The following is an extract from a letter sent by a management consultancy company to a industrial company. The consultancy company has undertaken a series of interviews with senior managers on the organisation of marketing activities with a view to helping in the preparation of the current year's marketing strategy.
PQRS Industrial LLC.
Further to my recent visits and interviews with managerial personnel, please find a brief resume of our consultant's findings.
1. Poor communication of markting information between and within departments
2. Insufficient interaction between marketing and sales function
3. Limited understanding of customer needs
4. Low awareness of the nature of competitive threats
In view of these observations it is our recommendation that your company conducts a full marketing audit prior to the preparation of this year's marketing plan. This exercise should identify information gaps and help you to appraise future marketing opportunities.
Draft out the contents that PQRS Industrial LLC should cover in the marketing audit and explain why it is a useful technique for the company to use.
I would like to thank Dr. A. K. SRIVASTAVA, my course leader for Marketing for his continuing interest, encouragement, and support in helping me complete this assignment.
We are all influenced by the thoughts and ideas of other people which tend to drift into the subconscious and are not always distinguished clearly from one’s own. I have attempted to give references for sources of work by other writers but apologise to any concerned if acknowledgement has inadvertently not been recorded.
2. List of Figures
5. The Organisation
7. The Marketing Environment Audit
8. Marketing Strategy Audit
9. Marketing Organisation Audit
10.Marketing Systems Audit
11.Marketing Productivity Audit
12.Marketing Functions Audit
13.Major Overall Findings
15.Usefulness of Marketing Audit
LIST OF FIGURES
1. Pie Graph showing the share of various competitors in the Gulf cell phone market
2. A relative comparison of the various brands of cell phones
3. Bar Graph showing the share of each market in Ali Industrial LLC’s profits.
4. Components of Strategic Market Planning
5. Developing Effective Plans
A marketing audit systematically examines a marketing group’s objectives, strategic organisation and performances. Unless we have a proper control system to identify our mistakes, we continue to repeat them and the overall performance suffers. A marketing audit aims at identifying the weaknesses and plans the necessary improvements to correct these weaknesses. Just like a financial audit, a marketing audit should be conducted regularly if it is to serve its purpose most effectively. A marketing audit by outside consultants, though more expensive is usually more objective and effective.
In this assignment the various issues of concern being faced by Ali Industrial LLC have been analysed and other latent problems have been revealed. Towards the end, major overall findings have been reported and recommendations, both short term and long-term have been given. Finally the advantages of a marketing audit and its usefulness for Ali Industrial LLC have been explained.
As the world in which an organisation functions is highly dynamic, “each company needs to periodically reassess its marketing effectiveness through a strategic instrument known as Marketing Audit.” (Kotler, P., 1995, p101.) A marketing audit is a control mechanism which systematically scans a marketing group’s strategies, organisation and actual performance. A comprehensive marketing audit “evaluates how effectively the marketing organisation performed its assigned functions” (Band, W, A., 1984, p24 cited by Dibb et al., 1994, pP576).
Ali Industrial LLC is a manufacturer of cell phones operating in Muscat, Sultanate of Oman since 1988. Apart from the cell phones Ali Industrial LLC also produces semi-conductors, two way radio systems, paging and data communication systems as well as other wireless communication devices, which however form a minor portion of the total sales. It produces these products under the brand name “ SMART ”. Ali Industrial LLC has twice been the recipient of the ‘Most Innovative Firm- Product Category’ award from the Economic Council of the GCC.
In this report, I have critically analysed the various problems that Ali Industrial LLC is facing in its total environment. Henceforth I have drafted out the various contents that it should cover in its marketing audit, particularly emphasising the issues of concern raised by the consultancy company, with an aim of identifying key information gaps and weaknesses and giving recommendations for the same.
Part 1 Marketing Environment Audit
A. Economic: The economic environment of the GCC, which is primarily targeted by Ali Industrial LLC as its market is highly conducive to the company’s successful growth with annual growth rates of GDP ranging between 5.5 % to 10 % (Sharjah Commercial Directory, 1995-1996) and per-capita incomes being amongst the top 10 of the world.
B. Demographic: Though the population in the region is increasing both naturally as well as due to the immigrant population, the company has wrongly assumed it to be a major indication of potential increased demand of its products.
C. Technological: Miniaturisation, the concept of “ small is beautiful ” has also set in the industry and Ali Industrial LLC has strategically used this opportunity and utilised its technological competitive advantage to bring innovative products in the market.
D. Cultural: Mobile phones are not merely identified as a status symbol but have become a part and parcel of everyone’s daily life. They are perceived as a fashion accessory and an ideal gift item among the young, local community. The clear benefits of GSM’s exceptional voice quality, built in security and importantly, the advantages of its international “ roaming capabilities” (Al Qemma, issue 4, p36) have appealed to the population in the region. Using its R&D the company has created a quality position in the minds of its customers.
E. Political: Oman is one of the oldest political entities that has been established in the Arabian Peninsula. Its membership in the GCC was the first step towards economic, social, political and military integration in the Middle East. The government has encouraged the development and modernisation of the country but recently laws have been passed for compulsory employment of the locals even at senior management positions in the private sector throughout the Gulf countries. Public pressure to ban the use of mobile phones while driving has induced the government to think about imposing stricter laws and regulations and increase taxes and tariffs in the near future.
F. Ecological: The local population is highly concerned about environment safety and only companies having a ‘clean and caring’ image win acceptance of the public.
A. Markets: As of January 1998 there were 237,000 mobile phone subscribers in the Sultanate of Oman and the figure is expected to be around 400,000 by the turn of the century, with the Arab region wide subscription base estimated at 2,500,000. The young, single individuals and working middle aged comprise the highest opportunity segment with the market growth rate at around 21% and 14% respectively. There will be a further boost in the market with “the gulf countries giving top priority to the unification of economic markets at regional levels and the development of a Common Arab Market”. (Al Tijarah, April 1997,p7).
B. Competition: The various competitors and their relative market share can be seen in the following diagram:
A relative comparison of the various brands of the cell phones can be seen in the table below
Standby Time (Hrs)
Apart from the above competitors the company could also face competition from multi-point paging devices with two-way voice transfer facility as well as extended range cordless telephones which could turn out to be potential substitutes for the product in the very near future.
C. Customers: Cell phones are not merely used as a means of communication but are expected to perform a variety of function such as data transfer, scheduling, built-in radio, etc. Though the customers have a favourable opinion about the company’s products and prices, its services and sales team are not considered good enough. Inspite of the fact that the company introduces the latest products in the markets, its marketing research function has done little to actually pinpoint the needs, desires and reasons behind customer’s purchases.
D. Suppliers: The cell phone battery and other component manufacturers are already well established in close proximity and supply raw materials to Ali Industrial LLC on a ‘just-in time’ basis.
E. Distributors and Dealers: Due to its long-term business relationship with Emirates Computers, Ali Industrial LLC distributes its cell phones through the various Emirates Computer branches located in the Gulf region, but in the process has failed to rationally consider other distribution channel options. However the company also directly sells its products to the customers through its sales force.
F. Publics: Though the external publics are satisfied with the company upto some extent, the relation with its internal public is negative.
G. Facilitators: Ali Industrial LLC has its own warehousing facility adjoining the factory premises. Due to the investor confidence in the financial markets resources are easily available by the issue of shares and debentures, and through loans and public deposits.
Part 2 Marketing Strategy Audit
A. Business Mission: The mission of Ali Industrial LLC is to provide top quality, innovative products at lowest prices to their customers.
B. Marketing Objectives and Goals: There seems to be a general vagueness about the mission in terms of marketing and the extent to which it should apply. The top management is oriented towards introducing a product through a push strategy and is mainly concerned with profit possibilities through R&D at the expense of marketing which is treated as a residual activity. The marketing objectives aim at attaining leadership in the local cell phone market, but has been formulated without any proper SWOT analysis.
C. Strategy: The company aims to achieve the above objectives by achieving a competitive advantage through its products. It has, however, allocated just 12% , 8% below the industry average, of its total sales to the marketing budget. Even the sales force, which has been allocated most of the marketing budget, have not shown any remarkable performance. The cost elements of the Marketing Mix are highly biased in favour of the product quality. Service, advertisement and other promotions have been mainly ignored,
Part 3 Marketing Organisation Audit
A. Formal Structure: The marketing organisation is headed by a person having little experience in the marketing field. Reporting to the marketing manager is the sales manager, the market research manager and the advertisement manager. Having come up from the ranks in the production department the marketing head is biased in favour of the product quality and pays little attention to other, equally important, marketing function. The sales force, headed by area managers, is haphazardly assigned different products and territories.
B. Functional Efficiency: There seems to be a communication gap between the marketing and sales department. The sales force often complain about giving them unrealistic goals to achieve, poor compensation schemes and lack of adequate advertisement. The sales force certainly needs to be trained in modern merchandising and selling techniques such as the FAB (Features, Advantage and Benefits) technique.
C. Interface Efficiency: The inter department communication suffers from a series of issues. The management being highly biased towards the quality of the product fully ignores the issues of concern raised by the marketing research and advertisement manager. Moreover, problems have arisen within the marketing department due to the limited understanding of consumer needs and inadequate supporting tools for the sales team.
Part 4 Marketing Systems Audit
A. Marketing Information Systems: Though there is a separate marketing research manager in the organisation, the critical issues seem to have gone unnoticed. Information about developments in the market place is based on mere estimates gathered from data collected through external sources. The need for a separate Marketing Information Systems has never been felt by the company though it suffers from ignorance about competitive threats and consumer needs.
B. Marketing Planning Systems: The marketing plan at Ali Industrial LLC is drafted for the whole organisation without segregation for different products or specific markets and is prepared without conducting a thorough SWOT analysis. Sales quotas are set without considering the sales manager or the sales force and this leads to unrealised goals. Quotas for individual sales representatives are also set without considering their markets or their capabilities.
C. Market Control Systems: Due to the lack of adequate marketing information systems the marketing department is devoid of information about customer reaction, customer response and unexpected environmental changes. Lack of proper contingency plans has made it difficult further to realise set targets. Though the per unit profits remain high, Ali Industrial LLC has been unable to optimise its profitability because of its inability to create knowledge and awareness of its products, which could lead to the actual purchases. The distribution services provided by Emirates Computers have made Ali Industrial LLC complacent when evaluating emerging channel opportunities.
D. New Product Development System: Ali Industrial LLC’s excellent R&D facilities have given it an edge over its competitors in developing new and innovative designs and features in its products. Keeping in view the likely government regulation banning the use of mobile phones while driving, Ali Industrial LLC has developed cell phones with microphone facility for a ‘hands-free’ option while talking. Another innovative product likely to be released by the company in the near future is the ‘Kinetic Cell Phone’ which would draw power from the movement of the body and convert the kinetic energy into electric energy, thereby eliminating the need for batteries. This would also help the company in miniaturising their cell phones and further promote their products as being environmentally friendly.
Part 5 Marketing Productivity Audit
A. Profitability Analysis: A major portion of the company’s profits comes from the sale of cell phones. “Since pricing is the only element in the marketing mix that is revenue generating it should be used as an active instrument of strategy in major areas of marketing decision making.” ( Czinkota et al., 1996, p520)
The percentage of profits, of Ali Industrial LLC, earned in each of the six GCC countries is shown in the diagram below.
B. Cost Effective Analysis: The sales force, inspite of being supported by a major portion of the marketing budget seems to be ineffective due to the mismanagement of funds. Effort needs to be made to increase the marketing budget and to allocate it wisely towards other neglected activities such as advertisement and sales promotion.
Part 6 Marketing Functions Audit
A. Products: “Today the consumers view the product not merely as something tangible but as a bundle of utilities or satisfaction.” (Onkvisit, S. and Shaw, J, J., 1997, p377). Scientifically designed after heavy research, SMART products offer a complete, total offering boasting of several advanced features and available in a variety of colours to appeal to the choice of the younger generation.
B. Price: The prices set by the company are set on a cost plus 10% - 20% profit margin. Since the company engages in huge R&D, its costs increase too but the customers perceive the price of the product as reasonable. However the company has failed to achieve any marketing based competitive advantage due to the insufficient use of sales promotion schemes and advertisements.
C. Distribution: Ali Industrial LLC aims at being the market leader in the cell phone division, however the coverage of the market seems to be severely inadequate as the exclusive distribution channel has failed to effectively satisfy customer needs. Moreover the limited, unmotivated sales force is also not performing to its full capacity.
D. Advertisement, Sales promotion and Publicity: The organisation’s advertisement objective aim at creating awareness among all its potential customers within the targeted segment. However the haphazard allocation of funds on the advertisement budget makes the objective quite unrealistic. The advertisements of the company merely emphasise the high quality. The sales promotion activities are negligible and fail to create any substantial impact. Publicity too is made use of merely on the launch of a new product.
E. Sales Force: There is a single sales manager to guide the various area managers who in turn guide the sales representatives. The sales team do not seem to work with enthusiasm, effort or motivation due to the inadequate incentive schemes and lack of proper scientific training. Though the company has the potential to be the market leader in the cell phone division, its efforts bring about meagre results due to an unorganised and inadequate sales team competing with the highly specialised sales teams of the competitors.
Major Overall Findings
1. The company’s marketing objectives are vague and unrealistic
2. The company’s strategy is not taking changing distribution patterns into account.
3. The company is run by a production organisation obsessed with research and development at the expense of marketing activities.
4. The marketing budget of the company is inadequate.
5. The company’s marketing mix is unbalanced with inadequate spending on advertisement and sales promotion.
6. The company’s sales force is ill-equipped and demoralised.
7. There exits a conflict between the Marketing and Sales functions as the sales force is given unrealistic targets without adequate incentive schemes.
8. The company lacks a well conceived and effective Marketing Planning System.
9. The company lacks a proper Marketing Information Systems and has very limited understanding of its customer’s needs or its competitors' strategies.
10. The company also lacks a proper Marketing Control System.
In view of the above findings it is recommended that Ali Industrial LLC undertake the following action:
+ Hire an experienced and dynamic marketing head from the outside.
+ Increase the marketing budget to the industry average of 20 % of sales.
+ Conduct regular SWOT analysis, not only of the company but also of other competitors in the market to strategically develop a proactive approach to any changes in the business environment.
+ Shift the marketing mix emphasis to advertising and sales promotion activities.
+ Develop a proper advertisement campaign hiring freelance specialists and other advertising agencies. Strengthen the brand name by emphasising the slogan “ SMART- the choice of smart people ”.
+ Introduce ‘Constant Connection Programme’ in the market allowing SMART cell phone owners to be constantly connected even in the unlikely event of a SMART cell phone needing repair, by extracting the confidential information from the telephone’s memory and transferring it to an identical replacement unit in minimum time.
+ Introduce ‘Ready to use Gift Pack’ for various models with a pre set number and a pre installed “Speak Easy” (Al Tawasul, April 1997, p4) GSM card that could be used straight away. Apart from serving as an ideal gift item it would also save the company’s customers the trouble of going to the telephone exchange for the GSM card.
+ Hire a sales force trainer to train the sales representatives in modern merchandising and selling techniques such as ‘FAB’ (Features, Advantage and Benefit) and ‘L-O-C-A-T-E’ (Listen, Observe, Combination, Ask questions, Talk to others, Empathise) .
+ Introduce a new incentive compensation scheme, sales support system, and other performance recognition programmes to motivate the sales force. This will also increase the value added as a result of good customer service.
+ Set up separate sales quotas and sales teams on the basis of territories or products and set sales targets after discussions with sales manager and sales representatives.
+ Develop a proper Marketing Information System to provide accurate, sufficient and timely information about developments in the marketplace and to help in formulating effective Marketing Planning Systems.
+ Develop a proper Strategic Marketing Planning based on the Corporate Strategy of the firm. See diagram below:
+ Use the multi-factor analysis throughout planning and control to provide an ideal framework for evaluating the existing channels or selecting new channels and develop a win-win scenario to achieve competitive advantage through synergy of working together with the intermediary, thereby giving more value to the customers, keeping costs down and the market share up.
+ Raise in-store visibility by setting up exclusive “ SMART ” displays and demonstrations in retail chain stores.
+ Conduct separate “vertical audits” (James, E, F., 1996, p67) evaluating specific operational or functional areas in the firm regularly.
+ Develop contingency plans and scenario plans on the basis of a ‘sorted’ environmental audit. PEST environmental changes and competitor forecasts should also be rated in terms of their significance to the business and likely occurrence..
Usefulness of Marketing Audit
1. The first and the foremost advantage that the use of the marketing audit will bring to Ali Industrial LLC is the revelation of the latent malaise within the company.
2. The marketing audit is intended to identify source of the strengths and weaknesses and opportunities and threats, both within and outside the organisation and it provides a basis for evaluating the integration and co-ordination of the firm’s marketing efforts across units and levels of responsibility.
3. Conducting marketing audit on a continuous basis becomes a useful information source to draw on for decision making and planning throughout the year.
4. The audit will essentially serve as a data base of all market related issues with which Ali Industrial LLC is concerned.
5. The audit can be a useful transfer device for when one manager leaves the job and another takes over, the incoming manager can quickly pick upon understanding of that department’s business.
6. The marketing audit will help in gathering information about customers, competition and environmental developments that may affect the marketing strategy.
7. It also helps in exploring the opportunities and alternatives for improving the marketing strategy.
8. The marketing audit will reveal all information gaps within and between different departments and timely remedial action can be undertaken.
9. It will also help in correctly allocating the budget and in systematically planning the role of different elements in the marketing mix.
10. Based on a realistic assessment of the of the total environment, a marketing audit will help reduce conflicts by establishing achievable business objectives.
Thus we can see that the problems in Ali Industrial LLC were infact symptomatic of deeper company problems. Since its management is obsessed with the research and development, it has neglected the marketing activities as ‘something else that is to be done’. Undertaking some marketing activities will help it exist, but existing is a very limited aspiration. The company has to implement the recommendations and think of itself as providing ‘customer creating value satisfaction’. It must inculcate this idea into the minds of each and every employee in its several departments. The integrated effort should be emphasised by the top management themselves, who should serve as a role model. Only such an effort on the part of the organisation can help it experience the sweet smell of success and entrepreneurial greatness throughout the vigorous years of the next millennium.
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2. Czinkota, M. R., Ronkainen, I. A., and Moffett, M. H., (1996): “International Business” (4th Ed.): Dryden Press.
3. Dibb, S, Simkin, L, Pride, W, M, and Ferrel, O.C., (1994): “Marketing Concepts and Strategies” ( 2nd European Ed.) : Houghton Mifflin Company.
4. Etisalat, “Al Tawasul”, Etisalat Customer Newsletter (Issue 4, April 1997).
5. Frank, Jefkins (1988) : “Public Relations Techniques” : Heinemann, London.
6. Highway House Communications Plc., “Al Qemma” ( Vol: J, Issue 4).
7. James, E, Finch, (1992): “The Essentials of Marketing Principles”: Research and Education Association.
8. Kotler, P. (1995): “Marketing Management: Analysis, Planning, Implementation and Control” ( 8th Ed.): Prentice Hall.
9. Onkvisit, Sak and Shaw, J, J (1997): “International Marketing- Analysis and Strategy” (3rd Ed.): Prentice Hall of India.
10. Sharjah Chamber of Commerce and Industry, “Sharjah Commerecial Directory” (1995-96).
11. Sharjah Chamber of Commerce and Industry, “Al Tijarah”, (Issue 4, April 1997).
12. The Chartered Institute of Marketing, “Marketing Success” (August 1997).
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