Measuring marketing productivity : linking marketing expenditure to sales

Schmidt, Adelia (2012-03)

Thesis (MComm)--Stellenbosch University, 2012.

Thesis

ENGLISH ABSTRACT: Over the past two decades company performance has become the mantra of corporate theory. It follows that marketers have recently become understandably preoccupied with measuring the performance of marketing activity. In fact, the pressure for financial accountability has led to widespread concern over the role of the marketing function within a company. Some go as far as contemplating the demise of marketing professionals unless marketers develop an understanding of the marketing-finance interface and are able to enter into a dialogue with top management regarding the value that marketing adds to the company. Modern financial theory prescribes that the primary financial objective of any company should be shareholder value maximisation. Value based management (VBM) involves the appropriate allocation of scarce resources using prioritisation and cost-benefit analyses of different strategies to ensure that managers remain focused on shareholder value creation. The VBM philosophy embraces four fundamental driving forces impacting on the creation of value, the first of which is the profitable growth of sales. Since marketers are the custodians of brand sales the recognition of sales as a value driver places marketing at the centre of the value culture. The role of the marketing function is to create customer value that will translate into marketing assets (brand equity) and by doing so serves to add value to a company. The brand value chain summarises the process through which marketers can create value by carefully investing in various marketing tactics (or expenditures). These expenditures are encapsulated by the marketing mix. Simply, the marketing mix can be described as the sum of all expenditures intended to build brand equity and can be classified into four components known as the 4Ps (product, price, place and promotion). Concern has been raised that marketers focus too much attention on the stages in the brand value chain where marketing strategy is formulated and too little attention on the latter stages where the strategy is linked back to the value created through the implementation thereof. Despite the plethora of marketing metrics available the key to measuring the impact of marketing activity lies in maintaining a balance between non-financial, efficiency metrics and financial effectiveness metrics. To this end, there is a need for the development of aggregate-level models that link marketing tactics (expenditures) to to financial impact (e.g. sales) in order to communicate the value created by marketing. As a first step toward the objective of developing such models, it is important to understand the nature of the relationship between marketing expenditures (in terms of the 4Ps) and sales). Therefore, the primary objective in this study was to establish whether there is a relationship between the expenditures of different marketing components (4Ps) and sales. To this end, the proposition formulated elucidated that the variance in sales of a product is attributable to fluctuations in marketing expenditures. A meta analysis study was undertaken and two South African fast moving consumer goods brands’ financial data were investigated for the period of July 2001 to the end of June 2005. The marketing expenditures incurred for each of the respective brands were dissected and allocated according to the 4Ps of marketing. The metohod applied to investigate the relationship between marketing expenditures and sales originated through the adoption of multiple regression analysis between the indepent variables (marketing expenditures) and the dependent variable (sales). However, due to the fact that the data were collected over time it was anticipated that the time-related characteristics in the data might have offended inherent assumptions on which multiple regression analysis is based. Therefore, a time series regression analysis was subsequently adopted to account for time-related characteristics such as trend or seasonality. Counteracting dummy variables were included in the regression analysis to better understand the effect of trend and seasonality. In the case of Brand A, it was necessary to include dummy variables to counteract the effect of trend in the regression analysis., the results revealed that there is a statistically significant relationship between the expenditures of different marketing components (4Ps) and sales. Only distribution expenditures and price (along with trend) explained unique variance in sales. In the case of Brand B, it was necessary to include dummy variables for both trend and seasonality before the model was suitable for analysis. Once again, the results revealed a statistically significant relationship between the expenditures of different marketing components (4Ps) and sales. However for Brand B, only production expenditures (along with trend and seasonality) explained unique variance in sales. Therefore, in conclusion of the results found there were important findings to note. Firstly, when investigating data colllected over time it is imperative to understand the impact of time-related characteristics in the data and subsequently adopt the appropriate model to investigate relationships in the data. Secondly, despite a statistically significant relationship detected between marketing expenditures and sales the different components of the 4Ps have varying prominence for different brands and the appropriate allocation of resource will depend on the nature of the product and the strategy in mind.

AFRIKAANSE OPSOMMING: Die prestasie van ’n maatskappy het oor die afgelope twee dekades die mantra van korporatiewe teorie geword. Dit volg dus dat bemarkers onlangs afgetrokke is met die meet van die prestasie van mark aktiwiteit. Die druk vir finansiële verantwoordbaarheid het in wye kommer oor die rol van die bemarkingsfunksie binne ’n maatskappy, uitgeloop. Daar word bespiegel oor die ondergang van professionele bemarkers tensy bemarkers ’n begrip van die bemarking-finansie skeidingsvlak ontwikkel en in staat is om ’n dialoog met topbestuur aan die gang te sit rakende die waarde wat bemarking tot ’n maatskappy voeg. Moderne finansiële teorie stel voor dat die primêre finansiële doelwit van enige maatskappy die verhoging van belanghebbende waarde moet wees. Waarde-gebaseerde bestuur (WGB) sluit die gepaste toewysing van skaars hulpbronne, deur die gebruik van vooropstelling en koste-voordeel analise van verskeie strategieë, in, om te verseker dat bestuurders op die belanghebbende waarde skepping gefokus bly. Die WGB filosofie omarm vier grondliggende dryfsmagte wat op die skep van waarde, waarvan eerstens die winsgewende groei van verkope is, ’n impak het. Aangesien bemarkers die bewaarders van die handelsnaam verkope is, plaas die erkenning van verkope as ’n waarde drywer, bemarking in die middelpunt van die waarde kultuur. Die rol van die bemarkingsfunksie is om kliënt waarde te skep wat omgesit sal word in bemarkingsbates (handelsmerk billikheid) en dien so om waarde tot ’n maatskappy by te dra. Die handelsmerk waarde ketting som die proses op waardeur bemarkers waarde kan skep deur versigtig in verskeie bemarkingstaktieke (of uitgawes) te belê. Hierdie uitgawes word saamgevat deur die bemarkingsmengsel. Die bemarkingsmengsel kan kortliks beskryf word as die som van alle uitgawes wat bedoel is om handelsmerk billikheid te bou en kan in vier komponente, wat as die 4Ps (produk, prys, plek en promosie) bekend staan, geklassifiseer word. Daar is reeds kommer uitgespreek dat bemarkers te veel aandag aan die stadiums in die handelsmerk waarde ketting bestee waar bemarkings strategie geformuleer word en te min aandag word aan die latere stadiums geskenk waar die strategie teruggeskakel word aan die waarde wat deur die implementering daarvan geskep word. Ten spyte van die menigte beskikbare bemarkings metrieke lê die sleutel tot die meet van die impak van bemarkingsaktiwiteite in die onderhou van ’n balans tussen nie-finansiële, doeltreffende metrieke en finansiële effektiwiteit metrieke. Daar is dus ’n behoefte aan die ontwikkeling van gemiddelde-vlak modelle wat bemarkings taktieke (uitgawes) aan finansiële impak (bv. verkope) skakel om sodoende die waarde wat deur bemarking geskep word, te kommunikeer. Dit is belangrik om, as ’n eerste treë na die doelwit om sulke modelle te ontwikkel, die aard van die verhouding tussen bemarkingsuitgawes (in terme van die 4Ps) en verkope te verstaan. Die hoofdoel in hierdie studie was dus om vas te stel of daar ’n verhouding tussen die uitgawes van verskillende bemarkingskomponente (4Ps) en verkope bestaan. Die voorstel wat geformuleer is, het verklaar dat die verskeidenheid in verkope ’n produk is wat toegeskryf kan word aan fluktuering in bemarkings uitgawes. ’n Meta analise studie is onderneem en twee Suid-Afrikaanse vinnig-bewegende gebruikers goedere handelsmerke se finansiële data vir die typerk van Julie 2001 tot einde van Junie 2005 is ondersoek. Die bemarkings uitgawes wat vir elk van die handelsmerke aangegaan is, is ontleed en toegeken volgens die 4Ps van bemarking. Die metode wat toegepas is om die verhouding tussen bemarkings uitgawes en verkope te ondersoek het ontstaan deur die aanneem van meervoudige agteruitgang analise tussen die onafhanklike veranderlikes (bemarkings uitgawes) en die afhanklike veranderlikes (verkope). Daar is egter verwag, as gevolg van die feit dat die data oor tyd versamel is, dat die tyd-verwante kenmerke in die data inherente aannames mag beledig het, waarop meervoudige agteruitgang analise gebaseer is. ’n Tydsreek agteruitgang analise is gevolglik aangeneem om verantwoordbaar te wees vir tydsverwante kenmerke soos neiging of seisoenaliteit. Teenwerkende fop veranderlikes is by die agteruitgang analise ingesluit om die effek van neiging of seisoenaliteit beter te verstaan. In die geval van Handelsmerk A, was dit nodig om fop veranderlikes in te sluit om die effek van neiging in die agteruitgang analise teen te werk. Die uitslae het gewys dat daar ’n statisties noemenswaardige verhouding tussen die uitgawes van verskillende bemarkingskomponente (4Ps) en verkope is. Slegs verspreiding uitgawes en prys (tesame met neiging) het unieke verskille in verkope verduidelik. In die geval van Handelsmerk B was dit nodig om die fop veranderlikes in te sluit vir beide neiging en seisoenaliteit voordat die model gepas was vir analise. Die uitslae het weereens gewys dat daar ’n duidende verhouding tussen die uitgawes van verskillende bemarkingskomponente (4Ps) en verkope is. Slegs produksie uitgawes (tesame met neiging en seisonaliteit) het egter unieke verskille in verkope vir Handelsmerk B verduidelik. Daar was dus, in gevolgtrekking tot die uitslae wat gevind is, belangrike bevindings om van kennis te neem. Dit is eerstens van uiterste belang om die impak van tyd-verwante kenmerke in die data te verstaan en om vervolgens die gepaste model aan te neem om verhoudings in die data te ondersoek. Tweedens, ten spyte van ’n statistiese noemenswaardige verhouding wat bespeur is tussen bemarkings uitgawes en verkope, het die verskeie komponente van die 4Ps verskillende vernaamheid vir verskillende handelsmerke en die gepaste toekenning van bronne sal afhang van die aard van die produk en die strategie wat beoog word.

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