MarketingManagement.pdf

58 CHAPTER3WINNINGMARKETSTHROUGHSTRATEGICPLANNING, IMPLEMENTATION,ANDCONTROL

➤ Financial analysis.Management uses financial analysis to identify the factors that

affect the company’srate of return on net worth.^29 The main factors are shown in

Figure 1-10, along with illustrative numbers for a large chain-store retailer. To

improve its return on net worth, the company must increase its ratio of net profits

to its assets or increase the ratio of its assets to its net worth. The company should

analyze the composition of its assets (i.e., cash, accounts receivable, inventory, and

plant and equipment) and see if it can improve its asset management.^30

➤ Market-based scorecard analysis.Companies should also prepare two market-based

scorecards that reflect performance and provide possible early warning signals of

problems. A customer-performance scorecardrecords how well the company is doing on

such customer-based measures as new customers, dissatisfied customers, lost customers,

target market awareness, target market preference, relative product quality, and

relative service quality. A stakeholder-performance scorecardtracks the satisfaction of

constituencies who have a critical interest in and impact on the company’s

performance: employees, suppliers, banks, distributors, retailers, and stockholders.^31

Profitability Control

Successful companies also measure the profitability of their products, territories, cus-

tomer groups, segments, trade channels, and order sizes. This information helps man-

agement determine whether any products or marketing activities should be expanded,

reduced, or eliminated. The first step in marketing-profitability analysis is to identify

the functional expenses (such as advertising and delivery) incurred for each activity.

Next, the firm measures how much functional expense was associated with selling

through each type of channel. Third, the company prepares a profit-and-loss state-

ment for each type of channel.

In general, marketing-profitability analysis indicates the relative profitability of

different channels, products, territories, or other marketing entities. However, it does

not prove that the best course of action is to drop the unprofitable marketing entities,

1.5%

3.2

Asset turnover

Profit margin

Net profits

–––––––

Net sales

= 4.8%

Return on assets

Net profits

–––––––

Total assets

x 2.6

Financial

leverage

Total assets

–––––––

Net worth

= 12.5%

Rate of return

on net worth

Net profits

–––––––

Net worth

Net sales

–––––––

Total assets

Figure 1-10 Financial Model of Return on Net Worth