Transcript Costs

Business / Marketing Minor
Marketing Fundamentals
M21439
Session 6:
Costing The Various Elements of the
Marketing Mix
Key Concepts
• Marketing strategy models
• Pricing issues
• Product costs
• Promotion costs
• Place costs
• Process, Physical Evidence & People costs
Costing the Marketing Mix
In order to prepare a detailed marketing plan
the costs associated with the various
elements of the marketing mix need to be
established.
The Marketing Plan Structure
1. Management or Executive Summary
2. Marketing Objectives
3. Product/Market Background
4. Marketing Analysis
5. Marketing Strategies
6. Statement of Expected Sales Forecasts &
Results
Source: Dibb,S, Simkin, Pride, Ferrell (2001) Marketing: Concepts & Strategies 4th ed, USA:Houghton Mifflin,p.696
The Marketing Plan Structure– cont.
7. Marketing Programmes for Implementation
8. Control & Evaluation: Monitoring of
Performance
9. Financial Implications/Required Budget
10. Operational Considerations
11. Appendices
Source: Dibb,S, Simkin, Pride, Ferrell (2001) Marketing: Concepts & Strategies 4th ed, USA:Houghton Mifflin, p.696
Marketing Strategies
Marketing objectives provide a broad
overview and statement of what is to be
accomplished through marketing activities.
Marketing strategies define the focus achieving
those objectives and developing a marketing
mix.
SWOT Analysis
Performance Trends
Strengths and
Weaknesses
Resources and
Capabilities
Mission and
Objectives
Environmental
Scanning
SWOT
Analysis
Opportunities and
Threats
Source: Mercer,D. (1996) Marketing 2nd ed, UK:Blackwell Business
BCG Growth-Share Matrix
Relative Competitive Position / Market Share (cash generated)
High (Strong)
Low (Weak)
(modest +/- cashflow)
(large - cashflow)
?
High
Annual
Market
Growth
Low
STAR
(large + cashflow)
QUESTION MARK
(modest +/- cashflow)
£
CASH COW
DOG
Source: Baker,M.J.(2000) Marketing Strategy and Management 3rd ed, UK:Macmillan Business
Justifying Growth / Movement
One of two models can be used to justify
organisational growth/movement.
These are:
- Shell’s (1975) Directional Policy Matrix
- GE (1975) Business Screen
Shell – Directional Policy Matrix (1975)
Company’s Competitive Capabilities
Prospects for Sector Profitability
Unattractive
Average
Attractive
Phased Withdrawal
Weak
Disinvest
Double or Quit
Custodial
Custodial
Average Phased Withdrawal
Try Harder
Growth
Growth
Strong
Cash Generation
Leader
Leader
Source: Baker,M.J.(2000) Marketing Strategy and Management 3rd ed, UK:Macmillan Business
General Electric – Business
Screen (1975)
Industry Attractiveness
Medium
Low
Growth
Growth
Borderline
Growth
Borderline
No Growth
Borderline
No Growth
No Growth
High
High
Business
Strengths
Medium
Low
Source: Baker,M.J.(2000) Marketing Strategy and Management 3rd ed, UK:Macmillan Business
Costing the Elements of the
Marketing Mix
In order to establish a realistic budget for the
marketing plan detailed costings should be
made of the various elements of the
marketing mix.
Profit & Loss Account
£000
LESS
LESS
Turnover (PRICE)
6,000
Cost of Sales (PRODUCT)
4,000
GROSS PROFIT
2,000
Other Costs
100
Operating Expenses
850
950
OPERATING PROFIT
1,050
Examples of ‘Other Costs & Operating
Expenses’
• PROMOTION:
- Advertising
- PR
- Sponsorship
- Exhibitions
• PLACE:
- Agents Fees
- Distribution costs
• PEOPLE:
- Salaries
- Recruitment
• PROCESS:
- Administration costs
- Data processing costs
• PHYSICAL PRESENCE:
- Literature
- Car costs
- Travel
PRICE
Revenue
Of all the elements of the marketing mix
PRICE is the only one that an organisation
can gain revenue from.
All of the other elements are a cost to the
organisation.
Developing a Pricing Strategy
Assess price
competitiveness
Select
price
Set pricing
objectives
Product line
pricing
Strategic
Price focus
Measure value
to customer
Target market
segment
Evaluate competitive
strategies
Source: Doyle,P.(2002) Marketing Management and Strategy 3rd ed, Harlow:Prentice Hall, p.220
Determining the Break Even Point
Source: Dibb,S, Simkin, Pride, Ferrell (2001) Marketing: Concepts & Strategies 4th ed, USA:Houghton Mifflin
Price Lining
Source: Dibb,S, Simkin, Pride, Ferrell (2001) Marketing: Concepts & Strategies 4th ed, USA:Houghton Mifflin
PRODUCT
Phases of new
product
development
Source: Dibb,S, Simkin, Pride, Ferrell (2001) Marketing: Concepts & Strategies 4th ed, USA:Houghton Mifflin
Product Development
Costs considerations:
• What accounting system to be used for
costing products?
• Inhouse or agency?
• On how many customers will the concept be
tested?
• What is the cost of production?
• How many do you need to sell?
• How often will it need revising?
Product Deletion Process
Source: Martin L. Bell, Marketing: Concepts and Strategies, 3rd ed., p. 267; Houghton Mifflin Company.
PROMOTION
Advertising
Includes TV, radio, cinema, press, posters,
direct mail and internet.
Costs that need be considered include: cost of
creating the advert, which media used, how
often, when and where.
PLACE
Place - Costs
Costs that need to be considered include:
- Agreement costs with wholesalers
- Agents fees
- Retailers placement prices
- Distribution costs
Types of Merchant Wholesalers
Types of Agents and Brokers
Major Store Types
• Major Store Types
– Department and Variety Stores
– Grocery Supermarkets, Superstores and
Hypermarkets
– Discount Sheds, Superstores and
Category Killers
– Warehouse Clubs
– Speciality Shops
– Convenience Stores
PEOPLE
People - Costs
Costs include:
- Recruitment of personnel specifically for
the campaign or generally within the
organisation – how is this cost allocated?
- Payments to external stakeholders –
direct and indirectly. For example,
consultants.
- Training costs
PROCESS
Process - Costs
Costs include:
- R&D costs associated with making the
process of accessing or purchasing the
product more efficient – how allocated?
- New equipment purchased – what if the
equipment is used for more than one
product?
- Research into the customer experience.
PHYSICAL PRESENCE
Physical Presence - Costs
Costs include:
- Cost of fixed assets, for example,
buildings, cars, machinery.
- Cost of literature
- Uniforms provided
Are these product costs or physical
presence costs?