Critical Evaluation of the Use of Financial and Non-Financial Information Systems in Measuring Marketing Effectiveness

Critical evaluation of the use of financial and non-financial information systems in measuring marketing effectiveness.

Contents:

I. Introduction 3

A. Fundamentals in effectiveness measurement: 3

1) Complexity regarding combination of various tools 3

2) Complexity regarding parallel analysis of segment and company performance 3

3) Use of results and planning 3

B. Types of approaches to performance measurement: 3

1) Short-term/long-term 3

2) By company/by segment 3

3) Financial/non-financial 3

4) By resources: internal/external 3

5) By perspective: financial, customer, internal business, innovation & learning 3

II. Financial and non-financial criteria 4

A. Selected financial criteria: 4

1) Profit & profitability analysis 4

2) Shareholder value 5

B. Selected non-financial criteria: 5

1) Sales volume 5

2) Market share 5

3) Customer satisfaction 5

III. Conclusion 5

IV. Bibliography 5

This assignment content 982 words.

I. Introduction

Before I come to description of financial and non-financial information systems used for measurement the marketing effectiveness, I would like to make a brief summary of principles that I see important.

A. Fundamentals in effectiveness measurement:

Continuous evaluation and effectiveness measurement is essential for managing any activity within the company, particularly marketing activities. We would not be able to run the company effectively without relevant feedback and data from analysis.

However, there are some principles we should follow in choosing the appropriate tools to get this feedback:

1) Complexity regarding combination of various tools

We should avoid using just one criterion alone. It is better to combine more criteria, and preferably choose each of them to covering specific part of performance. It will help us to engage global view on results and to prevent from improper simplification.

2) Complexity regarding parallel analysis of segment and company performance

Sometimes happens, that managers tend to overestimate the tools coming from their background, such as marketing managers pay attention to market shares, brand awareness etc. and financial managers focus just on cash-flow, ROI etc. It is necessary to combine both points of view to get true sight in how effective the activity was.

3) Use of results and planning

Although we can only measure how effective our activities were, we must learn from the results and use the data to predict the future and decide on bases of past experience.

B. Types of approaches to performance measurement:

We meet a number of various approaches how to divide the tools for effectiveness measurement and we should be aware of the fact that it is not just one correct approach.

1) Short-term/long-term

(e.g. CVP vs. ROI)

2) By company/by segment

(e.g. ROI, liquidity, leverage vs. market share, sales volume, inventory turnover, profit contribution)

(by Wilson, R.M.S.; Accounting for Marketing, 1999, page 86)

3) Financial/non-financial

(see below)

4) By resources: internal/external

(e.g. regular monthly reports, budgeting reports, cost/profits margin reports vs. industry reports, professional organizations reports etc.)

5) By perspective: financial, customer, internal business, innovation & learning

(Balance Score Card)

II. Financial and non-financial criteria

Financial Non-financial

Liquidity

Cash generation

Value added

Earning per share

Shareholders value

Share price

Profit

Profitability

Cost leadership Sales volume

Market share

Growth rate

Competitive position

Consumer franchise

Risk exposure

Reliance on new products

Customer satisfaction

Sustainable competitive advantage

(by Wilson, R.M.S; Gilligan, C.: Strategic marketing management, 1997, page 537)

There is a number of tools how to measure the marketing effectiveness - I have chosen above summary because I found it most comprehensive. However, I decided to evaluate only few of them; the tools that I consider to be the most usual and useful.

A. Selected financial criteria:

1) Profit & profitability analysis

We can define profitability as a rate at which profit is generated (Wilson, 1992). In general, profit = turnover (ouput) - costs (input). Well known