MarketingManagement.pdf

Now suppose the company’s dollar market share falls during the period. The over-
all market-share equation provides four possible explanations: The company lost some
of its customers (lower customer penetration); existing customers are buying less from
the company (lower customer loyalty); the company’s remaining customers are smaller
in size (lower customer selectivity); or the company’s price has slipped relative to com-
petition (lower price selectivity).

Marketing Expense–to–Sales Analysis
Annual-plan control requires making sure that the company is not overspending to
achieve sales goals. The key ratio to watch is marketing expense–to–sales. In one com-
pany, this ratio was 30 percent and consisted of five component expense-to-sales ra-
tios: sales force–to–sales (15 percent); advertising-to-sales (5 percent); sales
promotion–to–sales (6 percent); marketing research–to–sales (1 percent); and sales ad-
ministration–to–sales (3 percent).
Management needs to monitor these ratios, which will normally exhibit small
fluctuations that can be ignored. Fluctuations outside the normal range are a cause
for concern. The period-to-period fluctuations in each ratio can be tracked on a con-
trol chart(Figure 6-12). This chart shows that the advertising expense–to–sales ratio
normally fluctuates between 8 percent and 12 percent, say 99 out of 100 times. In
the fifteenth period, however, the ratio exceeded the upper control limit. One of two
hypotheses can explain this occurrence: (1) The company still has good expense
control, and this situation represents a rare chance event. (2) The company has lost
control over this expense and should find the cause. If no investigation is made to
determine whether the environment has changed, the risk is that some real change
might have occurred, and the company will fall behind. If the environment is in-
vestigated, the risk is that the investigation will uncover nothing and be a waste of
time and effort.
The behavior of successive observations even within the upper and lower control
limits should be watched. Note in Figure 6-8 that the level of the expense-to-sales ra-
tio rose steadily from the ninth period onward. The probability of encountering six
successive increases in what should be independent events is only 1 in 64.^24 This un-
usual pattern should have led to an investigation sometime before the fifteenth ob-
servation.

Financial Analysis
The expense-to-sales ratios should be analyzed in an overall financial framework to
determine how and where the company is making its money. Marketers are increas-
ingly using financial analysis to find profitable strategies beyond sales building.

chapter 22

Managing the

Total Marketing

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