- November 7, 2018 at 3:19 am
Hi, I have done my report and my mentor pointed out my problem of unable to link on how the marketing strategies affecting the result of Ratio analysis. For the result, The revenue margin is decreasing. Is this consider as ineffective? But the gross profit margin and Pre tax margin which i used to evaluate the effectiveness is performing better than the company I compared to. In this case my result is effective or not effective? If ineffective, do i have the explain anything?
Thank YouNovember 7, 2018 at 8:26 am
For a start what do you mean by ‘revenue margin’ ? Secondly marketing efforts, and results showing its effectiveness are not always instantaneous and the effect can spread over different year ends (Remember that decisions are not taken on the first day of a financial year and stop on the last day). Also one financial ratio taken in isolation is not going to give you an answer. Do you have any market share information as this KPI would be useful? However I suspect there is not a simple answer that the marketing strategies have or have not been successful so you need to put it all in a bigger picture.
A lot depends on the product and industry sector -a company might be having to ‘re-invent itself’ and will want to keep itself in the public mind while it undergoes a major change e.g. Dell computers having to go from PCs to laptops and then face the challenge of tablets and smart phones. The effectiveness of its marketing strategies might therefore not be assessible for sometime and as the world has moved on, the company may possibly never regain its former position (look what happened to goth Nokia and BlackBerry)
Occasionally there maybe a general decline in share of brand leaders if new competitors enter the market, the former then turn to more promotion and advertising to slow down the rate of loss of market share. Such promotion costs will impact on the operating margin, however might still be considered effective if the overall performance was better than a major rival with the latter suffering a greater decrease in market share. For example both Tesco and Sainsbury’s have seen Lidl and Aldi take customers away from them but are still locked in inter-rivalry battle with each other and some of their marketing efforts are aimed at maintaining their pecking order.
You need to research a bit into what is going on in the company and its general strategies and those of the industry sector to complete the picture. Declining revenues for both companies might indicate general pressure on that sector e.g. New car sales in Europe are down for many manufacturers because of both the uncertainty of the future of diesel cars and the emissions scandal plus the inroads made by electric cars and hybrids and no amount of marketing can change these factors in the short term and in the longer term the car manufacturers have to become more innovative.
There is no simple answer however evidence of research around it will demonstrate understanding of the topic allowing you to discuss the ratios in a better context.November 8, 2018 at 10:15 am
Sorry, it should be revenue growth margin. The percentage of revenue growth year by year.
I have found out the repeating of strategies written in the annual report. For example, Expansion of business to oversea. This is repeating every year in the annual report under the CEO statement. Is this showing the strategies is still in progress? Although the business already operated in overseas, and the company wish to expand further. Also, the company is in a monopoly market. Can I include the external factor that influencing customer buying behaviour? For example, implementation of GST that lead to higher living cost and revenue growth become lesser. This is not from the marketing strategies.
Thank you for answering my question.November 10, 2018 at 7:15 am
Your ideas sound reasonable about GST as this probably has depressed sales (and possibly increased them artificially before it’s introduction as people rushed to buy to beat the tax)
Ooverseas expansion would more than likely be a strategy that runs over several years -initial trial and if signs looked good, being gradually expanded. It does take quite a lot of new investment in both money and effort and often slower to show big results in the early years.
Monopoly often means high prices to the consumer and can produce complacency by the producer (depending on the demand for the product)
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