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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Roger J. Best
University of Oregon
Charles M. Lillis
U.S. West, Inc.
Del I. Hawkins
University of Oregon
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.
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.
What does top management expect the marketing function to deliver?
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 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.
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.
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
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.
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
Review of the "content or face validity"
Did the model confirm hypothesis of relationships?
All did except "custom production" or "frequency of product changes"
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
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
Written in 1987
Limited marketing channels to consider
Less information publicly available
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
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
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.
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."