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The Nature and Measurement of Marketing Productivity in Consumer Durables Industries: a Firm Level Analysis PowerPoint PPT Presentation

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The Nature and Measurement of Marketing Productivity in Consumer Durables Industries: a Firm Level Analysis. Group 1: Mark LaRue & Adam Lopez. Introduction. Productivity emerged as a major concern in American business in the early 1980s

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The Nature and Measurement of Marketing Productivity in Consumer Durables Industries: a Firm Level Analysis

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The Nature and Measurement of Marketing Productivity in Consumer Durables Industries: a Firm Level Analysis

  • Group 1:

  • Mark LaRue & Adam Lopez


  • Productivity emerged as a major concern in American business in the early 1980s

  • Two statements made by executives in StephenGreyser’s“Marketing Issues” study in 1980:

Executives’ Statements

  • “Senior management is concerned with evidence on the effectiveness of high marketing and advertising levels. The CEO with a non-marketing background wants more rigorous demonstration of what return he gets from the marketing investment and is more likely to expect marketing to be a science rather than an art.”

  • “The basic question still remains of how to measure the productivity of the marketing team or of marketing decisions.”


  • To develop a managerially relevant concept of marketing productivity

  • The operational measurement of marketing productivity

  • Aprocedure for establishing environment specific benchmarks with which to compare the marketing productivity of various businesses

The Nature of Marketing Productivity

  • Can be discussed in macro or micro terms

  • Richard Feder’s approach (1965) based on determining expenditure levels for each of the main marketing functions

    • based on Dorfman-Steiner theorem

    • the optimal way to allocate funds across marketing activities given that the overall marketing budget is constrained at a level below the optimal amount

    • a completely internal approach and fails to measure the response elasticities of the firm should be given its operating environment

    • while useful, Feder’s approach is incomplete

Marketing Productivity Defined

  • Productivity is generally conceived of as a ratio of output from some activity to the input required by that activity.

    Marketing productivity is:

    marketing output

    marketing input

Marketing Output & Input

  • Complex to specify

  • Bucklin argued that Sevin’s definition of marketing productivity (sales/marketing costs) is inadequate as it fails to deal with inflation over time and differential inflation between components

  • Bucklin’s adjusted version adjusts sales and cost components over time and is adequate for macro studies, but not for a firm analysis.

Marketing Output

  • Can be thought of in several different ways

  • A reasonable conceptualization: to equate marketing output with total time, place, form, and possession utility created by the department

    • Suffers from two problems:

      • Operational measures of various utilities are nonexistent

      • Firms, departments, managers do not think in those terms nor are they evaluated on those dimensions

“What does top management expect the marketing function to deliver?”

  • A combination of market share and price position

  • Two alternative measures of output:

    • market share (sales/total sales in relevant market)

    • relative market share (sales/sales of one or more competitors in market)

Relative Market Share

  • Useful in indicating a firm’s relative position in an industry independent of degree of concentration in that industry

    • Advantage over dollar sales of being immune from effects of inflation over time.

    • Advantage over either dollar or unit sales of being unaffected by overall market growth or decline

    • Allows the direct comparison of this aspect of performance across different markets or industries

Price Level

  • Absolute price level reflects performance of marketing department, level of industry competition, stage of product life cycle, inflation, and price of substitute products.

    • Not a practical measure of a firm’s marketing performance

  • Relative price (a firm’s price level in relation to its major competitors) overcomes these problems

    • is immune to fluctuations in the inflation rate

    • unaffected by industry wide price shifts that accompany evolution through product life cycle

    • can be compared across markets and industries

Marketing Output Defined

  • Based on this logic, marketing output for an individual firm is defined as:

    • (Relative Market Share) X (Relative Price)

Marketing Input

  • Poses difficult conceptual and operational problems

    • It is clear that marketing cost is the appropriate concept for marketing input

    • It is unclear on what constitutes marketing cost

Marketing Input (cont.)

  • Primary conceptual problem: Should marketing cost be considered as absolute dollar amount or as a percentage of sales?

    • Using absolute dollars:

      • allows one to measure the marketing output purchased with one dollar or marketing input

      • is appealing because they are what one spends.

    • Using percentage of sales:

      • allows one to measure the marketing output purchased with one percent of sales

      • minimizes the impact of inflation over time

      • allows one to observe how the portion of the firm’s marketing resources is functioning over time

Marketing Productivity Defined

  • Given the concepts of marketing output and marketing input, marketing productivity is defined as:

Relative Market Share X Relative Price

Marketing Expenditures/Sales

Marketing Productivity (cont.)

  • Suffers from one serious flaw: it assumes impact of marketing expenditures is limited to the current time period

  • Lagged, carry-over, cumulative effects from marketing activities

    • Carry-over effects: an established firm can improve its apparent marketing productivity by decreasing expenditures

    • Lagged & cumulative effects: heavy current marketing expenditures may not be reflected in numerator of the index until later

  • How to resolve this flaw: use four-year averages

Development of a Marketing Productivity Index

  • The specified variables of marketing productivity must be given operational definitions, the defined variables measured, and marketing productivity ratio or score calculated, forming a marketing productivity score (MPS)

  • Misleading: comparing with a direct competitor’s MPS, comparing a firm’s current MPS and a past MPS

Development of a Marketing Productivity Index (cont.)

  • Marketing Productivity Index (MPI) birthed by developing a regression model that would predict an average firm’s MPS given a specified operating environment

  • Predicted score is referred to as the MPI

  • Advantages: (1) compare the firm’s performance to what it “should be” given its environment, (2) makes direct comparisons with past performance and with competitors possible

Data Base

  • PIMS data base

  • Data comes from annual self report questionnaires

  • Limitations

    • Membership fee

    • Some variables are multiplied by a constant

Variables Influencing Marketing Productivity

  • Ten variables selected beyond direct control of marketing management that affect MP

  • Hypothesized relationships for each variable

  • Relative Product Breadth (RPB)

    • Relatively wide range of products

    • Closer matching with consumer needs

  • Number of Competitors (NC)

    • More competitors affect on

      • marketing productivity

      • relative market share

      • relative price

Variables Influencing Marketing Productivity (cont.)

  • Relative Product Quality (RPQ)

    • Higher quality relative to competition

  • Relative Customer Size Range (RCSR)

    • Wider range of customer sizes

  • Served Market Growth (SMG)

    • Higher served market growth rate

  • Number of Immediate Customers (NIC)

    • Large number of immediate customers

Variables Influencing Marketing Productivity (cont.)

  • Purchase Amount Immediate Customers (PAIC)

    • Large purchase amounts

  • Importance of Auxiliary Services to End Users (IASE)

    • High degree of importance on auxiliary services

  • Frequency of Product Changes (FPC)

    • Frequent product changes in industry

  • Customization (C)

    • Products customized for individual customers

Model Evaluation

  • Variability of MPS

  • Split model evaluation

  • Are hypothesized relationships supported?


  • Way in which the PIMS database gathers information

  • Way in which expenditure data is given


  • Management formulates marketing performance objectives

  • Way to compare performance to competitors

  • Marketing Productivity best explained as

    Relative Market Share X Relative Price

    Marketing Expenditures

  • Productivity score influenced by

    • Effectiveness of marketing department

    • Certain market characteristics


  • Measuring marketing performance has been a central concern in marketing for decades

  • Marketing Science Institute (MSI) using a newer formula (compared to the MPI)

  • MSI data base provides more information on companies

  • Criteria of metrics selection are established to define which metrics are used to measure a firm’s marketing performance

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