Page 319 - Introduction to Business

CHAPTER 8 Marketing Basics 293

to reinvest in a company so it can continue to grow. Besides trying to achieve cer-
tain numerical levels of profit, firms will also pursue objectives related to profit
margin, return on assets, and return on owners’ equity. Profit margin is calculated profit margin A company’s profit divided
by dividing profit by revenues. If a firm had a profit of $5 million and revenues of by its revenues
$100 million, its profit margin would be 5 percent ($5 million/$100 million). If the
firm used $50 million in assets (plant and equipment, cash, inventories, etc.) to
obtain the $5 million in profits, its return on assets would be 10 percent ($5 million/ return on assets A company’s profit
$50 million). Owners’ equity is the level of assets contributed to the firm by its own- divided by the assets used to obtain
that profit
ers. If owners’ equity for the firm with the $5 million profit was $25 million, its
return on owners’ equity would be 20 percent ($5 million/$25 million). return on owners’ equity A company’s
Market share is the percentage of total units sold of a product that is accounted profit divided by the amount of assets
contributed to the company by its
for by a specific company’s products. For example, if there are 10 million cars sold owners
in the United States and Ford sold 2 million of these, Ford’s market share would be market share The percentage of total
20 percent (2 million/10 million). Toyota is a company that emphasizes market units sold of a product or service
share as an objective. Its stated objective is to never let market share in Japan drop divided into the number of units of that
product sold by a specific company
below 40 percent. Usually companies obtain improved profits as their market
share increases. However, they often find that, at some level of market share, prof-
its may decline because they have to spend so much to attract other firms’ cus-
tomers. Also, companies with high market shares may become targets of other
companies or the U.S. government if it believes that that market position has been
achieved unfairly.
Recently, U.S. firms have been stressing market value of their companies as an
objective. Market value, or capitalization rate, is determined by multiplying the market value The price of a company’s
price of a company’s stock by the number of its shares of stock. For example, if a stock multiplied by the number of
shares of the stock
company has 1 million shares that have a price of $40, the firm’s market value is $40
million ($40 1 million). Following are some examples of objectives that various
companies have strived to obtain:
• Skechers is a footwear company located in California. Its revenues are close to $1
billion annually. Its international sales account for 10 percent of this total. Skech-
ers wants to increase this percentage to 20 to 50 percent in three to five years. 16
• Michelin, the world’s largest tire maker, seeks a consistent 10 percent profit
margin. 17
• eBay’s CEO, Meg Whitman, wants her company to achieve $3 billion in rev-
enues by 2005—a 50 percent annual increase. 18
• Compaq wanted to obtain revenue growth of 6 to 8 percent. 19
• According to Bobbie Gaunt, CEO of Ford of Canada, it is striving to be number
one or number two in each vehicle segment. 20
• Du Pont pushed to have 30 percent of its profits generated by its biotech and
pharmaceutical operations. 21

Like the overall company, the marketing department has objectives to achieve.
These are related to various aspects of the marketing operation. It is expected that
if these departmental objectives are achieved, they will help in obtaining the com-
pany’s objectives. For example, if sales personnel reach their target of calling on so
many prospects and customers, it is expected that company revenue objectives will
be met. Some examples of marketing objectives that are representative of what
companies might establish include
• To reduce sales force expenses by $1 million
• To increase the number of calls made by the sales force to an average of
25aweek
• To achieve a cost-per-sales call of $200
• To reduce average delivery times to customers by 1.5 days

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