Marketing Management, Millenium Edition - epiheirimatikotita.gr

Now suppose the company’s dollar market share falls during the period. The overallmarket-share equation provides four possible explanations: The company lost someof its customers (lower customer penetration); existing customers are buying less fromthe company (lower customer loyalty); the company’s remaining customers are smallerin size (lower customer selectivity); or the company’s price has slipped relative to competition(lower price selectivity).Marketing Expense–to–Sales AnalysisAnnual-plan control requires making sure that the company is not overspending toachieve sales goals. The key ratio to watch is marketing expense–to–sales. In one company,this ratio was 30 percent and consisted of five component expense-to-sales ratios:sales force–to–sales (15 percent); advertising-to-sales (5 percent); salespromotion–to–sales (6 percent); marketing research–to–sales (1 percent); and sales administration–to–sales(3 percent).Management needs to monitor these ratios, which will normally exhibit smallfluctuations that can be ignored. Fluctuations outside the normal range are a causefor concern. The period-to-period fluctuations in each ratio can be tracked on a controlchart (Figure 6-12). This chart shows that the advertising expense–to–sales rationormally fluctuates between 8 percent and 12 percent, say 99 out of 100 times. Inthe fifteenth period, however, the ratio exceeded the upper control limit. One of twohypotheses can explain this occurrence: (1) The company still has good expensecontrol, and this situation represents a rare chance event. (2) The company has lostcontrol over this expense and should find the cause. If no investigation is made todetermine whether the environment has changed, the risk is that some real changemight 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 oftime and effort.The behavior of successive observations even within the upper and lower controllimits should be watched. Note in Figure 6-8 that the level of the expense-to-sales ratiorose steadily from the ninth period onward. The probability of encountering sixsuccessive increases in what should be independent events is only 1 in 64. 24 This unusualpattern should have led to an investigation sometime before the fifteenth observation.Financial AnalysisThe expense-to-sales ratios should be analyzed in an overall financial framework todetermine how and where the company is making its money. Marketers are increasinglyusing financial analysis to find profitable strategies beyond sales building.F I G U R E 6-1214The Control-Chart ModelAdvertising expense/Sales ratio121086Upper limitDesired levelLower limit01 2 3 4 5 6 7 8 9 10 11 12 13 14 15Time periodchapter 22Managing theTotal MarketingEffort 699