Evaluating Marketing Performance Briz Guard

Question: Discuss about theEvaluating Marketing Performancefor Briz Guard. Answer: Methodology:- The methodolgy, adopted for evaluating the marketing plannings of Briz Guard, is based on two different aspects. One of the alternatives for increasing the profitability is by acquiring new clients and the other one is to increase the services fees of the existing clients. The two alternatives have focused on two different factors of marketing. Therefore, the propsected profitability and the potentiality of the two alternatives have been measured under two different approaches. The first approach is based on the expected customer value and other one has focused on the price structure. Expected customer value can be described as the net value, derived from retaining the customers over the years. The strategy of increase of clients can only be helpful in the future years, when the new clients will become existing clients and the company will not have spend any additional expenses for them. Therefore, the methodology has incorporated the Customer Lifetime Value metric to determine the net profit, earned by the company from any specific customer. This metric helps to compute the net financial gain, which a company can get from its customer for a specific period. Thus, the company can ascertain the Prospect Life time Value of its existing and prospected client list. The Customer Lifetime Value is computed on the basis of Contribution Margin. As the CLV defines the expected value of the clients, it is necessary to consider the retention rate of the customers also. Briz Guard applies 10% discount. Hence, it should be consider for the ascertaining the CLV. The CLV of Briz Guard is calculated by using the following formula: CLV = Contribution Margin x [Retention Rate/ 1+(Retention Rate-Discount Rate) By using the above formula, the CLV of all three section for different customer levels are computed accordingly. Then, the average CLV for the different customer levels of each section is then used to calculate the Prospect Life Time Value of each section. The PLV of the each section is then computed by suing the following steps: PLV = Acquisition Rate x [(Expected Initial Margin + Average CLV) Acquisition Cost] The PLVs of each section are then compared to evaluate the feasibility of the first marketing strategy. The other alternative is based on the price revenue structure. The management intends to increase the service fees, applied for the existing customers. It will help to earn higher revenues from each customer. Therefore, if the related expenses and cost remains same in the future, then the company can generate more profit by implementing this strategy. However, it should be noted, that the price of any product or service is adversely associated with its demands. As per economic rule of price and demand relationship, if demand of any product or service rises, it will lead to fall in the price and if it falls, then that will cause the price to rise upwards. On the other hand, if price of any product or service goes upwards, then the demands will go downwards and for the fall in price, the demand will rise accordingly. To evaluate the strategy, the service fees of each section are increased at same ratio. The nos. of customers for each section are decreased as per the price demand equation, presented by the marketing department. Then, the net profit for each section and total net profit of the company is calculated as per the nos. of customers and projected service fees. For further analysis, different service fees are set for different section and the revised demand level is calculated accordingly. Then the net profit of the company is computed in the aforementioned process again. These two projected net profits are compared with the current net profit of the company to measure the viability of the strategy. As, the price-demand equation is based on assumptions, the revised customer level of each section for the two options are increased by 20% to measure the sensitivity level of the net profit in relation to the customer level. The profit margin levels of the two marketing alternatives are then compared with each other as well as with the current profit margin level to measure the effectiveness of each alternative. Interpretation:- As discussed above, the two marketing strategies are based on two different aspects. Hence, two different methods has been applied to evaluate the potentiality of the strategies. The strategy, related to the increase of customers, is measured by using the CLV and PLV of each section. The pricing strategy is evaluated by calculating the estimated net profit under different price levels. As per the given data, the annual variable expense, incurred for each existing customer, is different, whereas, the service fee of each customer is same. Therefore, the contribution margin for each existing customer is computed separately. The individual contribution margin is then used to compute the individual CLV of each customer with the help of the discount rate and retention rate. The individual CLV denotes the amount of prospected value, which can be generated from the individual existing customer. Now, as, it is not possible to compute the individual expenses and CLV of the future customers, the average contribution margin and average CLV of each sections has been computed and used for ascertaining the PLV of the future customers. As per the calculations, it can be stated that the PLV of each section would be negative. It denotes that the future value of the prospected customers is would be much lower the expenses, incurred for new customer acquisition. As per the graph, show n in the appendix, the increase of customers will lead the office section to highest amount of loss. Though, the mall section has lowest number of customers, it would also incur high losses due to this strategy. The college section would incur loss at relatively lower rate than the other two sections. The pricing strategy is measuring by the net accounting profit earned from each section. As per the data, the college section has highest number of customers and the average annual expense per customers is also lowest amongst the three sections. Therefore, it provides highest profit to the company. The office section also generates profits, but due to lesser customers, it cannot generate high profit margin like the college section. The mall section incurs highest average annual expenses per customer and has lowest number of customers. As the result, it is suffering from huge loss. However, if the company increases the service fee at same rate for all the three sections to maximize the profit, then as per the calculations, the number of customers would fall down. As the result, though the overall net profit of the company, as well as, the individual net profits of college and office section would rise upwards, the amount of loss, incurred by the mall section would increase further. By applying different price levels for different sections for profit maximization would generate more profits for the company than increasing price at same rate. The college section can earn higher profits and the mall section can reduce the loss also. However, the office section would earn lower amount of profit than the other option of price hike. The sensitivity analysis reflects that the outcomes of this strategy are very much sensitive with the demand assumptions. If the demand would be 20% higher at the projected price levels than the calculated demand, as per the demand equation of the marketing department, then the company may earn 30% additional profit for same set of price level and 36% extra profit for different price level. Recommendation:- From the aforementioned analysis, it can be stated that the marketing strategy of increasing the price level would be more effective than increasing the number of customers. By increasing the number of customers, the company would suffer from further loss. The rise in the price structure, on the other hand, would help the company to increase the profits. Amongst the two pricing strategies, the different pricing strategy is more profitable. The sensitivity analysis depicts that the company may further accelerate its profitability by increasing the speculated demand level at the projected price structure. However, it has been noticed that the main reason of the failure of the first marketing strategy, is the high amount acquisition expenses. If the company reduces it to $25000, then the PLV for each section will be positive and in that case, the increase in customer level would be very effective for the company. For the other strategy, the company should evaluate its demand equation properly before implementing the strategy. From the sensitivity analysis, it is clear that the profit volume is very sensitive to the demand level. If the actual demand becomes lower than the speculated demand level, calculated by the demand equation, then the company would earn huge loss also. References:- Ekinci, Y., lengin, F., Uray, N., lengin, B. (2014). Analysis of customer lifetime value and marketing expenditure decisions through a Markovian-based model.European Journal of Operational Research,237(1), 278-288 Nenonen, S., Storbacka, K. (2016). Driving shareholder value with customer asset management: Moving beyond customer lifetime value.Industrial Marketing Management,52, 140-150.