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Presented by Group 3 David Harbison Jason Zipprian Kenny Vaughn Martin Pace. Roger J. Best University of Oregon. Charles M. Lillis U.S. West, Inc. The Nature and Measurement of Marketing Productivity in Consumer Durables Industries: A Firm Level Analysis. Del I. Hawkins

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Presented by group 3 david harbison jason zipprian kenny vaughn martin pace

Presented by Group 3

David Harbison

Jason Zipprian

Kenny Vaughn

Martin Pace

Roger J. Best

University of Oregon

Charles M. Lillis

U.S. West, Inc.

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

Del I. Hawkins

University of Oregon


Introduction
Introduction

In the 1980s, American executives began looking more closely at improving the productivity of their firms' marketing efforts.

Executives needed to be able to measure the effectiveness of and returns from investments in marketing and advertising. Management began viewing marketing as a science rather than an art and needed sound measures on which to base marketing decisions.


Nature of marketing productivity
Nature of Marketing Productivity

Productivity is generally a ratio of an activity's output to its required input:

P = Output / Input

Marketing producitivy then becomes:

MP = Marketing Output / Marketing Input

Complexities arise in determining how to define and measure marketing output and marketing input.


Marketing output
Marketing Output

What does top management expect the marketing function to deliver?

Market Share

Price Position

Relative market share - standing against competition, immune from inflation. However, it only partially reflects marketing effort performance.

Relative price level - marketing department performance, independent of competition, product life cycle, inflation, and substitute pricing.

Marketing output is then define as:

Marketing Output = Relative Market Share × Relative Price

Most marketing departments aim to grow relative market share without sacrificing relative price, all else equal.


Marketing input
Marketing Input

Marketing cost is the appropriate marketing input

Absolute ($) vs. Relative (%) terms

Data limitations led to the use of percentage of sales

Conceptual definitions of marketing output and marketing input produce the following equation for marketing productivity:

MP = (Rel. Mkt. Share × Rel. Price) / (Mktg. Expenditures / Sales)

Limitation: This concept assumes marketing expenditures' impact is limited to the current time period. This is semi-mitigated by using 4-yr averages.


Marketing productivity index mpi
Marketing Productivity Index (MPI)

Predicts an average firm's marketing productivity score (MPS) in a particular operating environment, thereby setting the MPI.

A firm may use the MPI to compare its performance relative to what it should be given its environment.



Model construction
Model Construction

Primary Focus

Principal business product line is consumer durables

Exclude firms with capacity limitations and unable to expand sales

Selection for remaining firms for consumer durable goods set at 135 firms

Marketing Productivity Score is dependent variable for correlation matrix




Model evaluation
Model Evaluation

First Evaluation:

R2 has a .43 MPS as a function of all variables

Does not include all factors in the MPS

Includes factors that are beyond control of Mktg Dept.

Second Evaluation:

Data variables were split into two groups

IASE did not meet .10 probability in either half

NC, RCSR and FPC missed the .10 probability in one split half but were found in the other

In context, the model is stable for useful study


Model evaluation1
Model Evaluation

Third Evaluation:

Review of the "content or face validity"

Did the model confirm hypothesis of relationships?

All did except "custom production" or "frequency of product changes"

Fourth Evaluation:

Similar industry types should have similar factors that influence marketing productivity

Replicated model to include all 206 firms in the nondurables industry PIMS not constrained by capacity

Customization in nondurables industries provided marketing cost advantage


Limitations
Limitations

PIMS Database limitations

Fee required to join the database

Most likely to consist of larger, more profitable firms

Self-reported data bias

Absolute dollar values unavailable

Article limitations

Written in 1987

Limited marketing channels to consider

Less information publicly available


Implications
Implications

Marketing departments should build strategy around specific price and market share objectives.

Firm performance relative to competition can be judged using the marketing productivity index. Adjustable factors include:

Relative product breadth

Relative product quality

Relative customer size range

Number of immediate customers


Further research
Further Research

Rust, Ambler, Carpenter, Kumar, & Srivastava. (2004). Measuring Marketing Productivity: Current Knowledge and Future Directions. Journal of Marketing.

"...the evaluation of marketing productivity ultimately involves projectingthe differences in cash flows that will occur from implementation of a marketing action."

Marketing expenditures can be linked to shareholder value.

Brand extensions have led to abnormally high returns

Increased customer base leads to higher cash flows, higher stock price

Brand equity is an asset; reduces the risk to future cash flows


Further research1
Further Research

Heskett. (2003). Is This a Golden Era for Marketing Productivity?Harvard Business School Newsletter.

Focus on consumer behavior.

"Is it more important to obtain the thinking of a few potential customers or to focus on dissatisfied current users of a product or service?"

Improving the way a company listens to its consumer is the key to marketing productivity.


Further research2
Further Research

Hamilton, A.B. (2002). When Art Meets Science: The Challenge of ROI Marketing.

Focus on data.

"Return on Investment (ROI) marketing involves the use of new, sophisticated metrics and computer models to analyze and quantify marketing spending and return on investment."



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