The multilevel effect of marketing activities on sales, revenue and profitability in a micro-enterprise.
| Autor | Porto, Rafael Barreiros |
| Cargo | Texto en ingles - Ensayo |
1 Introduction
Marketing activity is characterized as being a management task that involves planning the conception of products, their price, promotions, and distributions to meet consumer demand (Wilkie & Moore, 2007). It is a set of entrepreneurial actions that are part of the management process that connects a business with its consumers and can be configured in several ways (Finkelstein & Peteraf, 2007). It is generally measured as an amount of managerial work executed in sales, converting input into output. In short, it is what marketing professionals do and is central to marketing concept from a managerial perspective (Nicolau, 2013).
The effectiveness of such activities in terms of revenue and profitability is a topic that brings together the interests of professionals and researchers from the business management field (Mintz & Currim, 2013; Roberts, Kayande, & Stermersch, 2013). However, due to the operational limitations involving how to measure activities and how to relate them to business performance indicators, researchers have made few advances in the scientific knowledge that could improve the effectiveness of marketing management.
Part of what is researched regarding this subject is related to the marketing costs (especially advertising) described in accounting information such as the company's income statement and balance sheet (Raman, Mantrala, Sridhar, & Tang, 2012). This line of investigation has been rewarding (Guissoni & Neves, 2013), but leads to general findings on the influence of marketing costs on financial performance without specifying which specific cost is responsible for variations in rates of returns. Moreover, these studies do not indicate the incidence or execution of an individual activity itself, but rather, the alleged costs connected to them (Ward, 2013). Thus, the true sources of the company's product and service sales, those that directly affect consumers, remain unknown.
The reason for the lack of studies directly investigating marketing activities and financial performance involves the differences between what is recorded and focused on company customer management and what is recorded for accounting and financial purposes (Hill, 2001; Ward, 2013). In general, business documents do not "talk" to each other and do not have the same purpose or target. Furthermore, there is the problem of directing the information: marketing activities are almost exclusively intended for managers to decide on the sale of products and accounting cost information is generally directed at decisions about the company's financial results (Monteiro & Barbosa, 2011).
These difficulties are partially overcome when studies consider diverse levels of analysis (McDonald, Mouncey, & Maklan, 2014): one that concerns a company's commercialized products and another that concerns the company as a whole, the latter encompassing the former. To bring forward this solution, studies need to investigate both levels of analysis, containing disaggregated (individualized) data regarding product commercialization and aggregated data regarding business financial performance.
This approach has come across obstacles, especially in the context of micro and small businesses (Brooks & Simkin, 2011). 'These do not generally record their marketing activities with precision and their accounting information may not be audited regularly, which hampers investigations. However, the incidence of these companies in the Brazilian market is quite high (Sebrae, 2015) and they do, nonetheless, implement some marketing activities, controlling their financial operations to some degree.
The effects of implementing marketing activities to raise company sales and increase profitability for the owners of or partners in micro-businesses remains open for scientific research. To pave this way, the general aim of this paper is to dynamically assess the effectiveness of marketing activities in generating product sales, revenue, and elasticities in profitability in a micro-enterprise.
To this end, we investigate (1) the effect of each marketing activity carried out by a micro-enterprise on sales, for each one of its daily commercialized products; (2) whether the entire set of marketing activities in an aggregated way explains monthly variations in revenue; and (3) whether these marketing activities explain monthly variations in sales returns (elasticities of profitability), comparing to the effect of product costs. Thus, the aim is to show a method for evaluating marketing activity returns in a small company.
2 Marketing dynamics and the financial performance of small enterprises
From a managerial perspective, what marketing professionals do is a set of actions that involve analyzing market opportunities, choosing target markets, developing marketing strategies/ programs, and organizing, implementing, and controlling marketing efforts (Zait, 2009). Marketing activities are generally analyzed via the execution of the marketing mix--product, price, place, and promotion (Asgarnezhad Nouri, Sanayei, Fathi, & Kazemi, 2015). They are part of marketing capacities (e.g. adaptation of marketing process, use of market information to develop marketing processes, etc.--Vorhies, Orr, & Bush, 2011).
Traditionally, studies that relate marketing activities with financial performance use the Compustat databases with data on Profit Impact of Marketing Strategy--PIMS (Boyd, Farris, & Hildebrandt, 2004). The data are on a business strategy unit level for North American companies and provide information regarding relative market share, marketing costs, relative prices, relative product quality, introductions of new products, and product line innovations, etc.
Recent advances in the interface between marketing and finance have provided empirical evidence on the impact of a specific marketing activity on company performance, using real and not only North American longitudinal company data (Morgan, 2012). The Market Response Models--MRM (Hanssens, Parsons, & Schultz, 2003) have been quite widely used since the end of the 1990s to explain the dynamics of the effects of marketing activities.
Some studies assess the effect of each marketing activity on product sales over time, by separating short and long term effects (Ataman, Van Heerde, & Mela, 2010; Jandaghi, Amiri, Amini, & Darani, 2011), and others investigate the dynamic effect of these activities on revenue, profitability, and value in the financial market (Feng, Morgan, & Rego, 2015; Lima & Porto, 2012; Mizik, 2014; Siddhanta & Banerjee, 2014).
Specifically, Hanssens and Dekimpe (2008) support these studies by reporting how marketing investment evaluations are useful not only for marketing functions, but also for the entire company. They use contextual explanations involving the Chain of Marketing Productivity -- CMP (Rust, Ambler, Carpenter, Kumar, & Srivastava, 2004) and flow metrics directed towards the shareholder from Srivastava, Shervani, and Fahey (1998). To ensure higher or quicker and more sound profitability, they propose that marketing investment can generate immediate results in company revenue flow and in building brands and customer base, which are not very visible in the short run.
In turn, Mizik (2014) demonstrates through aggregated company level data that only a small portion of the total financial impact (profit) of brand equity (one of the most strategic marketing activities) is revealed immediately (current year), whereas most is realized in subsequent years. This result is consistent with the proposal from Hanssens and Dekimpe (2008) regarding the effect of brand building being more visible in the long run; however, Mizik (2014) found a lot of heterogeneity in these effects (some companies only presented immediate brand equity effects while others only presented them in the long run).
Nonetheless, the effects of marketing on the finances of micro and small businesses are quite distant from the reality that the PIMS, RMR, and CMP studies have investigated. The owners or managers of small enterprises are generally not trained in marketing and hardly use professional marketing techniques (Hankinson, 1991). For example, aspects such as the customer relationship, word of mouth, and dialogue with clients are practiced by managers or owners without the use of professional marketing techniques and any awareness of these being systematized marketing actions (Coelho, de Miranda, Camargo Filho, Freitag, & de Almeida, 2015).
In broader terms, McCartan-Quinn and Carson (2003) list some of the marketing characteristics that the small businesses have in common: (1) the limited physical and financial resources results in asymmetrical and limited marketing actions; (2) generally, they do not systemically record the marketing actions implemented; (3) they do not trade their shares on a stock exchange; (4) because they are not mandatorily audited, some of the companies do not have reliable accounting data; (5) many do not have a strong brand or market power; and (6) the marketing actions implemented generally aim for immediate increases in revenue and accounting profit, and these actions may often be ineffective.
The greatest incidence of small enterprises is in commercial retail. Besides the previous features, these companies are characterized for: (1) having few sales outlets, if not only one; (2) rarely engaging in promotional activities and often limiting themselves to identifying the name of the shop or sporadic actions involving posters, leaflets, or gifts; (3) there is little variety in product assortment or little variety of brands, with cases of companies that sell only one product; (4) they regularly use price reduction strategies, despite often not measuring the returns from these actions; (5) they occasionally renovate the store externally or internally; and (6) they may make use of a sales team that earns via sales commissions (Braghin, Higashibara, de Freitas, Catuchi, & Mancini...
Para continuar a ler
PEÇA SUA AVALIAÇÃOCOPYRIGHT GALE, Cengage Learning. All rights reserved.
