The Contribution that the Marketing Concept Can Make to the Overall Effectiveness of an Organisation - Assignment Example

Marketing Management The contribution that the marketing concept can make to the overall effectiveness of an organisation Introduction During the last few decades marketing has been challenged to undertake a paradigm shift away from the view of marketing as an optimization problem with an emphasis on product, price, promotion and distribution and toward a conceptualization of marketing as a set of activities focused on intra-firm and inter-organizational influence processes. As a result marketing has moved away from a focus on transactions as the fundamental unit of analysis and toward a focus on relationships with customers and suppliers (Webster et al. 2003). In addition to that, marketing management has recently been forced to develop appropriate ways of communicating the merits of marketing to top executives in financial terms. This has given rise to another important trend in marketing: marketing metrics. Measuring the contribution of marketing to the overall firm performance has become a crucial part of the marketing management function. The aim of this paper is to outline these major changes in the marketing management and the contribution of marketing to firm effectiveness. 2. How does marketing contribute to overall firm effectiveness The critical question for marketing management is how the marketing function should be designed in order to provide the greatest value for organization. At the heart of this issue is the idea that the marketing function's key contribution is to serve as a link between the customer and various processes within the firm. As suggested by Moorman and Rust (1999) the marketing function should play a role in connecting the customer with 1) the product 2) service delivery and 3) financial accountability. Of those three connections the traditional role of marketing has been to link the customer with the product. The customer-product connection pertains to linking the customer to the focal offering provided by the firm. Marketing's emphasis in this linkage is on providing knowledge and skills that connect the customer to product design or quality issues. This emphasis underlies many contemporary methodologies for new product development and for managing the customer-product interface. The customer-service delivery connection involves the design and delivery of ancillary actions involved in providing a firm's goods and services to the customer. The focus of this connection is generally the frontline employee who facilitates pre or post-purchase aspects of the process. A marketing approach to this linkage is predominantly external in orientation. The focus in on ensuring that customers are satisfied with the delivery of services offered by firm, measuring customer satisfaction with services, and changing internal processes that stands to have the greatest impact on the customer. The customer-financial accountability connection refers to efforts focused on linking customers to financial outcomes. The marketing function in many firms does not manage this linkage, and the inevitable result is that financial accountability is perceived largely in terms of costs. The actual expectative is to understand the link between marketing and financial performance of firms. 3. How to measure the contribution of marketing The need for ex post evaluation of marketing programmes and activities is set by Kotler (2003) as a crucial part of the process of analysis, planning, implementation and control. This evaluation is made by means of different marketing metrics that are used to assess past performance and influence on firm effectiveness, as well as to design future strategy improvements. Marketing has a chain of effects in firm performance as suggested by Rust et al. (2004). Marketing strategies lead to marketing actions taken by the firm such as advertising campaigns, service improvement efforts, branding initiatives, loyalty programs. Then the tactical actions influence customer satisfaction, attitude toward the brand and loyalty. At the firm level, these customer measures can be into what it is called marketing assets, which can be measured by such indicators as brand quality, customer satisfaction and customer equity. Customer behaviour influences the market, changing market share and sales. However, it may also be useful to consider the firm's market position as driven by the firm's marketing assets (Rust et al. 2004). At any point in time, tactical actions will have made changes in customers' mental states, but they may not yet have influenced the firm's profit and loss account. Thus, marketing assets represent a reservoir of cash flow that has accumulated from marketing activities but has not yet translated into revenue. They enable the firm to assess the financial impact of marketing. 3.1. Customer impact To assess the impact of marketing expenditures on customers, it is important to understand the following five key dimensions (adopted from Ambler 2000), which can be considered particularly important measures of the customer mind-set: a. Customer awareness: the extent to and ease with which customers recall and recognize the firm, and the extent to which they can identify the products and services associated with the firm; b. Customer associations: the strength, favorability, and uniqueness of perceived attributes and benefits for the firm and the brand; c. Customer attitudes: the customer's overall evaluations of the firm and the brand in terms of its quality and the satisfaction it generates; d. Customer attachment: how loyal the customer is toward the firm and the brand; e. Customer experience: the extent to which customers use the brand, talk to others about the brand, and seek out brand information, promotions, events, and so on. 3.2. Marketing assets Marketing assets are customer-focused measures of the value of the firm (and its offerings) that may enhance the firm's long-term value. There are two approaches to assessing marketing assets that have received considerable attention in the marketing literature: brand equity and customer equity. The concept of brand equity has emerged in the past 20 years as a core concept of marketing. A view of brand equity suggest that its value arises from the incremental discounted cash flow from the sale of a set of products or services, as a result of the brand being associated with those products or services. Research on brand equity has sought to understand the conceptual basis for this remarkable value and its implications. Managers have a deeper understanding of the elements of brand equity, of how brand equity affects buyer behavior, of how to measure brand equity, and of the influence of brand equity on corporate value. Although brand equity takes the brand perspective, customer equity takes the firm's customers' perspective. Building on previous definitions, Rust et al. (2004) define customer equity as the sum of the lifetime values of all the firm's current and future customers, where the lifetime value is the discounted profit stream obtained from the customer. Customer lifetime value and customer equity are already in widespread use as marketing asset metrics in some industries, most notably in direct marketing and financial services. 3.3. Market impact Customer impact and the resultant improvements in marketing assets, such as brand equity, influence the firm's market share and sales, thereby influencing its competitive market position. These benefits may be viewed as arising from improvements in the intermediate measures (i.e., the marketing assets of the firm). Superior brands (or superior values provided to customers) lead to higher levels of customer satisfaction and perceived value of the firm's offering. The consequences of a superior offering are reflected in many aspects of market performance. For example, brands that are better differentiated are characterized by lower price elasticity, have more loyal customers, are less susceptible to competitive actions, can command price premiums, can attain greater market shares, can develop more efficient marketing programs because they are more responsive to advertising and promotions, and can more quickly adopt brand extensions. The consequences of customer satisfaction also include increased buyer willingness to pay a price premium, to provide referrals, and to use more of the product; lower sales and service costs; greater customer retention, loyalty, and longevity; greater market share; and greater profitability. 3.4. Financial impact Financial benefits from a specific marketing action can be evaluated in several ways. Return on investment (ROI) is a traditional approach to evaluating return relative to the expenditure required to obtain the return. It is calculated as the discounted return (net of the discounted expenditure), expressed as a percentage of the discounted expenditure. Other financial impact measures include the internal rate of return, which is the discount rate that would make the discounted return exactly equal to the discounted expenditure; the net present value, which is the discounted return minus the net present value of the expenditure; and the economic value-added (EVA), which is the net operating profit minus the cost of capital. In each case, the measures of financial impact weigh the return generated by the marketing action against the expenditure required to produce that return. The financial impact affects the financial position of the firm, as measured by profits, cash flow, and other measures of financial health. 3.5. Impact on the value of the firm Several measures of the value of the firm rely on measures of stock market performance. For example, market capitalization is the market value of all outstanding shares of a firm, and book value is the difference between a firm's assets and liabilities, according to its balance sheet. The difference between market value and book value is explained partly by off-balance-sheet assets, such as market-based and intellectual property, and partly by an excess or lack of investor enthusiasm. The ratio of market capitalization to the book value (the market-to-book ratio) is sometimes a useful indicator of the strength of marketing assets. Similarly, Tobin's q is the ratio of the market value of the firm to the replacement cost of its tangible assets, which include property, equipment, inventory, cash, and investments in stock and bonds. A q-value greater than 1 indicates that the firm has intangible assets. Shareholder value is another measure related to economic profit. Total shareholder return is the cash flow to shareholders through dividends plus the increase in the share price. A large proportion of the value of firms is based on perceived growth potential and associated risks (i.e., the value is based on expectations of future performance). This value may be locked up in marketing assets that can be leveraged to enhance and accelerate current cash flows, and it may enhance the sustainability (reduce the risk) of future cash flows. 4. The future of marketing management To summarize and highlight, marketing has evolved into a broader and more dispersed set of organizational assignments and responsibilities. Brand strategy and marketing communications remain a key responsibility at the corporate level with a new emphasis on brands as a strategic resource for control in reseller relationships. There are a number of important areas that call for attention on behalf of marketing management. They are presented next. 4.1. Long term vs. short term emphasis The issue of balancing short term and long term interests is a central challenge facing any senior manager. Long term investments, such as brand equity, enhance product quality, better customer relationships and stronger pricing, which then generate growth and future profitability of the business. 4.2. Measuring marketing productivity Marketing managers need better measures of marketing productivity. These measures must distinguish between long term and short term goals as well as long term and short term effects of marketing expenditures. 4.3. Building brand equity Despite the financial and organisational pressures placed on marketing in the past decade, brand equity and strategic importance of branding have remained a strong hold of the definition and scope of marketing. Brand marketers will face increasing pressure to have really strong, dominant brands; otherwise, they will not be able to afford the cost of branding and differentiating products in a marketplace that trends inevitably toward commoditization. 5. Conclusion Marketing management may very well be facing a future of continuous experimentation and change, cycling in perpetuity between centralisation and decentralisation, long term and short term emphasis, building strong brands and exploiting the immediate opportunities presented by lower costs and prices. Yet, the success of marketing depends on the clear definition of its role and the empirical demonstration of its contribution to business performance. Only then will marketing be able to play the influential role in corporate strategy and operations that is commonly assumed by marketing managers and academics. Marketing is the means whereby a firm achieves its key objectives. For marketing management it is important to communicate this message to other departments. Besides the traditional stakeholder of the marketing - the customer - it has now to give attention to a number of internal and external stakeholders that expect to see the results from the marketing efforts. References Ambler, T. (2000) Marketing metrics. Business Strategy Review, 11 (2): 59-66. Kotler, P. (2003) Marketing Management, Prentice Hall, Upper Saddle River. Moorman, C. and R.T. Rust (1999) The Role of Marketing. Journal of Marketing, 63 (Special Issue): 180-197. Rust, R.T., T. Ambler, G.S. Carpenter, V. Kumar, and R.K. Srivastava (2004) Measuring Marketing Productivity: Current Knowledge and Future Directions, Journal of Marketing, 68 (October): 76-89. Webster, F. E. Jr., A. J. Malter, and S Ganesan (2003) Can Marketing Regain Its Seat at the Table Marketing Science Institute, Working Paper, report no. 03-113. Read More