How marketing must budget for client satisfaction
The latest edition of the Chartered Institute of Marketing’s magazine “Catalyst” has a number of articles related to creativity especially involving brand, image and advertising and the overall “marketing” spend. However, the purpose of every business is to make money, for the benefit of the owners, the workforce and the long term future of the business. Brand, image and advertising are contributors to producing income, but they do not in themselves make money, but only spend it.
The Chartered Institute of Marketing (CIM) defines Marketing as “the management process that identifies anticipates and satisfies customer requirements profitably” Thus “marketing” is a management process and the responsibility of the marketing manager. Whether a business is large or small, its long term future will depend on the amount of income it makes and the amount of profit it retains. It is the marketing managers who have the responsibility for producing profitable income for the long-term future of the business by anticipating and satisfying customer requirements.
Sales are made when the product or service package presented to the potential customer solves the customer’s problem at a price they are prepared to pay. The product or service package will include not only the benefits of the product or service, but also its delivery and the manner of payment and subsequent service. Advertising, promotion, customer relationship management (CRM), are all important, but Selling is arguably its most important aspect, as it is the main interface with the customer and is directly responsible for generating the revenue on which the business depends. All marketing activities are inter-dependant and collectively contribute to support sales success. Making profitable income requires careful management of all the assets used to satisfy customer requirements.
Business is about making profit. As the late Robert Townsend said, “If you’re not in business for fun or profit, what the hell are you doing here?” Profit is what is left when all the costs and investments involved in running a business have been subtracted from all the revenue generated by the business activity. Profit rewards the investors and provides for reinvestment to develop and sustain the business.
In recent years marketers have tended to concentrate on the customer to the exclusion of everything else. Customer satisfaction is vitally important, but sustainable profitable revenue is the prime requirement of every business, and customer satisfaction is merely the means of obtaining it. Generating profitable revenue is the responsibility of the marketing manager. Without sustainable, profitable revenue, there is no profit, and without profit there is no business.
The job of the of the marketing manager is to balance all the marketing activities to support and maximise the generation of sustainable profitable income for the long term, while at the same time, minimising the costs incurred and the use of assets involved in its production. When evaluating the contribution of the marketing function, its performance must be measured in terms of output and efficiency. From the business point of view, the main factors will be the amount of sustainable profitable revenue produced together with a measure of its efficiency in converting marketing costs and investment into revenue. Using the CIM definition of marketing, it is soon apparent that there are many cost centres involved in “anticipating and satisfying customer requirements profitably”.
Here is just some of cost centres involved with customer satisfaction, with reasons for their inclusion:
- Warehousing costs - Product is produced for customer demand and has to be stored before it is sold. Thus there are costs for heat, light, power and warehouse wages.
- Distribution costs - Getting the product to the customer involves fuel, postage, freight and associated salaries.
- Advertising cost - Communicating with the market includes media and production costs.
- Promotion costs - Promotional schemes, exhibitions and PR expenditure.
- Web-site costs - Includes design, registration and management costs.
- Selling costs - The salaries and expenses of all direct sales staff.
- Sales office costs - Sales admin and marketing salaries, office running costs.
- Discount - All discounts on accounts and invoices, because this is a direct cost against income.
- Market research costs - Market research is a pre-requisite to anticipate customer requirements.
- Bad debt costs - Bad debt results from customer credit management.
- IT costs - Software costs and licences, hardware rental and lease directly associated with sales and customer support.
- Vehicle costs - The cost of vehicles uses specifically for selling and selling support, capital and leasing costs.
In addition, the marketing manager must be aware of the value of the assets used by the sales organisation, including finished stock, dedicated vehicles and debtors.
The late Peter Drucker, is famously quoted as saying that in business “if you can’t measure it, you can’t manage it.” The performance of the marketing manager may be judged on the amount of profitable income produced, and the efficiency of its production measured in terms of the level of costs, investment and assets used, rather than the questionable value of an intangible asset such as a brand name. Ultimately, every aspect of business operations must be seen in terms of its contribution to producing income.
For many businesses, the marketing budget is still seen in the narrow terms of advertising, promotion, social marketing and other communication based activities. However, for the marketing manager, as well as the chief executive and the finance director, defining all the constituents of the marketing budget is essential, if assets are to be correctly allocated and managed profitably.