is due to failure to achieve the volume target. The company should look closely at why it failed to achieve expected sales volume

Micro sales analysis looks at specific products, territories, and so forth that failed to produce expected sales. Suppose the company sells in three territories and expected sales were 1,500 units, 500 units, and 2,000 units, respectively. The actual sales volume was 1,400 units, 525 units, and 1,075 units, respectively.

Thus territory 1 showed a 7 % shortfall in terms of expected sales; territory2, a 5 % improvement over expectations and territory 3, a 46 % shortfall! Territory 3 is causing most of the trouble. The sales vice president needs to check into territory3 and the reasons of shortfall could be,

Ø territory 3’s sales rep is underperforming
Ø a major competitor has entered this territory
Ø business is in a recession in this territory

Market Share Analysis

Company sales do not reveal how well the company is performing relative to competitors. For this purpose, management needs to track its market share.

Market share can be measured in three ways:

Overall market share is the company’s sales expressed as a percentage of total market sales.

Served market share is its sales expressed as a percentage of the total sales to its served market. Its served market is all the buyers who are able and willing to buy its product. Served market share is always larger than overall market share. A company could capture 100% of its served market and yet have a relatively small share of the total market.

Relative market share can be expressed as market share in relation to its largest competitor. A relative market share over 100% indicates a market leader. A relative market share of exactly 100% means that the company is tied for the lead. A rise in relative market share means a company is gaining on its leading competitor.

Marketing Expenses-to-sales Analysis

Annual-plan control requires making sure that the company is not overspending to achieve sales goals. They key ratio to watch is marketing expense-to-sales. In one company, this ratio was 30% and consisted of five component expenses-to-sales ratios: sales force-to-sales (15%); advertising-to-sales (5%); sales promotion-to- sales (6%); marketing research-to-sales (1%); and sales administration-to-sales (3%).

Management needs to monitor these ratios. Fluctuations outside the normal range are cause for concern. The period-to-period fluctuations in each ratio can be tracked on a control chart. For hypothesis let us say a control chart of 20 periods or time intervals is made with y-axis indicating expenses. The advertising expense-to-sales ratio normally fluctuates between 8 and 12%, say 99 out of 100 times. In a particular period, however, the ratio exceeded the upper control limit. One of the two hypotheses can explain this occurrence:

1. The company still has good expenses control, and this situation represents a rare chance event.
2. The company has lost control over this expense and should find the cause

If no investigation is made, the risk is that some real change might have occurred, and the company will fall behind. If the environment is investigated, the risk is that the investigation will uncover nothing and be a waste of time and effort.

The behavior of successive observations even within the upper and lower control limits should be watched. Considering our hypothetical control chart it is observed that the level of the expenses-to-sales ratio rose steadily from the ninth period onward say up to 20th period. The probability of encountering eleven successive increases in what should be independent events is only 1 in 64. This unusual pattern should have led to an investigation sometime before the twentieth observation.

Financial Analysis

The expenses-to-sales ratios should be analyzed in an overall financial framework to determine how and where the company is making its money. Marketers are increasingly using financial analysis to find profitable strategies beyond sales building.
The return on assets is the product of two ratios, the profit margin and the assets turnover. The profit margin seems low, whereas the asset turnover is more normal for retailing.
The marketing executive can seek to improve performance in two ways:
1. Increase the profit margins by increasing sales or cutting costs; and
2. Increase the asset turnover by increasing sales or reducing assets (e.g. inventory, receivables) that are held against a given level of sales.

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