Individual Assignment/Report
Topic: M ar a r k e t in in g A u d i t
Subject/Paper: M a r k e t i n g Program: E x e c u t i v e M B A B a t c h 2 01 0 1 44-1 5
Submitted By: Dhrutiman Mishra (Roll# 14005)
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Contents 1.
Introduction .......................................................................................................................................... 3
1.1.
2.
3.
The Importance of Marketing Audit ............................................................................................. 5
1.2.
Four Basic Characteristics of a Marketing Audit ................................................................... 5
1.3.
How is the Marketing Audit performed? .................................................................................. 6
Components of the Marketing Audit ................................................................................................ 7 2.1.
Marketing Environment Audit ................................................................................................... 8
2.2.
Marketing Strategy Audit ........................................................................................................... 9
2.3.
Marketing Organization Audit ................................................................................................... 9
2.4.
Marketing Systems Audit ........................................................................................................ 10
2.5.
Marketing Productivity Audit ................................................................................................... 10
2.6.
Marketing Function Audit ........................................................................................................ 10
Problems and Challenges in Marketing Audits ............................................................................ 11
References ................................................................................................................................................ 12
Appendix Case Study: Marketing Audit for Levi Strauss & co.
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1. Introduction The marketing audit is the most common method of evaluation and control mechanism of marketing performance. It is an important solution to the problem of evaluating the marketing performance of a company (or one of its business units) and is distinguished from other marketing exercises by being comprehensive, independent, systematic, and periodic. After evaluation, it identifies various defects, vulnerabilities, deficiencies, problems, and other weaknesses encountered in the company's marketing activities. It suggests measures and/or recommendations to overcome, solve or remove these limitations. It also seeks out new marketing opportunities for a company. Some of the possible findings of an audit are like detecting unclear or inappropriate marketing objectives, inappropriate strategies, inappropriate levels of marketing expenditures, needed improvements in systems for marketing information, planning, and control. During the 1960s, marketing audit received increasing mention in the lists of marketing services of management consultant firms. In 1967, Kotler dedicated a full chapter of “Marketing Management: Analysis, Planning, and Control ” to the marketing audit and identified it as something different from the other control efforts of the firm. Ten years later, the publication, “The Marketing Audit comes of Age” (Kotler, Gregor and Rodgers , 1977), was a turning point in the development of the marketing audit. It provided a definition that still remains current. This work has become a major source of reference for many authors who contributed to the further development of the marketing audit. A marketing audit should be done at the beginning of the marketing planning process. It takes a close look at the current business landscape internally and externally. The managers have to decide on which environment they want to focus. But if they want to get the overall picture and feedback of the marketing environment then it is necessary to do both the audits – Internal and External.
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The marketing audit can be also be viewed as the central intelligence activity responsible for collection, synthesis, analysis, interpretation, and recommendation on all major marketing decisions. The system utilizes all the existing information sources and combines them with marketing auditing procedures and processes in order to draw a complete picture including recommendations, rationale, and anticipated outcomes. The below figure provides a flow of information from all external macro and micro environments as well as internal sources to the marketing audit function for the processing. The marketing audit, in addition to contributing to the strategic and tactical planning process, will continually monitor the implementation of the marketing programs, and will advise on significant deviations from the planned expectation with recommendations to allow for changes for realigning activities.
Marketing audit evaluates the following three main (key) responsible areas:
External marketing environment: Here, the marketing audit mainly focuses on customers and competition in the business. Internal marketing environment: Here, the marketing audit studies the structure of company's marketing team and its effectiveness. Evaluation of current marketing strategy: Here, the marketing audit continuously reviews current marketing strategy of a company. It also takes help of lessons learned from its past marketing plans.
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1.1. The Importance of Marketing Audit The term of marketing audit appeared in literature in the eighties last century, especially in the works written by Kotler, and one of the definition says that: “ A marketing audit is a comprehensive, systematic, independent, and periodic examination of a company’s or business unit’s—marketing environment, objectives, strategies, and activities with a view of determining problem areas and opportunities and recommending a plan of action t o improve the company’s marketing performance.”
Marketing audit is very beneficial for the success of a company. It examines, “How well the marketing department of a company works or functions.” It compares the marketing plans of a company with its actual marketing performance. It finds out the strengths and weaknesses of a company's product. It suggests measures to remove the product's weaknesses. It guides a company to adapt its marketing strategies with the changing marketing environment. It helps a company to update its marketing strategies and control its marketing expenses. In short, a company cannot survive without conducting a proper marketing audit.
1.2.
Four Basic Characteristics of a Marketing Audit
According to the definition given by Kotler, we can deduce the four basic characteristics of marketing audit.
The first and most important feature is that its focus is broad and c o m p r e h e n s i v e rather than being narrow
A vertical (or in depth) audit occurs when management decides to take a deep look into some key marketing function, such as sales force management. It should properly be called by the function that is being audited, such as a sales force audit, an advertising audit, or a pricing audit. Marketing audit should always refer to a horizontal (or comprehensive) audit covering the company’s marketing environment, objectives, strategies, organization, and systems.
Another feature of a marketing audit is that it is conducted by someone who is independent of the operation that is being evaluated
Self-audit, while it is always a useful step that a manager should take, does not constitute a bona fide audit because it lacks objectivity and independence. Independence can be achieved in two ways. The audit could be an inside audit 5
conducted by a person or group inside the company but outside of the operation being evaluated. Or it could be an outside audit conducted by a management consulting firm or practitioner.
Next characteristic of a marketing audit is that it is a s y s t e m a t i c process
Effectiveness of the marketing audit will depend on the extent to which it incorporates an orderly sequence of diagnostic steps. And if followed in sincerity very useful findings and recommendations can emerge out of a marketing audit process.
Final characteristic is that the marketing audit is a p e r i o d i c event
Typically, evaluations of company marketing efforts are done when sales have turned down sharply, sales force morale has fallen, or other problems have occurred at the company. A marketing audit should also be conducted when things are going well and that can often help make a good situation even better and also indicate changes needed to prevent things from turning bad.
1.3.
How is the Marketing Audit performed?
The marketing audit is carried out in three steps - It’s a simple three -step procedure shown in below figure:
Setting the Objective and Scope The first step calls for a meeting between the company officer(s) and a potential auditor to explore the nature of the marketing operations and the potential value of a marketing audit. If the company officer is convinced of the potential benefits of a marketing audit, 6
he and the auditor have to work out an agreement on the objectives, coverage, depth, data sources, report format, and the time period for the audit.
Gathering the Data The bulk of an auditor’s time is spent in gathering data. A detailed plan as to who is to be interviewed by whom, the questions to be asked, the time and place of contact, and so on, has to be carefully prepared so that auditing time and cost are kept to a minimum. Daily reports of the interviews are to be written up and reviewed so that the individual or team can spot new areas requiring exploration, while data are still being gathered. The cardinal rule in data collection is not to rely solely for data and opinion those being audited. Customers often turn out to be the key group to interview. Many companies do not really understand how their customers see them and their competitors, nor do they fully understand customer needs.
Preparing and Presenting the Report When the data-gathering phase is over, the marketing auditor prepares notes for a visual and verbal presentation to the company officer or small group who hired him. The presentation consists of restating the objectives, showing the main findings, and presenting the major recommendations. The most valuable part of the marketing audit often lies not so much in the auditor’s specific recommendations but in the process that the managers of the company begin to go through to assimilate, debate, and develop their own concept of the needed marketing action.
2. Components of the Marketing Audit The key principle of a marketing audit is to start with the marketplace first and explore the changes that are taking place and what they imply in terms of problems and opportunities. Then the auditor moves to examine the company’s marketing objectives and strategies, organization, and systems. Finally, he may move to examine one or two key functions in more detail that are central to the marketing performance of that company. If the audit covers only one function, such as sales management or advertising, it is best described as a marketing function audit rather than a marketing audit. If the exercise is to solve a current problem, such as entering a market, setting a price, or developing a package, then it is not an audit at all. A full marketing audit has six major components, each having a semi-autonomous status in case a company wants less than a full marketing audit. The six components and their logical diagnostic sequence are explained in the next sections. However, some companies ask for less than the full range of auditing steps in order to obtain initial results before commissioning further work. The company may ask for a marketing 7
environment audit, and if satisfied, then ask for a marketing strategy audit. Or it might ask for a marketing organization audit first, and later ask for a marketing environment audit.
2.1. Marketing Environment Audit Marketing Environment Audit consists of the external environment of company. It includes natural environment, economic environment, political environment, demographic environment, etc. The marketing audit analyses the marketing consumer, competitors, and suppliers, so on. This audit helps the company to make marketing strategies. Typically, a marketing environment consists of both the macro-environment surrounding the industry and the task environment in which the organization intimately operates. The macro-environment consists of the large-scale forces and factors influencing the company’s future over which the company has very little control. These forces are normally divided into economic-demographic factors, technological factors, Politicallegal factors, and social- cultural factors. The marketing auditor’s task is to assess the key trends and their implications for company marketing action. However, if the company has a good long-range forecasting department, then there is less of a need for a micro-environment audit. The marketing auditor may play a more critical role in auditing the company’s task environment. The task environment consists of markets, customers, competitors, distributors and dealers, suppliers, and marketing facilitators. The marketing auditor can 8
make a contribution by going out into the field and interviewing various parties to assess their current thinking and attitudes and bringing them to the attention of management. Example: Auditor wants to find out the effect that the forecasted trends in the size, age distribution, and regional distribution of population will have on the business
2.2.
Marketing Strategy Audit
Marketing Strategy Audit is a critical analysis of marketing objectives and strategies. It finds out whether the company's marketing objectives are clear and proper. It also examines the marketing strategies of the company. This audit is done to find out the utility of the marketing strategies. The marketing auditor then proceeds to consider whether the company’s marketing strategy is well-postured in the light of the opportunities and problems facing the company. The starting point for the marketing strategy audit is the corporate goals and objectives followed by the marketing objectives. The auditor may find the objectives to be poorly stated, or he may find them to be well-started but inappropriate given the company’s resources and opportunities. Example: Even when a growth objective is warranted, the auditor may still want to consider whether management has the best strategy to achieve that growth or not.
2.3.
Marketing Organization Audit
Marketing Organization Audit is a systematic study of the company's organizational resources like manpower, organization, structure, employee training and development, Research and Development facilities, motivation, communication and working relations. A complete marketing audit would have to cover the question of the effectiveness of the marketing and sales organization, as well as the quality of interaction between marketing and other key management functions such as manufacturing, finance, purchasing, and research and development. At critical times, a company’s marketing organization must be reviewed to achieve greater effectiveness within the company and in the marketplace. Example: Companies may want to redefine the role concept of a product manager from being a promotional manager (concerned primarily with volume) to a business manager (concerned primarily with profit).
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2.4.
Marketing Systems Audit
Marketing Systems Audit finds out the company's ability of collecting and analyzing data. It looks for the company's ability to plan and control the marketing activities. It also studies the company's marketing information system, planning and control system, etc. The marketing auditor then tries to examine the various systems being used by marketing management to gather information, plan, and control the marketing operation. The issue is not the company’s marketing strategy or organization per se but rather the procedures used in some or all of the following systems: sales forecasting, sales goal and quota setting, marketing planning, marketing control, inventory control, order processing, physical distribution, new products development, and product pruning. Example: Decisions about which products to carry and which to eliminate being made by the head of the division on the basis of his intuitive feeling with little information to guide the decisions and without adequate systems of planning, implementation, and control.
2.5.
Marketing Productivity Audit
Marketing Productivity Audit finds out the profitability of the company's products. It examines the markets. It also examines the measure to improve cost-effectiveness. Here, the marketing auditor examines key accounting data to determine where the company is making its real profits and which, if any, marketing costs could be trimmed. It’s done by looking at the accounting figures on sales and associated costs of sales. Then using marketing cost accounting principles, it seeks to measure the marginal profit contribution of different products, end user segments, marketing channels, and sales territories. Example: Auditor wants to find out if the company enters, expand, contract, or withdraw from any business segments and what would be the short and long-run profit consequences
2.6.
Marketing Function Audit
A marketing function audit identifies certain key marketing functions which might be performing poorly. It is a complete study of marketing functions in relation to the product, price, promotion and place of distribution. So, it is an audit of the marketing mix (4 P's) of the company. Example: Advertising budgets being prepared in an arbitrary fashion and such things as advertising themes, media, and timing are not evaluated for their effectiveness.
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3. Problems and Challenges in Marketing Audits Some of the problems and pitfalls of the marketing audit process can occur in the objective-setting step, the data collection step, or the report presentation step.
3.1. Setting Objectives Problems may come up when the marketing audit effort is being designed by the auditor and the company executive who commissioned the audit. The objectives set for the audit are based upon their a priori notions of what the key problems areas are for the audit to highlight. However, new problem areas may emerge once the auditor begins to learn more about the company. The original set of objectives should not constrain the auditor from shifting his priorities of investigation. It may be necessary for the auditor to use different sources of information than envisioned at the start of the audit. In some cases this may be because some information sources he had counted on became unavailable. The management most affected by the audit must have full knowledge of the purposes and scope of the audit. Audits go much more smoothly when the company executive either brings the affected management into the design stage, or at least has a general introductory meeting where the auditor explains his procedures and answers questions from the people in the affected business.
3.2
Data Collection
Some managers in the affected business who will feel threatened by the auditor even if reassurances are given by the auditor and the executive who brought him in. The auditor must expect this, and realize that an individual’s fears and biases may influence his statements in an interview. The auditor must question interviewees in a highly professional manner to build their confidence in him, or else they will not be entirely honest in their statements. The auditor must guarantee and maintain confidentiality of each individual’s comments. When the auditor and the company executive do not have open and frequent lines of communication during the audit, it is possible that the auditor may place more emphasis on some areas and less on others than the executive might have desired. 11
Therefore, it is the responsibility of both the auditor and the executive who brought him in to communicate frequently during the audit.
3.3 Report Presentation
The executive who brings in the auditor, or the people in the business being audited, may have higher expectations about what the audit will do for the company than the actual report seems to offer. Most audits results in organizational changes and it is a common outcome because the audit usually identifies new tasks to be accomplished and new tasks demand people to do them. One thing the auditor and the executive who brought him in must recognize, however, is that organizational promotions and demotions are exclusively the executive’s decision. It is the executive who has to live with the changes once the auditor has gone, not the auditor. Therefore, the executive should not be lulled into thinking that organizational moves are any easier because the auditor may have recommended them. The important part of an audit may be implemented incorrectly, or not implemented at all by the executive who commissioned the audit. Non-implementation of key parts of the audit undermines the whole effectiveness of the audit.
References 1. Slovak University Of Technology In Bratislava, The Marketing Audit As A Method Of The Evaluation Of The Marketing Plan, 2012 2. Kotler, P., Gregor, W., and Rogers, W., The Marketing Audit Comes of Age, Sloan Management Review Winter, 1977 3. MacDonald, C. R, The Marketing Audit Workbook, Prentice Hall, Englewood Cliffs, NJ, 1982. 4. Douglas Brownlie, The Conduct of Marketing Audits, Journal of Industrial Marketing Management, 1996
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