Audit, Audit, Audit

Every business person will be aware of the financial audit process where accountants pour over the books to assess whether financial reports are accurate. Or you may be aware of the quality audit process of ISO9000 series standards where external and internal auditors pour over your processes and procedures looking for breaches of standard protocols.

In some ways these activities give auditing a bad name.  They are seen as bureaucratic nit picking where the focus is on minute detail and not the overall thrust of a policy.  In respect of quality audits it has often been said that you end up with immaculate and detailed processes but that the end product can still be useless.

But auditing is important because, particularly with a marketing audit, it provides the information required to ensure that a chosen strategy will succeed.

The first half of a strategic marketing plan is effectively a series of audits.  You ‘audit’ the external macro-environment through PESTEL analysis i.e. the likely prospects in the fields of Politics, Economics, Society, Technology, Environment and Law.  You ‘audit’ the ‘micro-environment’, the external factors directly affecting a business through tools like Porter’s five forces (Suppliers, Buyers, Potential Market Entrants, Substitute Products, Competitors): And of course you need an Internal Marketing Audit.

Tools like the Shell Directional Policy Framework and the GE matrix can only be used properly when managers have solid information as to the capabilities, resources and assets.

An internal marketing audit needs to match your organisational capabilities, assets and competencies to the needs and wants of your chosen market.  This is the process of competitive positioning.

Strategic marketing planning  requires that you identify the needs of the market and identify the capabilities of your organisation.  You also need to identify the capabilities and competencies you do not have and which you need to develop to operate in chosen market segments.

So what are your organisational capabilities and assets include:

  •  Financial assets:  Not just your bank balance but the ability to get funding and access to credit.
  • Physical assets:  Your premises, and facilities e.g. Are your shops in the right location, are your distribution centres located for the most efficient supply chains?
  • Operational assets:  Plant, Production Machinery, Process Technologies
  • People assets: Knowledge levels, staff quality, number of staff, etc.
  • Legally enforceable assets: Intellectual property, franchise contract terms, production licences, etc.
  • Internal systems:  Management Information Systems, Customer databases, etc.

You also need to assess your marketing assets:

  1. Customer-based Assets:  This includes your perceived brand image and reputation; Consumer recognition of your corporate identity, brand franchises, customer loyalty, the ability to create defendable market positions and through these assets the ability to obtain higher margins
  2. Market Leadership:  Do you enjoy the benefits of market leadership.  This doesn’t just mean having the greatest level of market share.  It includes leadership of share of voice and having a distribution network which allows the greatest level of market coverage.  Do you have the power to demand prominent eye-level shelf space?
  3. Country of Origin:  Different cultures prefer and appreciate different brand and product attributes.  Does your brand benefit by its relation to its country of origin e.g. German cars have a reputation for good build quality and the quality of their engineering.  Welsh lamb and Scottish beef both have a reputation for high quality.
  4. Uniqueness of Product or Service:  Do you do something no one else does.  Do you have a key, distinctive sets of assets.  Apple have strong marketing assets in the appearance and design of their products and the level of innovation.

You need to assess your distribution-based assets.  This means assessing the size and quality of distribution networks.  This assessment isn’t just one of geography; it is an assessment of whether your distribution network allows the correct level of intensity in the marketplace.

Think of Pizza Express.  This was a business which was created with a unique identity; reasonably priced Italian food together with live music (mainly Jazz).  It expanded to a chain of 550 restaurants.  So it achieved significant market intensity, but in doing so it lost its uniqueness and became yet another high street restaurant chain.

You need to assess whether your distribution network is fit for purpose; whether you can guarantee supply lead times and react quickly to market change.  You need to assess your level of control over your distribution and supply chains.  Do you control your marketplace or, as is the case with the big supermarkets, your retailer controls the marketplace.  For example, Irn Bru is the market leading soft drink in Scotland and McDonald’s wanted to sell it in their restaurants; but Coca Cola had sufficient market power to prevent Irn Bru being sold in McDonalds and they retain their position as the soft drink supplier in McDonald’s premises.

You need to assess you internal assets which lie outside you marketing function and their ability to be deployed to assist your marketing efforts.  Can these assets be deployed to create new market advantages.  Can you use cost structures to create greater profit margins? Can you gain better productivity and plant usage (e.g. process ergonomics).  Can you gain economies of scale?  Do you have better information systems than your competitors?

Can you utilise you market alliances?  Do you have agreements with third parties which allow access to markets through local distributors?  CAN YOU USE CONSULTANTS TO GAIN MANAGEMENT EXPERTISE?  Do you have exclusive access to technological developments and processes? Can you gain through licensing and joint ventures (for instance many car manufacturers now share chassis platforms which lowers costs).  Are you able to gain exclusivity? For example, when the iPhone was launched in the UK it was sold exclusively through Carphone Warehouse.

Organisational competencies; the abilities and skills within a company, can be classed as follows:

  • Strategic Competencies:  Management’s skill and ability to push strategies forward and their ability to communicate a strategic vision.
  • Functional Competencies:  The functional skills of people in your organisation, human resources management, operations, IT, etc.  In marketing, can you properly manage customer relations and channels. Do you properly manage your product portfolio and do you have good new product development processes?
  • Organisational Competencies:  Your ability to manage the day-to-day challenges of your businesses.  This includes areas such as sales force co-ordination, the ability to run promotional campaigns such as special offers and discounts, the ability to coordinate external relationships with suppliers, distributors and retailers.
  • Internal Competencies:  The abilities and skills of those in your organisation at a strategic, functional and operational level.  This includes specialist and professional skills e.g. an HGV licence, academic and professional qualifications, etc.
  • Team Competencies: Often the sum is greater than the individual.  A team that works well and efficiently, formally and informally.  Teamwork is a skill.
  • Corporate Level Competencies: Your organisational skills as a whole e.g. the ability to exploit a knowledge base and having effective and efficient communication channels.


A few important definitions

As I repeatedly mention on this blog, I keep seeing recruitment advertisements for marketing staff only to read the job description and discover that the recruiting firm has a muddled position as to what marketing actually is.

I suspect this all started when sales representatives began using the hard sell to up their commission. Salesmen were rebranded as marketing personnel.  The same thing has happened with customer service.  To me customer service means after-purchase assistance, fixing problems and giving advice; but to many firms customer service means sales.

It isn’t just firms misusing the term marketing to cover sales.  There are other errors.

I see a lot of advertisements for firms wanting a multi-tasking superhero.  They expect their new marketing maestro to research and prepare their strategy, write all their copy, build their website, do their photography and draw their graphics.  There are huge issues with this job definition.  I seriously doubt a single individual has all of the above skills particularly as the role mixes numeric and analytical skills, technological expertise and artistic flair.  I have yet to meet any talented artist who is also a whizz with mathematics and able to adequately turn raw data into applicable information.

Another trend I see is the use of the phrase ‘Sales and Marketing’.  This term baulks for two reasons, firstly it implies that marketing is a subordinate function of sales, and secondly, it implies that marketing is part of an approach best described as management in silos. This appears to be a distinctly old-fashioned approach.

So I think it is useful to go back to first principles and try to appropriately define the role of both marketing and sales.

There are two types of sales; direct sales and indirect sales.  For complex or high value sales, the direct approach dominates.  This is often through the use of sales representatives and key account representatives.  It is a personal selling approach.  Indirect sales are how most low value, uncomplicated sales take place.  In fact most consumer purchases are through indirect sales.  These are often transactional commodity sales.  This is the use of retailers, websites, and distance selling techniques.

In business to business markets, it is often the case that 80% of sales are by direct means and the remaining 20% by indirect sales (there is the Pareto ratio again).

Unsurprisingly, sales is the physical act of selling and it has a complex and relationship with marketing but sales is not marketing. Marketing is not a function of sales; sales is a function of marketing.

Some academics see sales as a particular form of marketing at an individual of group level.

Personally, I see marketing as the framework which creates the climate for sales.  It is the process of adapting your organisation to the sales environment and matching your organisations mission to that of your customers.

Sales staff should work to a sales plan. Sales campaigns are the planned stages in acquiring new customers and increasing orders from existing customers.

Marketing is a formal business discipline which has developed over the last 150 years in four stages:

  1.  The Age of Production:  This was when marketing was contained by the limits of production. Products were often made to order so marketing was often limited to individual customers.
  2.  The Age of Sales:  The task of marketing was to get rid of everything the company produced.  This is the post-war era, particularly in America.
  3.  The Age of Consumers: this is effectively from the 1980’s onwards.  It marks the rise of consumerism and designing products to meet consumer needs rather than expecting consumers simply to buy what you are willing to offer.
  4.  The Age of Interactivity:  Some argue this is the current age with micro-segmentation of markets; mass customisation; brand communities and brand networks. An age of self-actualisation and self-esteem.

Marketing is more than the facilitation of commercial exchanges (otherwise referred to as sales).  Marketing is getting the right products, to the right customers, in the right place, at the right time, in the right way, and for the right price.

Rather than production capacity defining the market, Marketing is the development of a customer-centric model, defining your business through a customer focus.  Production-orientated marketing is no longer a valid assumption.  Sales-driven marketing is similarly defunct.

We have moved to a new model of marketing which is defined by global markets, unpredictable and fickle consumers, new purchasing patterns, new methods of distribution and new sales channels.

As David Packard said, “Marketing is too important to leave to the marketing department”.  It is a cross-functional discipline important to all business stakeholders.  It is the strategic process of transforming an organisation to match the needs and wants of its customer base.

Think of marketing as the strategic element of your business whilst sales is a tactical element.

Also, marketing is the top level process which links your business with ‘creatives’.  that means graphic designers, advertising agencies, social media management, web design and copywriters.  It isn’t the production of graphics or text, it is the process of defining the boundaries within which such creative content is produced.

Before developing a marketing plan, you need to carry out a marketing audit.  This audit process tests whether your organisation is capable of achieving its desired strategy, whether it meets the environmental and cultural expectations of proposed market segments.  A marketing audit has three parts.

  1.  An Environmental Audit; both the macro-environment characterises by the term PESTEL (Politics, Economy, Society, Technology, Environment, Legal); and the micro-environment of Porter’s five forces (which includes the internal stakeholders within an organisation)
  2. A Strategic Audit; the alignment of marketing objectives with an organisation’s vision, mission, aims and goals. The analysis of markets to articulate a desired market position and target segments.
  3. A Functional Audit; the organisation of a business structure so as to meet the intended strategy and achieve objectives. Where the function of marketing sits within an organisation and how it links to other functionality.

Once this audit is completed, you create a marketing plan; the systematic approach to achieving the desired strategies and goals.  This can involve the use of tools such as SWOT analysis and perceptual mapping.  The development of an appropriate marketing mix.  Setting appropriate budgets. Defining how the plan is to be controlled and setting review processes to ascertain the level of plan success.

A marketing plan should establish, direct and control marketing and related activities across the desired mix within defined time periods.

And it is worth remembering that marketing plans are living documents which need constant adaptation to meet the changing external environment.

Establishing Organisational Capabilities

It is an essential part of developing a sustainable marketing strategy that you establish and assess your organisational capabilities.  It is key to identify where your organisation is superior to its competitors and potential competitors.

All organisations are made up of specific assets and competencies.  Do you know what they are in your organisation?

It is also true that no organisation is good at everything.  There will be things you do better than other parts of your business process.  There will be areas which need improvement or which need additional investment.  You may be spending too much on other processes.

The following is a list of the type of assets which make up an organisation:

  1.  Sales Advantage:  Market Share; Relative and Absolute Media Weight; Leverage over Suppliers; International Presence; Sales, Distribution and Service Coverage; Specialist Skills due to Scale.
  2. Production Processes:  Level of Contemporary Practice; Flexibility; Economies of Scale; Capacity Utilisation; Patents; Unique Processes and Services.
  3. Working Capital:  Quantity; Access to; Location of; Access to Credit.
  4. Sales/Distribution/Service Network:  Coverage; Relationships; Size; Quantity.
  5. Relationship with Others;  Suppliers; Financial Institutions; Joint Ventures; Joint Exploitation of Assets e.g. Technology.
  6. Property:  Type; Location; Ability to Expand; Quality.

So Muller Dairies have a significant asset in owning the patent to the corner yoghurt pot.  House of Fraser once had an asset in its store portfolio but, with changes to the retail sector, that asset turned into a liability as stores were often of Victorian construction, difficult to maintain, and unsuitable for modern technology installation.

However, you organisations assets must not be viewed in isolation.  You also need to establish your organisational capabilities.

A tool which can be used to ascertain your organisational capabilities is value chain analysis.  This is more normally used to discover where your target customers see value in your organisational processes so that scarce resources can be targeted on those which offer the most value to customers.  Areas where customers do not see value can have their costs minimised.

In value chain analysis, there are two categories of process: Primary activities such as manufacturing processes and product distribution and Support activities such as human resources management and procurement.

But key competencies can be classed as either primary or support activities.  Davidson (1997) split key competencies into three areas:

  1.  Marketing:  New Product Development; Business Analysis; Category Management; Brand Extension; Brand Equity Management; Unique Market Research Techniques; Planning Skills; Database Management; Advertising Development; Customer Targeting; Design Testing.
  2. Selling:  Supply Chain Management; Account Management; Relationship Development; Customer Service;  Building partnerships; Motivation and Control; Planning; New Account Development; Merchandising; Presentations Skills; Space Management; Negotiation Skills; Pricing and Promotion; Trade Marketing.
  3. Operation:  Motivation and Control, Process Engineering, Industrial Relations, Inventory Control, Cost Management, Productivity Improvement, Planning, Health and Safety; new Facility Development, Management Training and Development;  Speed of Response; Flexibility;  Total Quality Management; Purchasing; Payment Systems, Capacity Utilisation; Product commercialisation; Supplier Engagement; Property Skills; Global Operation.

I don’t quite agree with the content of Davidson’s key competency groups.  Some items classed in Selling or Operations are more obviously marketing functions and vice versa, but his point stands; You must strategically align you organisation’s assets with your competencies.

It is then possible to use them to build a low-cost, a differentiated or a niche position in the marketplace.

Jobber (1995) believes managers should ask four key questions when attempting to match organisational assets with business competencies:

  1.  Marketing Assets:  Does your current market segment allow you to take advantage of current market strengths?
  2. Cost Advantage:  Can you enter price sensitive segments consistent with an organisation that has a low-cost base?
  3. Technological Strengths:  Do you have superior technology that can be used to your competitive advantage?
  4. Managerial Capabilities and Commitment:  Do you have the managerial and technical skills to succeed in your chosen segment?

Most importantly of all, is entering a particular market segment compatible with your organisations long-term aims and objectives?  If not, you may only be diverting time and scarce resources away from the common goals of your enterprise.

This is where tools like the Shell Directional Policy Matrix can be used.  By using weighted criteria, you can assess potential target markets based on segment attractiveness and the strength of your organisational assets and competencies.