Page 77 - Foundations of Marketing

44 Part 1 | Strategic Marketing and Its Environment

be deemed effective if it is extremely costly. A firm must take into account the marketing costs
associated with a strategy to gain a complete understanding of its effectiveness at achieving
a desired sales level. Marketing cost analysis breaks down and classifies costs to determine
which are associated with specific marketing efforts. Comparing costs of previous marketing
activities with results allows a marketer to better allocate the firm’s resources in the future.
Marketing cost analysis lets a company evaluate the performance of a marketing strategy by
comparing sales achieved and costs sustained. By pinpointing exactly where a company incurs
costs, this form of analysis can help isolate profitable or unprofitable customers, products, and
geographic areas.
A company that understands and manages costs appropriately has a competitive advan-
tage. A low-cost provider is in a position to engage in aggressive price competition, for exam-
ple. The Internet offers low-cost marketing options, such as e-mail, social media, and viral
videos. It is also the medium where it is easiest for consumers to compare prices, making it
a suitable medium to engage in price competition. Bazaarvoice is a company that helps firms
create more effective marketing strategies by utilizing social media, targeting key markets,
and allowing customers to create and share information about products and brands. Firms like
Bazaarvoice help companies efficiently utilize new technological tools in marketing in order
to maximize impact and keep costs low, while also creating methods for marketers to track
17
customer responses to marketing activities.
One way to analyze costs is by comparing a company’s costs with industry averages. Many
companies check the amount of money they spend on marketing efforts and other operations
against average levels for the industry to identify areas in need of improvement. When looking
at industry averages, however, a company should take into account its own unique situation.
The company’s costs can differ from the industry average for several reasons, including its
own marketing objectives, cost structure, geographic location, types of customers, and scale
of operations.
Costs can be categorized in different ways when performing marketing cost analysis. One
way is to identify which costs are affected by sales or production volume. Some costs are
fixed, meaning they do not change between different units of time, regardless of a company’s
production or sales volume. Fixed costs are variables such as rent and employees’ salaries,
which will not be affected by fluctuations in production or sales. Fixed costs are generally not
very illuminating when determining how to utilize marketing funds more effectively. It does
little good, for example, to know that a firm spends $ 80,000 on rent annually. The market-
ing analyst must conduct additional research to determine that, of the $ 80,000 spent on rent,
$ 32,000 is spent on facilities associated with marketing efforts.
Some costs are directly attributable to production and sales volume. These are known
as variable costs and they are stated in terms of a per quantity (or unit) cost. Variable costs
include the cost to produce or sell each unit of a specific product, such as the materials and
labor, or the amount of commissions that are paid to salespeople when they sell products.
Another way to categorize costs is based on whether or not they can be linked to a spe-
cific business function. Costs that can be linked are allocated, using one or several criteria,
to the functions that they support. For example, if the firm spends $ 80,000 to rent space for
production, storage, and sales facilities, the total rental cost can be allocated to each of the
three functions using a measurement, such as square footage. Some costs cannot be assigned
according to any logical criteria. These are such costs as interest paid on loans, taxes paid to
the government, and the salaries of top management.

Comparing Actual Performance with
Performance Standards and Making Changes,

If Needed
marketing cost analysis
Analysis of costs to determine When comparing actual performance with established performance standards, a firm may
which are associated with find that it exceeded or failed to meet performance standard benchmarks. When actual per-
specific marketing efforts formance exceeds performance standards, marketers will likely be satisfied and a marketing

Copyright 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).
Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.