Chapter+2+-+Marketing+Performance+and+Marketing+Profitability

=**Marketing Performance and Marketing Profitability**=


 * **Fixed Costs** -- Necessary organizational costs regardless of production or sales. Must be considered over a period of time. Fixed costs can be broken up into Marketing expenses and Operating expenses.
 * Examples: Rent, utilities, management salaries


 * **Variable Cost** -- is cost of producing one additional unit. It is the cost that depends on the level of output produced.
 * Examples: Materials, labor


 * **Unit Contribution** (aka Gross Margin): Defined as the price minus the unit variable cost (=p-uv)


 * **Break Even Point**
 * How does the break even point relate to risk?
 * The break even point is the point at which the cost of production (fixed cost + variable cost) is equal to the revenue produced by the sales. A higher break even point means that the company must sell more units to reach this $0 net profit/net loss level. The more units a company must sell to break even, the more risky a venture will be.
 * It measures the cost of units produced and sold over time that result in Total Revenue = Total Cost. Ideally the business must at least cover its fixed cost to stay in business and longer time period of reaching break-even point puts the business at risk of failing to meet its fixed cost commitment.
 * With lower initial cost/fixed cost and higher contribution margin in a relatively large market the risks associated with the business is mitigated better.
 * Unit Break Even = FC / unit contribution

__**Marketing Performance and Marketing Profitability**__
 * Performance Metrics: are important because they provide measures of marketing performance and they are correlated with profitability.
 * Classified into four categories: Market metrics, customer metrics, copetiveness metrics, and marketing profitability metrics.
 * Financial performance indicators can be considered lagging indicators as they look only at past events
 * Evaluated by:
 * Sales Revenue
 * Return on Sales
 * Gross and Net Profit
 * Return on Investment
 * Assets
 * Return on Assets
 * Over time market based performance indicators are powerful tools for demonstrating the value of market orientation
 * Evaluated by:
 * Market and Sales Growth
 * Market Share Size
 * Customer Retention and Acquisition
 * Customer Satisfaction
 * Relative Product/Service Quality

A market based business engages in three distinguishing practices :
 * 1) It tracks market based measures of marketing performance.
 * 2) It measures marketing profits by product, market , or both.
 * 3) It organizes aound market rather than products.
 * **Net Marketing Contribution (NMC)** //= [market demand x market share x (price/unit – variable cost/unit)] – marketing expenses//
 * In order to clearly measure marketing contribution marketing expenses must be separated from operating expenses.


 * **How to improve Net Market Contribution and identify potential risks:**
 * Ways to improve Net Market Contribution
 * Strategies to grow market
 * Strategies to grow market share
 * Strategies to increase average selling price
 * Strategies to lower channel costs
 * Strategies to increase profit margin
 * Strategies to improve marketing efficiency


 * **Marketing Profitability**
 * Profit impact of Marketing Performance Metrics
 * Marketing profitability and profits: the marketing profitability metric needs to be strategic, that a marketing tactic is determined as same as a profitable result of financial profitability metric is reported.
 * Marketing profitability and product lines: net marketing contribution is a part of measure of profitability, however, marketing expenses separate from other expenses.
 * Net Marketing Contribution = Sales Revenue x Percent Margin - Marketing Expense
 * Net Marketing Contribution = Market Demand x Market Share x Average Selling Price x Channel Discount x Percent Margin - Marketing Expenses
 * Marketing profitability and customer satisfaction: customers and the market segments are important piece which can grow the firm's profit.
 * Marketing ROS and ROI are ratios that compare the results of different sales levels.
 * Marketing ROS (Return on sales), finds the NMC as a percent of SALES.
 * Marketing ROS = NMC/SalesX100%, or Gross Profit - Marketing Expenses, expressed as a % of sales.
 * Marketing ROI (Return on Investment), finds the NMC as a percent of EXPENSES.
 * Marketing ROI = NMC/Marketing Expenses X 100%, or Marketing ROS/Marketing Expenses, expressed as a % of sales

> -unable to use -not available > -not aware
 * Profit impact of Marketing Strategies
 * Benchmarking Marketing Profitability
 * Company must compare their marketing profitability metrics to a benchmark in order to determine if their numbers are desirable.
 * Compare to others (industry average, like company)
 * Compare internally to previous marketing metric numbers to see if the metrics are improving
 * Always consider untapped market potential: (customers for whom the product is...) -not affordable -lacks benefits

Relevant orphan pages: Broad Market Definition Link to TED video