Managing Market-level Marketing Profitability
Posted by Chris Quinn
Dr. Roger Best is a leader in the marketing field with a particular focus on establishing marketing profitability measures that have an established relationship with profitability.
In a series of guest posts, he will outline some basic concepts illustrated by examples that will be provided for your consideration.
Apple, Inc. produced $10 billion in marketing profits in 2009. All general administration expenses, other expenses, interest and taxes must be deducted from the NMC to yield a net profit of $5.7 billion as shown below.
Apple , Inc. (2009)
NMC = $36.5 billion x 36% - $3.2 billion
= $10 billion
Each market served by Apple contributed to both overall company sales and net marketing contribution. For the computer market, Apple produced an estimated $2.42 billion in net marketing contribution.
Apple (2009) Computer Market
NMC = $13.8 billion x 25% - $1.03 billion
= $2.42 billion
While this clearly shows how Mac sales contributed to overall marketing profits, this level of measurement needs to be extended to make it much more strategic with respect to marketing performance and strategies. Apple's computer market net marketing contribution can be broken down into the market variables such as market demand, market share and channel discounts, as shown above.
Apple (2009) Computer Market - Market Level Marketing Profits
NMC = Market x Market x Channel x Percent - Marketing &
Demand Share Discounts Margin Sales Expenses
= $365 billion x 4.2% x (1 - 10%) x 25% - $1.03 billion
= $2.42 billion
This market-level measure of marketing profitability allows management to assess future marketing profits based on strategies that take into consideration growth in market demand, market share, channel strategies, profit margins and investments in marketing and sales expenses.
Dr. Best is a well known author and consultant to many top corporations. His book Market-Based Management is used on top MBA programs and many Fortune 500 companies. To support this book and the Marketing Metrics Handbook, Dr. Best has begun to write a series of Blogs on Marketing Metrics.
He is an alliance partner of Imprint Learning Solutions in the introduction of the Managing Profitable Growth 'team based applied learning' workshop series that link marketing decisions to the profitability of the organization.
Virtual Team Based Workshops Uncover Millions in New Profit Opportuniies- Learn More by Clicking.