Del I. Hawkins University of Oregon

1. 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

2. 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.

3. 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.

4. 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.

5. 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.

6. 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.

7. Model Variables & Impacts

8. 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

9. Correlation Matrix: Consumer Durables

10. Marketing Productivity Models

11. 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

12. 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

13. 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

14. 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

15. 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

16. 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.

17. 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."

18. Questions?