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

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

3. 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.

4. 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

5. 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

6. 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.

7. 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

8. 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

9. 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

10. 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

11. 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

12. 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.

13. 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

14. 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

15. PRICE

16. 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.

17. 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

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

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

20. PRODUCT

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

22. 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?

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

24. PROMOTION

25. 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.

26. PLACE

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

28. Types of Merchant Wholesalers

29. Types of Agents and Brokers

30. 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

31. PEOPLE

32. 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

33. PROCESS

34. 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.

35. PHYSICAL PRESENCE

36. 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?