Business / Marketing Minor Marketing Fundamentals M21439 Session 6: Costing The Various Elements of the Marketing Mix 1

Key Concepts Marketing strategy models Pricing issues Product costs Promotion costs Place costs Process, Physical Evidence & People costs

Costing the Marketing Mix In order to prepare a detailed marketing plan the costs associated with the various elements of the marketing mix need to be established.

The Marketing Plan Structure 1. Management or Executive Summary 2. Marketing Objectives 3. Product/Market Background 4. Marketing Analysis 5. Marketing Strategies 6. Statement of Expected Sales Forecasts & Results Source: Dibb,S, Simkin, Pride, Ferrell (2001) Marketing: Concepts & Strategies 4th ed, USA:Houghton Mifflin,p.696

The Marketing Plan Structure– cont. Marketing Programmes for Implementation 8. Control & Evaluation: Monitoring of Performance Financial Implications/Required Budget Operational Considerations 11. Appendices Source: Dibb,S, Simkin, Pride, Ferrell (2001) Marketing: Concepts & Strategies 4th ed, USA:Houghton Mifflin, p.696

Marketing Strategies Marketing objectives provide a broad overview and statement of what is to be accomplished through marketing activities. Marketing strategies define the focus achieving those objectives and developing a marketing mix.

SWOT Analysis Performance Trends Strengths and Weaknesses Resources and Capabilities SWOT Analysis Mission and Objectives Opportunities and Threats Environmental Scanning Source: Mercer,D. (1996) Marketing 2nd ed, UK:Blackwell Business 12

BCG Growth-Share Matrix Relative Competitive Position / Market Share (cash generated) High (Strong) Low (Weak) (modest +/- cashflow) (large - cashflow) ? High Annual Market Growth STAR QUESTION MARK (large + cashflow) (modest +/- cashflow) £ Low CASH COW DOG Source: Baker,M.J.(2000) Marketing Strategy and Management 3rd ed, UK:Macmillan Business 19

Justifying Growth / Movement One of two models can be used to justify organisational growth/movement. These are: - Shell’s (1975) Directional Policy Matrix - GE (1975) Business Screen

Shell – Directional Policy Matrix (1975) Prospects for Sector Profitability Unattractive Average Attractive Phased Withdrawal Disinvest Double or Quit Weak Custodial Custodial Company’s Competitive Capabilities Average Phased Withdrawal Try Harder Growth Growth Cash Generation Leader Strong Leader Source: Baker,M.J.(2000) Marketing Strategy and Management 3rd ed, UK:Macmillan Business 23

General Electric – Business Screen (1975) Industry Attractiveness High Medium Low No Growth Borderline Growth High Business Strengths Medium Low Source: Baker,M.J.(2000) Marketing Strategy and Management 3rd ed, UK:Macmillan Business 24

Costing the Elements of the Marketing Mix In order to establish a realistic budget for the marketing plan detailed costings should be made of the various elements of the marketing mix.

Profit & Loss Account Turnover (PRICE) 6,000 Cost of Sales (PRODUCT) £000 Turnover (PRICE) 6,000 LESS Cost of Sales (PRODUCT) 4,000 GROSS PROFIT 2,000 Other Costs 100 Operating Expenses 850 950 OPERATING PROFIT 1,050

Examples of ‘Other Costs & Operating Expenses’ PROMOTION: - Advertising - PR - Sponsorship - Exhibitions PLACE: - Agents Fees - Distribution costs PEOPLE: - Salaries - Recruitment PROCESS: - Administration costs - Data processing costs PHYSICAL PRESENCE: - Literature - Car costs - Travel

PRICE

All of the other elements are a cost to the organisation. Revenue Of all the elements of the marketing mix PRICE is the only one that an organisation can gain revenue from. All of the other elements are a cost to the organisation.

Developing a Pricing Strategy Assess price competitiveness Set pricing objectives Strategic Price focus Target market segment Select price Product line pricing Measure value to customer Evaluate competitive strategies Source: Doyle,P.(2002) Marketing Management and Strategy 3rd ed, Harlow:Prentice Hall, p.220

Determining the Break Even Point Source: Dibb,S, Simkin, Pride, Ferrell (2001) Marketing: Concepts & Strategies 4th ed, USA:Houghton Mifflin

Price Lining Source: Dibb,S, Simkin, Pride, Ferrell (2001) Marketing: Concepts & Strategies 4th ed, USA:Houghton Mifflin

PRODUCT

Phases of new product development Source: Dibb,S, Simkin, Pride, Ferrell (2001) Marketing: Concepts & Strategies 4th ed, USA:Houghton Mifflin

Product Development Costs considerations: What accounting system to be used for costing products? Inhouse or agency? On how many customers will the concept be tested? What is the cost of production? How many do you need to sell? How often will it need revising?

Product Deletion Process Source: Martin L. Bell, Marketing: Concepts and Strategies, 3rd ed., p. 267; Houghton Mifflin Company.

PROMOTION

Includes TV, radio, cinema, press, posters, direct mail and internet. Advertising Includes TV, radio, cinema, press, posters, direct mail and internet. Costs that need be considered include: cost of creating the advert, which media used, how often, when and where.

PLACE

Place - Costs Costs that need to be considered include: - Agreement costs with wholesalers - Agents fees - Retailers placement prices - Distribution costs

Types of Merchant Wholesalers

Types of Agents and Brokers

Major Store Types Major Store Types Department and Variety Stores Grocery Supermarkets, Superstores and Hypermarkets Discount Sheds, Superstores and Category Killers Warehouse Clubs Speciality Shops Convenience Stores

PEOPLE

People - Costs Costs include: - Recruitment of personnel specifically for the campaign or generally within the organisation – how is this cost allocated? - Payments to external stakeholders – direct and indirectly. For example, consultants. - Training costs

PROCESS

Process - Costs Costs include: - R&D costs associated with making the process of accessing or purchasing the product more efficient – how allocated? - New equipment purchased – what if the equipment is used for more than one product? - Research into the customer experience.

PHYSICAL PRESENCE

Physical Presence - Costs Costs include: - Cost of fixed assets, for example, buildings, cars, machinery. - Cost of literature - Uniforms provided Are these product costs or physical presence costs?