What does Marketing Efficiency mean? Marketing efficiency is total revenue expressed as a percentage of total marketing costs including promotion, product development and sales expressed as a percentage of revenue. Learn and understand the four Key Indicators of Marketing Efficiency; A simple textbook definition says “Marketing efficiency is the maximization of input-output ratio.” We know that measuring the efficiency of marketing is as critical to the success of the modern marketer as is measuring the ROI of their marketing efforts. As well as, important thing; Marketing Research.
The strong form of marketing efficiency or market efficiency essentially proclaims that it is impossible to consistently outperform the market, particularly in the short term, because it is impossible to predict stock prices. If you’re not measuring your marketing efficiency, your marketing is going to suffer, but marketing efficiency is only the beginning what matters most is identifying the pieces of data that can make a difference in driving your marketing strategy.
This may be controversial, but by far the most controversial aspect of market efficiency is the claim that analysts and professional advisors add little or no value to portfolios, especially mutual fund managers (with the notable exception of those managing funds that take on greater risks), and that professionally managed portfolios do not consistently outperform randomly selected portfolios with equivalent risk characteristics.
Fred Waugh remarked that,
“An unsophisticated student might make two false assumptions, first, that is it easy to define and to measure the efficiency of agricultural marketing and, second, that almost everyone is in favor of efficiency.”
Wells, confessing that he did not know precisely how to measure marketing efficiency, added: “And I doubt whether our so-called efficiency experts know how.”
The elements of market efficiency can be stated as follows:
Marketing Efficiency = (Revenue / Marketing cost) x 100
For example, a firm with revenue of $2 billion dollars with total marketing costs of $250 million has the marketing efficiency of marketing efficiency = (2000/250) x 100 = 800%
Marketing efficiency should not be confused with a profit rate as this doesn’t include any non-marketing costs such as the unit costs of your products. However, it serves as a useful benchmark and metric for measuring improvement to your marketing results. Also, don’t forget about understand; What is Marketing Planning?
Due to the non-availability of standard efficiency criteria, the following indicators are sometimes identified with marketing efficiency.
Now, explain;
In most cases, high marketing margins are regarded as prima facie evidence of gross inefficiency in marketing, and the middlemen who are blamed for being either inefficient, too numerous, or too monopolistic, are most often regarded as the major cause of high marketing margins. Whether high marketing margins, necessarily imply inefficiency in marketing must be analyzed in light of the following considerations.
The major marketing costs are those which result due to enhanced improved utilities of form time and place. They represent the costs of the services which the consumer demands and for which he is willing to pay. In view of the above consideration, it could be safely concluded that distributive margins which form a longer and larger share of food expenditure have not been inconsistent with efficient marketing in the developed countries. In fact, these marketing margins have been a sine qua non for an effective marketing system in developed countries.
What follows from the above illustration is that the size and composition of marketing margins can be used as a useful measure of efficiency, but to use it effectively requires an extremely sensitive weighing balance. The size of margin cannot be related to anything else until it is accurately related to the quantum and type of services yielded by it. Let us analyze this aspect briefly.
Marketing margin consists of two elements:
Now, explain;
The costs in marketing are incurred in the performance of various marketing functions of assembling, transportation, storage, processing, etc. or in other words, in the creation of various utilities. In order to minimize costs, the marketing facilities should operate at the maximum possible capacities with the least possible losses of produce.
We can decide whether the costs prevailing in the marketing system have any economic justification only after we have analyzed the following factors:
The subject of marketing profit has been rather extensively covered in the marketing literature of the developing countries. There are more abuses than appreciations attached to this subject. It is usually stated that the profit element predominates in the aggregate margin on agricultural commodities as a result of certain superfluous or inefficient intermediaries in the existing marketing channels.
Most of the studies relating to this topic do not, however, endeavor to quantify the cost of various direct and indirect services rendered by the intermediaries. Much of what is called profit, in fact, reflects middlemen costs.
For instance, studies of middlemen profit in the developing countries usually tend to ignore the following cost, items:
In order to arrive at the real profit figures, the cost of these and other indirect services has to be quantified. In determining the economic justification of various intermediaries the following factors would be carefully analyzed:
Rising consumer prices are usually regarded as a measure of market inefficiency.
But the price of any commodity is a function of:
Increase in consumer prices is commonly attributed to manipulation by middlemen artificially restricting the distribution of commodities to their own advantage or creating artificial scarcities in the distribution of commodities. Actually, most marketing costs are relatively sticky and tend to change very slightly as compared to price changes caused by other factors.
Even when deficiencies in the distributional patterns affect the price structure, they are usually caused by state price and procurement policies. High consumer prices are, therefore., largely due to factors other than marketing inefficiencies, although marketing often becomes the scapegoat for ills it has not directly caused.
The inadequacy of physical marketing facilities like transport, storage, processing, etc. is also a subject of criticism in discussions of the efficiency of the marketing system. This has been common especially since the recent agricultural breakthrough in many of the developing countries. Although the availability of physical facilities has a direct bearing on marketing efficiency, to treat it as an important efficiency is questionable.
The paucity of physical facilities may exist because of subsistence farming, the seasonal nature of agricultural production, the structure and wide dispersion of farm producing units, low quantum of marketable surplus, the stage of economic development, and the huge overhead expenditure involved in the provision of such facilities in the developing countries. Where physical facilities do exist, they are seldom based on a reassessment of the economic potential and requirements of the area.
In the developing countries, the spatial distribution of physical marketing facilities is so unorganized that at certain places they are underutilized and at other over utilized. There is a need to determine the exact demands and patterns of distribution and the reallocation of existing facilities needed for their efficient use.
Learn and understand the four Key Indicators of Marketing Efficiency, #Pixabay.The intensity of competition has been widely suggested as a major indicator of market inefficiency. Though competition is desirable in itself, the methods of its measurement lack uniformity, precision, and objectivity. It is conventional for researchers to blame the policymaker in a developing country for any lack of competition.
On the other hand, where competition is intense the researcher who considers it the key to efficiency is hard to put to indicate areas of possible improvement or to define relative degrees of efficiency. Excessive focus on quality competition is likely to be found in a market that lacks progressiveness and growth orientation; excessive attention to private competition leads towards greater concentration among sellers and the development of monopolistic organization with all of its attendant evils.
Reliance on competition as a key indicator of efficiency is thus a static approach which disregards dynamic considerations, lacks a standard of comparison, and pays no attention to economic and social norms based on the value system of an economy. Use of competition as a measure of marketing efficiency would have to be selective and judicious to have any constructive influence on market performance.
Since market performance refers to the end results of market adjustment by buyers and sellers in the market, the intensity of market competition may be considered both as a performance norm and as the net outcome of a reorganization of the market structure and market conduct.
Thus the effective use of market competition as a measure of marketing efficiency would require an appropriate application of the criteria of workability for market structure, conduct and performance with all their interaction effects, so as to increase the intensity of competition to the extent socially desirable, while also moving towards such pre-designated social and economic goal.
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