Marketing Audit Process
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THE MARKETING AUDIT PROCESS How is a marketing Audit conducted? We recommend that the following simple three-step procedure be followed when carrying out a marketing audit.
Figure 1: Steps in a Marketing Audit
1. Setting the Objectives and Scope The first step calls for a meeting between the student (the auditor) and a company officer(s) to explore the nature of the marketing operations and the potential value of the marketing audit. If the company officer is convinced of the potential benefits of the marketing audit, he and the auditor (student) will then work an agreement on the objectives, coverage, depth, data sources, report format, and the time period of the audit. A questionnaire covering the entire scope will then be developed ready for the next stage
2. Gathering the Data The bulk of an auditor’s time is spent in gathering data. Although we talk of a single auditor, an auditing team is usually involved when the project is large. A detailed plan as to who is to be interviewed, by whom, the questions to be asked, the time and place of contact, and so on, have to be carefully prepared so that auditing time and cost are kept to a minimum. Daily reports of the interviews are to be written up and reviewed so that the individual or team can spot new areas requiring exploration while data are still being gathered.
The cardinal rule in data collection is not to rely solely for data and opinion on those being audited. Customers often turn out to be the key group to interview. Many companies do not really understand how their customers see them and their competitors, nor do they fully understand customer needs.
3. Preparing and Presenting the Report The marketing auditor (or student) will be developing tentative conclusions as the data comes in. It is a sound procedure for him to meet once or twice with the company officer before the data collection ends to outline some initial findings to see what reactions and suggestions they produce. When the data gathering phase is over, the student/marketing auditor may need to prepare notes for a visual and verbal presentation to the company officer or the small group with whom he/she worked. The presentation will largely consist of restating the objectives, showing the main findings, and presenting the major recommendations. Then, the student/auditor is ready to write the final report (six page analysis), which is largely a matter of putting the visual and verbal material into a good written communication. In some cases the company officer(s) will ask the student/auditor to present the report to other groups in the company. If the report calls for deep debate and action, the various groups hearing the report should organise into subcommittees to do follow-up work with another meeting to take place some weeks later. The most valuable part of the marketing audit often lies not so much in the auditor’s specific recommendations but in the process that the managers of the company begin to go through to assimilate, debate, and develop their own concept of the needed marketing action.
MARKETING AUDIT PROCEDURE FOR AN INSIDE AUDIT Companies that conduct internal marketing audits show interesting variations from the procedures just outlined. International Telephone and Telegraph, for example, has a history of forming corporate teams and sending them into weak divisions to do a complete business audit, with a heavy emphasis on the marketing component. Some teams stay on the job, often taking over the management. General Electric’s corporate consulting division offers help to various divisions on their marketing problems. One of its services is a marketing audit in the sense of a broad, independent, systematic look at the marketing picture in a division. However, the corporate consulting division gets few requests for a marketing audit as such. Most of the requests are for specific marketing studies or problem-solving assistance.
COMPONENTS OF THE MARKETING AUDIT The six components and their logical diagnostic sequence are discussed below. The major auditing questions connected with these components are gathered in Appendix A at the end of this lesson. Marketing Environment Audit
Components of Marketing Audit
By marketing environment, we mean both the macro-environment surrounding the industry and the task environment in which the organisation intimately operates. The macro-environment consists of the large scale forces and factors influencing the company’s future over which the company has very little control. These forces are normally divided into economic-demographic factors, technological factors, politicallegal factors, and social-cultural factors. The marketing auditor’s task is to assess the key trends and their implications for company marketing action. However, if the company has a good long-range forecasting department, then there is less need of need for a macro-environment audit. The marketing auditor may play a more critical role in auditing the company’s task environment. task environment consists of markets, customers, competitors, distributors and dealers, suppliers, marketing facilitators. The marketing auditor can make a contribution by going out into the field interviewing various parties to assess their current thinking and attitudes and bringing them to attention of management.
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Marketing Strategy Audit The marketing auditor then proceeds to consider whether the company’s marketing strategy is wellpostured in the light of the opportunities and problems facing the company. The starting point for the marketing strategy audit is the corporate goals and objectives followed by the marketing objectives. The auditor may find the objectives to be poorly stated, or he may find them to be well-stated but inappropriate given the company’s resources and opportunities. For example, a chemical company had set a sales growth objective for a particular product line at 15 per cent. However, the total market showed no growth and competition was fierce. Here the auditor questioned the basic sales growth objective for that product line. He proposed that the product line be reconsidered for a maintenance or harvest objective at best and that the company should look for growth elsewhere. Even when a growth objective is warranted, the auditor will want to consider whether management has chosen the best strategy to achieve that growth. Marketing Organisation Audit A complete marketing audit would have to cover the question of the effectiveness of the marketing and sales organisation, as well as the quality of interaction between marketing and other key management functions such as manufacturing, finance, purchasing, and research and development. At critical times, a company’s marketing organisation must be revised to achieve greater effectiveness within the company and in the marketplace. Companies without product management systems will want to consider introducing them: companies with these systems may want to consider dropping them, or trying product teams instead. Companies may want to redefine the role concept of the product manager from being a promotional manager (concerned primarily with volume) to a business manager (concerned primarily with profit). There is the issue of whether decision-making responsibility should be moved up from the brand level to the product level. There is the perennial question of how to make the organisation more market-responsive including the possibility of replacing product divisions with marketcentred divisions. Finally, sales organisations often do not fully understand marketing. In the other words of one vice-president of marketing: “it takes about five years for us to train sales managers.”
Components of Marketing Audit
Marketing Systems Audit A full marketing audit then turns to examine the various systems being used by marketing management to gather information, plan, and control the marketing operation. The issue is not the company’s marketing strategy or organisation per se but rather the procedures used in some or all of the following systems: sales forecasting, sales goal and quota setting, marketing planning, marketing control, inventory control, order processing, physical distribution, new product development, and product pruning. The marketing audit may reveal that marketing is being carried on without adequate systems of planning, implementation, and control. An audit of a consumer products division of a large company revealed that decisions about which products to carry and which to eliminate were made by the head of the division on the basis of his intuitive feeling with little information or analysis to guide the decisions. The auditor recommended the introduction of a new product screening system for new products and an improved sales control system for existing products. He also observed that the division prepared budgets but did not carry out formal marketing planning and hardly any research into the market. He recommended that the division establish a formal marketing planning system as possible. Marketing Productivity Audit A full marketing audit also includes an effort to examine key accounting data to determine where the company is making its real profits and what, if any, marketing costs could be trimmed. Decision Sciences Corporation starts its marketing audit by looking at the accounting figures on sales and associated costs of sales. Using marketing cost accounting principles, it seeks to measure marginal profit contribution of different products, end user segments, marketing channels, and sales territories. We might argue that the firm’s own controller or accountant should do the job of providing management with the results of marketing cost analysis. A handful of firms have created the position of marketing controllers who report to financial controllers and spend their time looking at the productivity and validity of various marketing costs. Where an organisation is doing a good job of marketing cost analysis, it does not need a marketing auditor to study the same. But most companies do not do careful marketing cost analysis. Here a marketing auditor can pay his way by simply exposing certain economic and cost relations which indicate waste or conceal unexploited marketing opportunities. Zero-based budgeting is another tool for investigating and improving marketing productivity. In normal budgeting, top management allots to each business unit a percentage increase (decrease) of what it got last time. The question is not raised whether that basic budget level is still makes sense. The manager of an operation should be asked what he would basically need if he started his operation from scratch and what it would cost. What he need next and what it cost? In this way, a budget is built from the ground up reflecting the true needs of the operation. When this was applied to a technical sales group within a large industrial goods company, it became clear that the company had three or four extra technical salesmen on its payroll. The manager admitted to the redundancy but argued that if a business upturn came, these men would be needed to tap the potential. In the meantime, they were carried on the payroll for two years in the expectation of a business upturn. Marketing Function Audit
Components of Marketing Audit
The work done to this point might begin to point to certain key marketing functions which are performing poorly. The auditor might spot, for example, sales force problems that go very deep. Or he might observe that advertising budgets are in an arbitrary fashion and such things as advertising themes, media, and timing are not evaluated for their effectiveness. In these and other cases, the issue becomes one of notifying management of the desirability of one or more marketing function audits if management agrees. Which Companies Can Benefit Most from a Marketing Audit? All companies can benefit from a competent audit of their marketing operations. However, a marketing audit is likely to yield the highest payoff in the following companies and situations:
Production-Oriented and Technical-Oriented Companies. Many manufacturing companies have their start in a love affair with a certain product. Further products are added that appeal to the technical interests of management, usually with insufficient attention paid to their market potential. The feeling in these companies is that marketing is paid to sell what the company decides to make. After some failures with its “better mousetraps,” management starts getting interested in shifting to a market orientation. But this calls for more than a simple declaration by top management to study and serve the customer’s needs. It calls for a great number of organisational and attitudinal changes that must be introduced carefully and convincingly. An auditor can perform an important service in recognising that a company’s problem lies in its production orientation, and in guiding management toward a market orientation. Troubled Divisions. Multi-division companies usually have some troubled divisions. Top management may decide to use an auditor to assess the situation in a troubled division rather than rely solely on the division management’s interpretation of the problem. High Performing Divisions. Multi-division companies might want an audit of their top dollar divisions to make sure that they are reaching their highest potential, and are not on a verge of a sudden reversal. Such an audit may also yield insights into how to improve marketing in their divisions. Young Companies. Marketing audits of emerging small companies or young divisions of large companies can help to lay down a solid marketing approach at a time when management faces a great degree of market inexperience. Non- profit Organisations. Administrators of colleges, museums, hospitals, social agencies, and churches are beginning to think in marketing terms, and the marketing audit can serve a useful educational as well as diagnostic purpose.
What are the problems and Pitfalls of Marketing Audits? While the foregoing has stressed the positive aspects of marketing audits and their utility in a variety of situations, it is important to note some of the problems and pitfalls of the marketing audit process. Problems occur in the objective-setting step, the data collection step, or the report presentation step. Setting Objectives When the marketing audit effort is being designed by the auditor and the company officer who commissioned the audit, several problems will be encountered. For one thing, the objectives set for the audit are based upon the company officer’s and the auditor’s best a priori notions of what the key problem areas are for the audit to highlight. However, new problem areas may emerge once the auditor
Components of Marketing Audit
begins to learn more about the company. The original set of objectives should not constrain the auditor from shifting his priorities of investigation. Similarly, it may be necessary for the auditor to use different sources of information than envisioned at the start of the audit. In some cases this may be because some information sources he had counted on became unavailable. In one marketing audit, the auditor had planned to speak to a sample of customers for the company’s electro-mechanical devices, but the company officer who hired him would not permit him to do so. In other cases, a valuable new source of information may arise that was not recognised at the start of the audit. For example, the auditor for an air brake system manufacturer found as a valuable source of market intelligence a long-established manufacturers’ representatives firm that approached the company after the audit had begun. Another consideration at the objective-setting stage of the audit is that the management most affected by the audit must have full knowledge of the purposes and scope of the audit. Audits go much more smoothly when the executive who calls in the auditor either brings the affected management into the design stage, or at least has a general introductory meeting where the auditor explains his procedures and answers questions from the people in the affected business. Data Collection Despite reassurances by the auditor and the executive who brought him in, there will still be some managers in the affected business who will feel threatened by the auditor. The auditor must expect this, and realise that an individual’s fears and biases may colour his statements in an interview. From the onset of the audit, the auditor must guarantee and maintain confidentiality of each individual’s comments. In many audits, personnel in the company will see the audit as a vehicle for unloading their negative feelings about the company or other individuals. The auditor can learn a lot from the comments, but he must protect the individuals who make them. The auditor must question interviewees in a highly professional manner to build their confidence in him, or else they will not be entirely honest in their statements. Another area of concern during the information collection step is the degree to which the company executive who brought in the auditor will try to guide the audit. It will be necessary for this officer and the auditor to strike the balance in which the executive provides some direction, but not too much. While over-control is the more likely excess of the executive, it is possible to under-control. When the auditor and the company executive do not have open and frequent lines of communication during the audit, it is possible that the auditor may place more emphasis on some areas and less on others than the executive might have desired. Therefore, it is the responsibility of both the auditor and the executive who brought him in to communicate frequently during the audit. Report Presentation One of the biggest problems in marketing auditing is that the executive who brings in the auditor, or the people in the business being audited, may have higher expectations about what the audit will do for the company than the actual report seems to offer. In only the most extreme circumstances will the auditor develop surprising panaceas or propose startling new opportunities for the company. More likely, the main value of his report will be that it places priorities on ideas and directions for the company, many of which have already been considered by some people within the audited organisation. In most successful audits, the auditor, in his recommendations, makes a skilful combination of his general and technical marketing background (e.g., designs of salesman’s compensation systems, his ability to measure the size
Components of Marketing Audit
and potential of markets) with some opportunistic ideas that people in the audited organisation have already considered, but do not know how much importance to place upon them. However, it is only in the company’s implementation of the recommendations that the payoff to the company will come. Another problem at the conclusion of the audit stems from the fact that most audits seem to result in organisational changes. Organisational changes are common outcome because the audit usually identifies new tasks to be accomplished and new tasks demand people to do them. One thing the auditor and the executive who brought him in must recognise, however, is that organisational promotions and demotions are exclusively the executive’s decision. It is the executive who has to live with the changes once the auditor has gone, not the auditor. Therefore, the executive should not be lulled into thinking that organisational moves are any easier because the auditor may have recommended them. The final problem, and this is one facing the auditor, is that important parts of an audit may be implemented incorrectly or not implemented at all, by the executive who commissioned the audit. Nonimplementation of key parts of the audit undermines the whole effectiveness of the audit. Summary
The marketing audit is one important answer to the problem of evaluating the marketing performance of a company or one of its business units. Marketing audits are distinguished from other marketing exercises in being comprehensive, independent, systematic, and periodic. A full marketing audit would cover the company’s (or division’s) external environment, objectives, strategies, organisation, systems, and functions. If the audit covers only one function, such as sales management or advertising, it is best described as a marketing function audit rather than a marketing audit. If the exercise is to solve a current problem, such as entering a market, setting a price, or developing a package, then it is not an audit at all. The marketing audit is carried out in three steps: developing an agreement as to objectives and scope: collecting the data: and presenting the report. The audit can be performed by a competent outside consultant or by a company auditing office at headquarters. The possible findings of an audit include detecting unclear or inappropriate marketing objectives, inappropriate strategies, inappropriate levels of marketing expenditures, needed improvements in organisation, and needed improvements in systems for marketing information, planning and control. Companies that are most likely to benefit from marketing audit include production-oriented companies, companies with troubled or highly vulnerable divisions, young companies, and non-profit organisations. Many companies today are finding that their premises for marketing strategy are growing obsolete in the face of a rapidly changing environment. This is happening to company giants such as General Motors and Sears as well as smaller firms that have not provided a mechanism for recycling their marketing strategy. The marketing audit is not the full answer to marketing strategy recycling but does offer one major mechanism, for pursuing this desirable and necessary task.
Components of Marketing Audit
The Marketing Environment Audit Macro-Environment Economic-Demographic 1. What does the company expect in the way of inflation, material shortages, unemployment, and credit availability in the short run, intermediate run, and long run? 2. What effect will forecasted trends in the size, age distribution, and regional distribution of population have on the business? Technology 1. What major changes are occurring in the product technology? In process technology? 2. What are the major generic substitutes that might replace this product? Political-Legal 1. What laws are being proposed that may affect marketing strategy and tactics? 2. What federal, state, and local agency actions should be watched? What is happening in the areas of pollution control, equal employment opportunity, product safety, advertising, price control, etc., that is relevant to marketing planning? Social-Cultural 1. What attitudes is the public taking toward business and toward products such as those produced by the company? 2. What changes are occurring in consumer life styles and values that have a bearing on the company’s target markets and marketing methods? Task Environment Markets 1. What is happening to market size, growth, geographical distribution, and profits? 2. What are the major market segments? What are their expected rates of growth? Which are high opportunity and low opportunity segments? Customers 1. How do current customers and prospects rate the company and its competitors, particularly with respect to reputation, product quality, service, sales force, and price? 2. How do different classes of customers make their buying decisions? 3. What are the evolving needs and satisfactions being sought by the buyers in this market? Competitors 1. Who are the major competitors? What are the objectives and strategy of each major competitor? What are their strengths and weaknesses? What are the sizes and trends in market shares? 2. What trends can be seen in future competition and substitutes for this product? Distribution and Dealers 1. What are the main trade channels bringing products to customers?
2. What are the efficiency levels and growth potentials of different trade channels? Suppliers 1. What is the outlook for the availability of different key resources used in production? 2. What trends are occurring among suppliers in their pattern of selling? Facilitators 1. What is the outlook for 2. What is the outlook for 3. What is the outlook for 4. How effectively is the agency services?
the cost and availability of transportation services? the cost and availability of warehousing facilities? the cost and availability of financial resources? advertising agency performing? What trends are occurring in advertising
Marketing Strategy Audit Marketing objectives 1. Are the corporate objectives clearly stated and do they lead logically to the marketing objectives? 2. Are the marketing objectives stated in a clear form to guide marketing to guide marketing planning and subsequent performance measurement? 3. Are the marketing objectives appropriate, given the company’s competitive position, resources, and opportunities? Is the appropriate strategic objective to build, hold harvest, or terminate this business? Strategy 1. What is the core marketing strategy for achieving objectives? Is it a sound marketing strategy? 2. Are enough resources (or too many resources) budgeted to accomplish the marketing objectives? 3. Are the marketing resources allocated optimally to prime market segments, territories, and products of the organisation? 4. Are the marketing resources allocated optimally to the major elements of the marketing mix i.e., product quality, service, sales force, advertising, promotion, and distribution? Marketing Organisation Audit Formal Structure 1. Is there a high level marketing officer with adequate authority and responsibility over those company activities that affect the customer’s satisfaction? 2. Are the marketing responsibilities optimally structured along functional, product, end user, and territorial lines? Functional Efficiency 1. Are there good communication and working relations between marketing and sales? 2. Is the product management system working effectively? Are product managers able to plan profits or only sales volume? 3. Are there any groups in marketing that need more training, motivation, supervision, or evaluation? Interface Efficiency 1. Are there any problems between marketing and manufacturing that need attention? 2. What about marketing and R&D? 3. What about marketing and financial management?
Components of Marketing Audit
4. What about marketing and purchasing? Marketing Systems Audit Marketing Information System 1. Is the marketing intelligence system producing accurate, sufficient, and timely information about developments in the marketplace? 2. Is marketing research being adequately used by company decision makers? Marketing Planning System 1. Is the marketing planning system well-conceived and effective? 2. Is sales forecasting and market potential measurement soundly carried out? 3. Are sales quotas set on a proper basis? Marketing Control System 1. Are the control procedures (monthly, quarterly, etc.) adequate to ensure that the annual plan objectives are being achieved? 2. Is provision made to analyse periodically the profitability of different products, markets, territories, and channels of distribution? 3. Is provision made to examine and validate periodically various marketing costs? New Product Development System 1. Is the company well-organised to gather, generate, and screen new product ideas? 2. Does the company do adequate concept research and business analysis before investing heavily in a new idea? 3. Does the company carry out adequate product and market testing before launching a new product? Marketing Productivity Audit Profitability Analysis 1. What is the profitability of the company’s different products, served markets, territories, and channels of distribution? 2. Should the company enter, expand, contract, or withdraw from any business segments and what would be the short- and long-run profit consequences? Cost-Effectiveness Analysis 1. Do any marketing activities seem to have excessive costs? Are these costs valid? Can cost-reducing steps be taken? Marketing Function Audits Products 1. What are the product line objectives? Are these objectives sound? Is the current product line meeting these objectives? 2. Are there particular products that should be phased out? 3. Are there new products that are worth adding? 4. Are any products able to benefit from quality, feature, or style improvements? Price
Components of Marketing Audit
1. What are the pricing objectives, policies, strategies, and procedures? To what extent are prices set on sound cost, demand, and competitive criteria? 2. Do the customers see the company’s prices as being in line or out of line with the perceived value of its offer? 3. Does the company use price promotions effectively? Distribution 1. What are the distribution objectives and strategies? 2. Is there adequate market coverage and service? 3. Should the company consider changing its degree of reliance on distributors, sales representatives and direct selling? Sales Force 1. What are the organisation’s sales force objectives? 2. Is the sales force large enough to accomplish the company’s objectives? 3. Is the sales force organised along proper principle(s) of specialisation (territory, market, or product)? 4. Does the sale force show high morale, ability, and effort? Are they sufficiently trained and incentivized? 5. Are the procedures adequate for setting quotas and evaluating performance? 6. How is the company’s sales force perceived in relation to competitors’ sales forces? Advertising, Promotion, and Publicity 1. What is the organisation’s advertising objectives? Are they sound? 2. Is the right amount being spent on advertising? How is the budget determined? 3. Are the ad themes and copy effective? What do customers and the public think about the advertising? 4. Are the advertising media well chosen? 5. Is sales promotion used effectively? 6. Is there a well-conceived publicity program?
Reference: Kotler, P., Gregor, W. and Rodgers, W. (Winter 1977), Marketing Audit Comes of Age, Sloan Management Review.
Components of Marketing Audit