Topic 2 - Strategi Marketing Budgeting

STRATEGIC MARKETING
ANALYSIS & BUDGETING

Marketing Management: Terminology &
Overview
• The Production – Sales Era ( Production Oriented Industry)
• Sources and supply of goods were limited
• Customer demands were relatively unsophisticated (Customer don’t have much
choice at this time)
• Limited competition meant that goods were generally bought and not sold
• People dealing in such products were termed to have a “sales orientation”
• Examples of companies :
Overview
• Marketing Oriented Industry (Theodore Levitt)
• Intensified competition
• Focused on customer needs
• Starts with customers
• Work towards the product
• People in this industry tend to have a “marketing orientation”
• Examples of companies:
Overview
• Marketing Oriented Industry
• STEPS in the MARKETING CONCEPT
• 1. Defining customer needs (Marketing Research)
• How are products bought? ( bulk, supermarket or online)
• Who is doing the buying? ( end-users)
• Why do people buy? ( decision of buyers )
• 2. Define target segments
• Broad market (size, growth rate vs. company capability)
• Breaking down the market into smaller segments ( Demographic ex. Age groups and Geographic ex. regional)
• Market segmentation (similarity of needs or “psychographic segmentation”)
• Economy  Income
• Quality  Taste
• Function  Use
• Use  Image
Overview
• Marketing Oriented Industry
• 3. Create a differential advantage ( Levitt) or competitive advantage ( Porter)
• Process of creating monopoly for the company
• A must have for a company
• How?
• a. To have an advantage, look for the customer – geographic,demographic and psychographic
• b. To have differentiation look for competitors - using any/all of marketing mix variables
• Product
• Price
• Place
• Promotion
Competitive Advantage
CREATING A DIFFERENTIAL ADVANTAGE IN THE TARGET SEGMENTS OF THE
MOBILE PHONE MARKET
TARGET SEGMENT DIFFERENTIAL ADVERTISING MIX DISTRIBUTION
ADVANTAGE METHOD
General Adult Price (Credit TV, Newspapers Chain Stores
Public Discounts)
Teenagers Product (Functions, Internet Exhibitions
Programmability)
Offices and Product (Reliability, Direct Mail, Journals Distributors, Agents
Businesses Service)
Competitive Advantage
• 4. Formulate company’s “competitive positioning strategy”
• Look at all possible “differential advantages”
• Make a choice of exactly where it hopes to specialize in
• Depending on the company’s “product-market combination”
Product Life Cycle (P.L.C.)
Product Life cycle (P.L.C.)
Research & Development ( R&D)
• Marketing Research Costs

• Product Prototype research Costs
Introduction
• Very high “death” rate

• Lots of initial problems to solve
Growth
• Customer Acceptance -> Market Expansion

• Product Experience -> Cost Reduction
• Uses CVP as excellent tool in short term period for decision making
Maturity
• Demand peaks
• Competition intensifies
• Ex. Milo , Ovaltine etc. ( long maturities)
Decline
• Due to technological, taste, cost factors ( Kodak)

• Must extend PLC; Divest; Harvest ( Market Stretching)
Strategic Focus of the Product-Market Mission
• Main Decision
• Whether to aim for:
• Increased productivity, or
• Increased volume
• Each of which has financial implications
• Increasing Productivity
• Usually required for existing products
• Could be obtained thru:
• Increasing prices
• Improving sales mix
• Reducing costs
• Increasing Volume
• Pertains to both existing and new products
• The main volume-growth alternatives for achieving long-term profitability can be
seen thru the Ansoff Matrix
• Strategic Focus Shift along the PLC
• Within the Focus Shift, various combinations of the marketing mix must also change
• Usually, the Focus shifts from LEFT to RIGHT, as one moves from one stage of the
life cycle to the next
Strategic Alternatives
Long Term
Profitability
Increase Increase
Volume Productivity
Expand Penetrate Increase Improve

Reduce Costs
Market Market Prices Sales Mix
With
Convert Non- Enter New Increase Reduce Reduce Fixed
Competitors
Users Segments Usage Rate Variable Cost Cost
Consumers
Product
Differentiation
Cost Leadership
Six Pairs of Businesses in the Computer Industry & their
Strategic Positions and Dilemmas
Financial Aspects of Marketing Planning
• The Factors that Affect “Profitability” in a Business
• Extending the “Learning Curve” phenomenon
• If costs decline predictably with units produced, the competitor who has produced the
most units will probably have the lowest costs
• Products with the same price in a certain segment have the same market price, thus the
company with the most “unit experience” will enjoy the greatest profit
• Based on the Experience Curve analysis, it could be hypothesized that market share
and profitability has a close relationship
Profit Impact of Market
Strategies or
Profit Impact
Marketing Study
(PIMS)
1. This hypothesis has been

accepted as a result of the
PIMS Study (using a data base
of 1,000 companies).
2. This figure seems to indicate
that if a company maximizes
it’s market share then it will
also maximize it’s ROI
The “Maximize-Market Share” Goal
• For Controllers, this PIMS implications is equivalent to “forgetting all controls initially and allow the
new product manager to go for market share at all costs”
• Reasons why this would be a “Recipe for Disaster”
• 1. Investments in market shares requires large cash resources
• Must have a ”balanced” Product Portfolio
• Requires to have cash generating products that are able to finance new products that are usually cash absorbers
• Ex.. Have cash generating products to finance new products that are usually cash absorbers.
• 2. The nature of the competition and the structure of the market must be considered
• Obtaining leadership in a growth market is easier than taking away the ownership of a market share in a non-growth
market.
Ex. If a company maintains volume when the market is growing, it will actually be losing market share.
• Relationship between market share, market growth and cash flow should be evaluated prior to
seeking “maximum market share” (Controllers’ duty on making awareness to decision makers)
BCG Matrix
Budgeting for Marketing Activities
• Segmental Direct Costing
• Step1: Map natural expenses into
functional expenses
• Step2: Assign functional expenses to
marketing segments
• Start with lowest level segment
• Attach only if expensed fully for that
level (direct)
• Allocate only if there is cost driver at
that level (indirect)
• If not, see if they can be allocated at
next level
• Marketing Budget Model
• Multiple regression formulation incorporating product and customer related variables
and constants representing allocable fixed costs
• Segmental Contribution = c1x1 + c2x2 + c3x3 - e1y1 – e2y2 – FC - PC
• c1 –c3 = the product contribution per unit
• x1 –x3 = the product unit sales
• e1 –e2 = variable expenses which behave as a function of a variable other than the product units
• y1 –y2 = non-product-related factors (i.e. structural cost drivers, weight shipped, invoices
processed)
• FC = specific fixed costs attachable/allocable to the segment being analyzed
• PC = promotional costs to be used to secure the segment contribution ( separate item)
• Marketing Budget Model (Points-to-Note)
• This is based on the Economic Value Added (EVA) or Residual Income approach
• The charge for Cost of Capital is levied against the segment, including
• Variable cost of capital (debtors, stocks)
• Fixed cost of capital (fixed assets)
• Promotional costs are shown separately
• Because they are considered the “ammunitions” and at least the partial cause of sales
• Thus, it is desirable to test results of various levels of promotional costs
Sample Problem: Marketing Budget Model
• The marketing management wishes to test the likely financial results of the following
promotional efforts:
• Advertising = Php 50,000 -> Promotion = Php 25,000
• Salesman’s Salary & Travel = Php 30,000 -> Sales Commissions = 5% of sales
• If such promotion is carried out, marketing research has projected the following cost
driver incurrence:
• Volume cost drivers (sales in units)
• Product A = 20,000 units (x 1)
• Product B = 5,000 units (x 2)
• Product C = 7,000 units (x 3)
• Structural cost drivers
• Shipping costs: 50,000 grams/kilometers (y1)
• Paperwork: 2,000 invoice equivalents (y3)
Product Unit Related Variable Costs
Product A B C
Selling Price p.u. 50.00 60.00 30.00

Standard Varaible (25.00) (35.00) (20.00)
Production cost p.u. 25.00 25.00 10.00
Less: Non-Production
Variable Cost p.u.
Stock holding cost

1 (2% of variable cost, (0.50) (0.70) (0.40)
1mo. Holding period)
2 Stock handling cost p.u. (2.50) (1.30) (0.60)
Contribution p.u. 22.00 23.00 9.00
= C1 = C2 = C3
Other Variable costs of Complexity
1. Transportation cost = Php 1.00 g/km (e1)

2. Debtors Cost = 2 mo. Average payment period at a cost of capital charge of
15% annual rate or (.15/12)*2=0.025 of revenue (e2)
3. Other processing costs = Php 1.50 per invoice equivalent (e3)
Specific Fixed Costs
1. Short Run, controllable = Php20,000

2. Long Run, non-controllable = Php10,000
3. Fixed investment in segment = Php1,000,000
Total Sales Revenue
Product A 20,000 units x Php 50 p.u. = 1,000,000.00

Product B 5,000 units x Php 60 p.u. = 300,000.00
Product C 7,000 units x Php 30 p.u. = 210,000.00
1,510,000.00 = y2
Therefore, sales commissions:

5% of Php 1,510,000 = Php 75,500
C1X1 = 22.00 x 20,000 440,000.00

C2X2 = 23.00 x 5,000 115,000.00
C3X3 = 9.00 x 7,000 63,000.00
e 1y1 = 1.00 x 50,000 (50,000.00)
e 2y2 = 0.025 x 1,510,000 (37,750.00)
e 3y3 = 1.50 x 2,000 (3,000.00)
FC = 30,000 + (1,000,000 x 15%) (180,000.00)
PC = ('000) (50 + 25 + 30 + 75.5) (180,500.00)
Segmental Contribution (in Php) 166,750.00
THANK YOU!

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STRATEGIC MARKETING

ANALYSIS & BUDGETING

• Marketing Research Costs

• Very high “death” rate

• Customer Acceptance -> Market Expansion

• Due to technological, taste, cost factors ( Kodak)

Expand Penetrate Increase Improve

1. This hypothesis has been

Selling Price p.u. 50.00 60.00 30.00

Stock holding cost

1. Transportation cost = Php 1.00 g/km (e1)

Specific Fixed Costs

1. Short Run, controllable = Php20,000

Total Sales Revenue

Product A 20,000 units x Php 50 p.u. = 1,000,000.00

Therefore, sales commissions:

C1X1 = 22.00 x 20,000 440,000.00

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