business / marketing minor marketing fundamentals m21439 session 6: costing the various elements of...
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Business / Marketing Minor
Marketing FundamentalsM21439
Session 6:
Costing The Various Elements of the Marketing Mix
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Key Concepts
• Marketing strategy models
• Pricing issues
• Product costs
• Promotion costs
• Place costs
• Process, Physical Evidence & People costs
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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.
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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
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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
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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.
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SWOT Analysis
Performance Trends
Resources and Capabilities
Mission andObjectives
EnvironmentalScanning
Strengths andWeaknesses
Opportunities andThreats
SWOTAnalysis
Source: Mercer,D. (1996) Marketing 2nd ed, UK:Blackwell Business
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BCG Growth-Share Matrix
Source: Baker,M.J.(2000) Marketing Strategy and Management 3rd ed, UK:Macmillan Business
High (Strong) Low (Weak)
High
Low
Relative Competitive Position / Market Share (cash generated)
AnnualMarketGrowth
STAR QUESTION MARK
CASH COW DOG
(modest +/- cashflow) (large - cashflow)
?(large + cashflow) (modest +/- cashflow)
£
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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
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Shell – Directional Policy Matrix (1975)
Source: Baker,M.J.(2000) Marketing Strategy and Management 3rd ed, UK:Macmillan Business
Unattractive AttractiveAverage
Prospects for Sector Profitability
Weak
Average
Strong
Com
pany
’s C
ompe
titiv
e C
apab
ilitie
s
Disinvest
Phased Withdrawal
Custodial
Double or Quit
Phased Withdrawal
Custodial
Growth
Growth
Try Harder
Cash Generation
Leader
Leader
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General Electric – Business Screen (1975)
Source: Baker,M.J.(2000) Marketing Strategy and Management 3rd ed, UK:Macmillan Business
No GrowthNo GrowthBorderline
No GrowthBorderlineGrowth
BorderlineGrowthGrowth
High
High
Medium
Medium
Low
Low
Industry Attractiveness
Business Strengths
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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.
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Profit & Loss Account£000
Turnover (PRICE) 6,000
LESS Cost of Sales (PRODUCT) 4,000
GROSS PROFIT 2,000
Other Costs 100
LESS Operating Expenses 850
950
OPERATING PROFIT 1,050
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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
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PRICE
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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.
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Developing a Pricing Strategy
Source: Doyle,P.(2002) Marketing Management and Strategy 3rd ed, Harlow:Prentice Hall, p.220
Assess price competitiveness
Set pricingobjectives
StrategicPrice focus
Target market segment
Selectprice
Product line pricing
Measure value to customer
Evaluate competitive strategies
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Determining the Break Even Point
Source: Dibb,S, Simkin, Pride, Ferrell (2001) Marketing: Concepts & Strategies 4th ed, USA:Houghton Mifflin
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Price Lining
Source: Dibb,S, Simkin, Pride, Ferrell (2001) Marketing: Concepts & Strategies 4th ed, USA:Houghton Mifflin
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PRODUCT
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Phases of new product development
Source: Dibb,S, Simkin, Pride, Ferrell (2001) Marketing: Concepts & Strategies 4th ed, USA:Houghton Mifflin
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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?
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Product Deletion Process
Source: Martin L. Bell, Marketing: Concepts and Strategies, 3rd ed., p. 267; Houghton Mifflin Company.
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PROMOTION
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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.
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PLACE
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Place - Costs
Costs that need to be considered include:
- Agreement costs with wholesalers
- Agents fees
- Retailers placement prices
- Distribution costs
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Types of Merchant Wholesalers
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Types of Agents and Brokers
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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
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PEOPLE
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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
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PROCESS
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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.
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PHYSICAL PRESENCE
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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?