Transcript Market

Chapter 14: Strategy
implementation, control, and
metrics
Structure
A. INTRODUCTION
1. Overview and Strategy Blueprint
2. Marketing Strategy: Analysis &
perspectives
C. WHERE DO WE WANT TO BE?
B. WHERE ARE WE NOW?
3. Environmental & Internal Analysis:
Market Information & Intelligence
4. Strategic Marketing Decisions,
Choices & Mistakes
5. Segmentation, Targeting
& Positioning Strategies
6. Branding Strategies
7. Relational & Sustainability
Strategies
D. HOW WILL WE GET THERE?
E. DID WE GET THERE?
14. Strategy Implementation, Control
& Metrics
8. Product Innovation & Development
Strategies
9. Service Marketing Strategies
10. Pricing & Distribution
11. Marketing Communications
12. E-Marketing Strategies
13. Social and Ethical Strategies
Learning Objectives

Understand the nature of managerial control in a marketing context

Appreciate the importance of implementation of marketing strategy
and why it is frequently the reason for organizational and strategic
failure

Conceptualize competitive advantage as an ongoing process that
needs to be measured, managed and controlled

Calculate customer lifetime value as an outcome of a competitive
advantage process

Understand the notion of customer equity as a guiding objective for
the evaluation of marketing strategy.

Recognize organizational culture and structure as a factor that
either helps or hinders the implementation of marketing strategy.
Chapter at a Glance
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Marketing Strategy Implementation
Marketing Budget
Marketing Strategy Control
Organisation
Metrics
Financial Measures
Market Share
Customer Equity
From CLTV to Customer Equity
Introduction
• Most marketing practitioners spend large amounts of time planning
and formulating marketing strategy
• They endeavour to direct the actions of marketing personnel, the
sales force and channel intermediaries, and allocate substantial
effort to the organization of marketing activities and human
resources
• Yet less time is given to the fundamental marketing task of
controlling, and its related activity, implementation
• In future a firm’s marketing success will hinge not so much on
having a good strategy, but on how well this strategy is implemented
and controlled
Basic Steps in Control
1. Set standards of performance (these are
typically in the form of goals or objectives)
2. Evaluate the reality of what occurs against
these steps
3. Take corrective or reinforcing action where
required
Steps in the Implementation and
Control Process
Possible Outcome 1:
15% market share
Corrective
Action
2. Evaluate
standards
against reality
3. Take Action
1. Set Standards
e.g. Marketing
objective is to
attain 25%
market share
Possible Outcome 2:
35% market share
Reinforcing
Action
Nature of Control
• Annual Plan control looks at the objectives set in the annual
marketing plan, evaluates these against the actual results achieved,
and takes corrective or reinforcing action when necessary
• Financial or Expense control considers the financial parameters and
objectives set by a firm in its annual marketing plan, and the
corrective or reinforcing actions needed to attain these
• The purpose of strategic control is to ensure that the organization is
maximizing the opportunities that exist in its business environment.
Strategic control often takes the form of a marketing audit
FORMULATION
Strategy Formulation-Implementation Grid
Adequate
Trouble
Success
Poor
Success
Rescue or
Ruin
Poor
Adequate
IMPLEMENTATION
Barriers
The marketing strategy is implicit, not explicit, and people
cannot implement what they don’t know
The marketing strategy is developed in isolation – and people
cannot implement what they do not understand
Not everyone is a good strategic marketing thinker
The marketing strategy is developed by an external consultant
The marketing strategy has unanticipated consequences
(Robert, 1991)
Budgeting
1. JUDGEMENTAL METHODS
• Arbitrary
• Affordable
2. OBJECTIVE & TASK
3. MEASUREMENT
• ROI
• Incremental
• Quantitative Models
4. PERCENTAGE OF SALES
• % Last Year’s Sales
• % Anticipated Sales
• Unit Sales
5. SHARE OF VOICE
• Competitive Absolute
• Competitive Relative
Corporate Culture
• The Clan culture, which emphasizes teamwork and
cooperation
• The Adhocracy culture, which emphasizes
entrepreneurship and creativity
• The Hierarchy culture, which emphasizes order,
regulations and rules
• The Market culture, which emphasizes competitiveness
and goal achievement
(Deshpande, Farley and Webster, 1993)
Functional Organisation
Chief
Marketing
Executive
Sales
Market
research
IMC
Channel
Brand Management Organisation
Chief
Marketing
Executive
Sales
Market
research
IMC
Distribution
Brand
Manager
A
Group Product
Manager
Brand
Manager
B
Brand
Manager
C
Service/Product Group Organisation
Chief
Marketing
Executive
Service/ Product
Manager
A
Service/ Product
Manager
A
Sales
Market
research
IMC
Sales
Market
research
Service/ Product
Manager
A
IMC
Sales
Market
research
IMC
Market Organisation
Chief
Marketing
Executive
Market
Manager
A
Market
research
Sales
Market
Manager
B
Market
research
Channel
IMC
Sales
Market
Manager
C
Market
research
Channel
IMC
Sales
Channel
IMC
Service/Product/Market Organisation
Chief
marketing
executive
Group
Product
Manager
Service/Product
Managers
1
Sales
IMC
Channel
2
3
Market
Manager
A
Market
Manager
B
Market
Manager
C
Markets
Markets
Markets
System 5
Marketing Strategy Centre
Environment
Future Target
Markets
System 4
Management
Information System
(collection,
interpretation &
transmission of
information)
System 3
Operating Management
(budget review, sales forecasting,
quality control)
Target Market
System 1
1
Basic Work Unit 1
Target Market
System 1
2
Basic Work Unit 2
Target Market
3
Target Market
4
System 1
Basic Work Unit 3
System 2
Operating
Procedures
(development of
accountability
rules, formal or
informal)
System 1
Basic Work Unit 4
Modified Version of Stafford Beer’s Viable System Model
Modified from Day and Wensley’s Model
of Competitive Advantage
SOURCES OF
ADVANTAGE
• Skills
• Resources
POSITIONAL
ADVANTAGES
• Superior customer
value
• Lower costs
Invest to sustain
advantage
OUTCOMES
• Satisfaction
• Loyalty
• Market share
• Profitability
Loop in the Model
• “Hard” – expressed in numbers that can easily be calculated,
compared and tracked
• However they are historical – a good way of tracking the past, but a
rather inadequate indication of the future
• They are not good diagnostics of strategic health
• By comparison measures of customer satisfaction and loyalty are
“soft,” and impression based but they are about the future
• The astute firm will reinvest the financial outcomes of competitive
advantage in the sources of competitive advantage itself, namely
superior skills and/or superior resources
• This activity closes the loop in the model, and suggests that
managing for competitive advantage is indeed a process that is
continually renewed, revived and refreshed
Accounts of Oxtma
£M
Revenues: The total value of all goods and services sold to third parties in the normal
course of trade
EBITDA: Earnings before interest, taxation depreciation and amortisation
25.00
Operating Profit: The profit after the deduction of all expenses (business overheads)
other than interest and taxation (also known as profit before interest and tax)
Operating Cash Flow: The cash effects of transactions and other events relating to
operating or trading activities
Total Assets: The sum of all the assets, i.e. fixed and current
2.50
Total Liabilities: The total financial claims of lenders and others who supply money,
goods and services
Shareholders’ Equity: The sum of share capital and reserves less any issued preference
shares. Equity represents the ordinary shareholders' interest in the company
Trade Debtors: People or businesses who owe money to the business. Also referred to
as Receivables
3.10
3.00
15.00
7.00
6.00
5.00
Financial Interactions
Cash Flow Statement
Receipts
Cash Flow
Dividend
Payments
Balance Sheet
Shareholder
Return
Debt
Investment
Equity
Growth
Profit and Loss Account
Revenues
Profit
Costs
Shareholder Value
Added
Shareholder
Value
Current
value of
the
business
Expected
future
value of
the
business
Customer Equity
• The outcomes of ROI and Market Share are hard but
historical
• The outcomes of Customer Satisfaction and Customer Loyalty
are future-oriented but soft
• The ideal marketing control variable would be a single
outcome that is both hard (a number that can be expressed
financially) and future (customer) oriented
• Customer Lifetime Value (CLTV), which in turn leads to
Customer Equity, is that single appropriate outcome
Formula
Customer Lifetime Value can be calculated using the simple formula
n
C L T V =     d ) - i  i
i= 1
Where:
I = sales profit from this customer in period
i +any non-sales benefits (e.g. referrals) - cost of
maintaining the relationship in period i
d = discount rate
n = final period, estimated to be lifetime horizon for customer
Example of the Calculation of CLTV
Year 1
Revenue
Customers
Retention Rate (%)
Customer Spend
Total Revenue
Costs
%
Total Costs
Profits
Gross Profit
Discount Rate* (4%)
Net Present Value Profit
Cumulative Profit (NPV)
Lifetime Value (NPV)
* D = (1 + i)n where D = discount rate,
i = interest rate and n = number of
(A x B/100) t-1
(A x C)
(DxE)/100
(D - F)
(G/H)
(I) t1-5
(J/1000)
1000
A
40
B
£150
C
£150,000
D
E
F
50
£75,000
G
H
I
J
K
£75,000
1.00
£75,000
£75,000
£75
Year 2
Year 3
Year 4
Year 5
400
45
£150
£60,000
180
50
£150
£27,000
90
55
£150
£13,500
50
60
£150
£7,500
50
£30,000
50
£13,500
50
£6,750
50
£3,750
£6,750
1.12
£6,001
£122,328
£122
£3,750
1.17
£3,206
£125,534
£126
£30,000 £13,500
1.04
1.08
£28,846 £12,482
£103,846 £116,328
£104
£116
Example of the Calculation of CLTV + 5%
Increase in Retention
Example of the Calculation of CLTV + 5% Increase in Retention
Year 1
Year 2
Year 3
Year 4
Year 5
Revenue
Customers
Retention Rate (%)
Spend
Total Revenue
(A x B/100) t-1 A
1000
B
42
C
£150
(A x C)
D £150,000
420
44
£150
£63,000
185
46
£150
£27,783
86
49
£150
£12,865
50
51
£150
£7,500
Costs
%
Total Costs
E
(DxE)/100+E2 F
50
£75,000
50
£31,500
50
£13,892
50
£6,432
50
£3,750
£75,000
1.00
£75,000
£75,000
£75
£31,500 £13,892
1.04
1.08
£30,288 £12,843
£105,288 £118,132
£105
£118
£6,432
1.12
£5,718
£123,850
£124
£3,750
1.17
£3,206
£127,056
£127
Profits
Gross Profit
Discount Rate* (4%)
Net Present Value Profit
Cumulative Profit (NPV)
Lifetime Value (NPV)
(D - F)
(G/H)
(I) t1-5
(J/1000)
G
H
I
J
K
* D = (1 + i)n where D = discount rate, i = interest rate and n = number of years you have to wait for return.
Increasing CLTV
• Increasing retention rate, or increasing customer life (i.e.
the number of years a customer can remain a customer)
• Increasing Sales to a Customer, either by increasing the
firm’s share of the customer’s purchases, or by
increasing the customer’s referral rate
• Cutting the Costs of serving a customer
Conclusion
• The managerial task of control lies at the heart of
successful strategic implementation
• If marketing objectives and goals are carefully and
skilfully articulated, and then regularly and systematically
compared to performance, then corrective action can be
taken in time to bring strategy back on track