Spring 2012: Group 2Huy Dang

Oanh NguyenJeffrey Gritton

Liman Ha

The Nature and Measurement of Marketing Productivity in Consumer Durables Industries: A Firm Level Analysis

Marketing Productivity emerged in the early 80s as a major concern of American business

The purpose of this article is to develop a managerially relevant concept of marketing productivity, its operational measurement, and a procedure for establishing environment specific benchmarks to compare with various business

Productivity is perceived as a ratio of output from some activity to the input required by that activity. Thus, marketing productivity is: marketing output divided by marketing input.

Bucklin's definition of marketing productivity adjusted Sevin's formula for inflation over time became more adequate to the macro study but not to the firm level.

What does top management expect the marketing function to deliver?

Answer: The combination of relative market share and price position.

Marketing output for an individual firm as:

Marketing Output=(Relative market share) x (Relative Price)

Using absolute dollars allows one to measure the marketing output purchased with one dollar of marketing input

Using marketing cost as a percent of sales allows one to measure the marketing output purchased with one percent of sales.

Minimize the impact of inflation over time

Marketing input= Marketing expenditures/sales

Relative Share x Relative Price

Marketing =ProductivityMarketing expenditure/Sales

• Steps–Marketing variables are defined–Marketing variables measured–Marketing productivity ratio measured–Marketing productivity score calculated

• Comparison– Last year’s MPS– Competitor’s MPS– Standard

Words of caution ◦ PMS comparisons may not be “apples to apples”◦ PMS may give credit to marketing when credit

belongs to other departments Marketing Productivity Index (MPI)

◦ Regression◦ “Predicts an average firm’s MPS given a specified

operating environment.”

PIMS Database Scientifically-managed Sensitive sales data was hidden Some weaknesses “The only data base in existence that allows

us to develop a solution to the indexing problem.”

Relative Product Breadth (RPB)◦ Require more marketing effort◦ Meet more customer needs than competitors◦ Produce high market share◦ Secure high price◦ Allow shared costs

Number of competitors (NC)◦ Requires low markeitng productivity◦ Large NC produces unlikely market share

Relative Customer Size Range (RCSR)◦ High RCSR requires more marketing effort◦ Allows firm to obtain relatively high market share◦ Allows firm to change differential price

Served Market Growth (SMG)◦ High SMG requires more marketing effort◦ Concerned more with building capacity than

stimulating demand

Number of Immediate Customers (NIC)◦ High NIC requires low levels of marketing

productivity◦ Higher costs to serve large numbers of customers◦ Serving large NIC does not necessarily correlate

to large market share Purchase Amount Immediate Customers

◦ Requires relatively high level of marketing productivity

◦ Suggests few customers, less frequent purchases and indirect distribution

Purchase amount Immediate Customers (PAIC)◦ Requires high level of marketing productivity◦ Suggests few customers, less frequent

purchases and indirect distribution Frequency of Product Changes (FPC)

◦ Associated with low level of marketing productivity

◦ Costly when introduced to the market Customization

◦ Associated with high marketing productivity◦ Limited number of customers

Focused on businesses that dealt in consumer durables

Limited number of firms due to capacity limitation

135 firms total Variables within 0.10 were retained in the

model

1)R²=0.43 2) R² for each split half remain above 0.40

level; Auxiliary services did not meet 0.10; NC,RCSR, and FPC missed the 0.10 criteria in one of the split halves but were included in the other.

3)All of the hypothesized relationships are reflected in the overall durables market except two. Custom production in durable goods does not lead to a high level of MP;

4) Durable goods industries characterized by frequent product changes tend to have a higher level of marketing productivity than do industries with less frequent change.

5)Replication of the process with 206 consumer nondurables firms in PIMS data base that were not constrained by capacity. The split half analysis produced results similar to those obtained for the durable industries model.

6) In total, this replication in a different industry strongly supports the overall structure of the model developed for the durables industries.

Expenditure data only exist only as a percent of sales in the PMS database

Absolute expenditures would have been useful in allowing more confidence in the comparison of firms with large share differentials.

Management should explicitly define marketing performance objectives in terms of relative price and relative share.

If all the major firms in the market are similar on the firm specific variables (RPB,RPQ, CSR and NIC), no adjustments need to be made.

If the firm is substantially above or below the level of key competitors, an analysis should be conducted .

Causes of variations can be: 1) 1 or more uncontrollable variables not

discovered in the study. 2) Short term competitive strategies such

as buying market share. 3) Particularly effective or ineffective uses

of marketing expenditures.

1. What is marketing productivity? ◦ What problems do we face in measuring

productivity?◦ How can we avoid them?

2. What are the drawbacks/limitations of the Hawkins et al.’s (1987) marketing productivity index?

3. Can we apply the index to measure productivity in other industries?