WIOLETA DRYL – TOMASZ DRYL 19 Marketing Audit as a Tool of Minimizing the Marketing Risk
MARKETING AUDIT AS A TOOL OF MINIMIZING THE MARKETING RISK WIOLETA DRYL – TOMASZ DRYL Both theory and business practice provide a wide range of instruments assessing the level of risk. The basic requirement for giving the possibility not only to identify but also to minimize the risk of business is access to information. Understanding the factors that generate risk allows early to undertake steps that limit their impact on the business. A tool providing companies a wide, reliable and current information resource is the marketing audit. This article presents a marketing audit as a tool for reducing the risk of marketing activity. Risk, marketing risk, marketing audit
1. THE ESSENCE OF RISK The survival of the company in the market is determined by many factors. One of the conditions of existence of the company is to follow the changing environment and to adapt to it. All decisions regarding the future activities of the company are related, however, with the level of uncertainty, and hence risk. The concepts of risk and uncertainty, which are often used interchangeably and are treated as identical, are different phenomena. The fact of misunderstanding the difference between this concepts may be due to the lack of clear definitions in the literature, which particularly concerns the uncertainty. In an interesting, but also a lot of explaining way, treats these phenomena Pfeffer. According to the author "The risk is a combination of elements of gambling and is measured by the probability, uncertainty is measured by the level of faith. Risk is a state of the world, uncertainty is a state of mind " [1]. They are not two separate and independent categories. By A Willet: "The risk is objectified uncertainty of any adverse events, the risk varies with the uncertainty, rather than with the degree of probability" [2]. Follows from these considerations, the uncertainty is a factor inducing or even forcing companies to take risks. Simons emphasizes in his definition of risk the uncertainty associated with activities undertaken by the company with a strategic dimension. Specifies the risk as: "an unexpected event or set of conditions That significantly reduces the ability of managers to implement their intended business strategy." [3] The risk accompanies inherent processes of achieving objectives set out in the company. Purpose defines the direction of companies activities, is the beginning and also the most important phase of planning. Its achieving is usually burdened with some degree of risk. It can be noted that, in fact, every action -‐ not just business involves risk. This risk concerns the possibility of the failure to achieve the objectives. Its specific gravity is particularly large in the case of activities with a strategic dimension. Against the background of these considerations, develops the most accurate, in terms of the content of the article, definition of risk, according to which the risk is "a lack of information regarding the implementation of a single target or multiple targets of action” [4].
Given the fact that the risk is associated with any business, it is also inextricably linked to the marketing decisions in the company. It is also difficult to indicate clear risks associated with marketing activities only. Marketing because of its interdisciplinary nature pervades many areas of business. Often it is difficult to isolate a set of concrete actions such as purely marketing. It is also difficult to indicate the results of these activities and their evaluation. Turning to the definition of risk which treats the concept as a lack of information needed to carry out specific objectives, definition of marketing risk can be clarified. Among the marketing objectives may be mentioned achieving a certain level of sales, brand awareness, advertising reach, getting a sufficiently high market share, or new product development. Lack of information may, however, apply to both macro factors and the microenvironment, as well as those which source is in the company. This risk can be generated by economic conditions, legal, political, social, or cultural. It may also be associated with actions taken by consumers, competitors, suppliers. However it should not be forgotten that company employees, the type of organizational structure, etc. (elements in the system highly dependent from the company itself) may also generate risks. Given the characteristics of marketing activities under consideration, in terms of its objectives and the factors influencing its marketing execution, risk concept should be understood as the possibility of the failure in achieving marketing objectives in the absence of the necessary information.
2. PLACE OF MARKETING AUDIT IN THE PROCESS OF MINIMALIZING THE RISK Indisputably the most effective way to minimize the risk of the company is to recognize the factors that generate risk and to response to it. The easiest and yet demanding large amount of information index, which allows to assess the risks of marketing is the index of market event risk. Determination of the value of this index, requires knowledge of the probability of occurrence of the event and assessment the impact of a particular factor on the gross profit of the company [5]. A key element for the indication the marketing risk is identification of the factors generating the risk. Assessment of the company's environment -‐ both internal and external
20 WIOLETA DRYL – TOMASZ DRYL Marketing Audit as a Tool of Minimizing the Marketing Risk is an appropriate source for the consideration of the This situation is mainly due to insufficient knowledge of marketing risk. However, it is extremely difficult to identify marketing audit, and often short-‐sighted approach of all the factors that actually could affect the company's management of many Polish companies. The risk of certain operations by increasing the risks associated with its activities, not only in terms of marketing is perceived by the activities [6]. Given the fact that the analysis of marketing company. Few of them realize, however, that there are risk, should be a systematic process of measuring and tools to detect in advance the risks and to overcome it, or to evaluating events in the company's environment [5], it is be prepared for the possible consequences of certain easy to detect the corresponding assumptions in the case of situations. one of the tools of marketing control, the marketing audit. 3. THE NATURE AND IMPORTANCE OF MARKETING The importance of this tool for the identification of risk AUDIT AS A TOOL MINIMIZING THE MARKETING results not only from its scope, but also the fact that the RISK audit (not just marketing) as opposed to the control is The effectiveness of a marketing audit is conditioned by focused on the future. Control focuses on the facts and processes of the past, verifies achievement of the objectives many factors. Significant in this regard is the choice of method of conducting the audit. No less important is also with planning assumptions. the subject matter. Each company must be aware of the The importance of the audit as a tool to support risk many limitations related to both the realization and the management processes, highlights many items of literature implementation of marketing audit. The final decision in this area [7]. According to many definitions of the term, regarding the areas to be audited is a reflection of not only audit is an independent and objective activity, verification, the needs of the organization, but also the limitations and advisory and preventive, systematic, risk-‐oriented, process-‐ conditions set by the audit [13]. The process of performing, oriented research. Risk -‐ orientation of audit is reflected in as well as implementing the changes, suggested by the the identification of areas of the highest risk and results of marketing audit is extremely demanding. This determining how to manage them [8]. applies not only to specific, often high costs of using this Given the scope of marketing audit, it should be noted tool, but also the time and effort necessary to conduct the that its correct realization greatly reduces the risks of the audit. Each company must, however, be aware that the company, not only in the area of marketing. The most narrow scope of marketing audit because of its cost, time-‐ complete definition of the term created Ph. Kotler, consuming and labour-‐intensive may adversely affect its specifying marketing audit as a "comprehensive, systematic, performance. It should be noted that the effectiveness of independent, and periodic examination of a company’s or marketing audit is not without effect on the risk associated business unit’s marketing environment, objectives, with marketing activities. An important, yet difficult task, strategies, and activities with a view to determining becomes the decision about the areas of companies problem areas and opportunities and recommending a plan marketing to be audited [14]. of action to improve the company’s marketing In the literature can be found a number of proposals performance"[9]. concerning the scope of the marketing audit. Among the The importance of marketing audit as a tool preventing notable proposals undoubtedly should be point out areas of the occurrence of situations that generate risk was already marketing activities mentioned by R. Kohler. By well-‐ pointed out in the middle of the last century. In 1959, A. founded author considers analysis of such areas as Schuchman pointed out the basic objectives of marketing marketing procedures, marketing strategies, marketing mix audit, listing among them [10]: and marketing organization. Studied are to be both strategic − a comprehensive analysis of marketing activities, and tactical areas of marketing [15]. − evaluation of the objectives and policies and their Among the marketing procedures to be audited should underlying assumptions, be mentioned procedures for planning and control, and − assessment of the future and the present situation, collecting and converting information. The audit includes marketing strategies, and analysis of the company's mission, − seeking opportunities and identifying weakness, its key objectives and strategic goals. Marketing mix should − preventing and resolving problems of marketing. The need for a marketing audit, the report AMA in 1959 instead be assessed in terms of its compliance with the looked for, inter alia, in large disparities in the level of overall business strategy, as well as the legitimacy of use its marketing skills and the effectiveness of marketing activities certain tools. Marketing audit also includes evaluating the marketing between the different sectors. Also considered as an organization. The main objective of this audit is to verify the important monitoring of marketing skills level companies organizational forms and competences, entitlements and operating in the sector. This allowed in fact to maintain a responsibilities of employees with the implementation of leading position in the market despite the rapidly changing the marketing strategy. The subject of analysis is also the competitive environment [11]. Both theorists and practitioners in the field of system of motivation [16]. Although the assessment of specific areas of audit marketing, recognize the utmost importance of marketing activities is modified by both theorists and practitioners in audit as a tool determining the effectiveness of the the field of marketing audit, it should be noted that the company. This tool has gained great popularity in the world right in the middle of the last century. In Poland, however, basis for the discussion is usually an approach Ph. Kotler to the marketing audit until recently was little known tool that this problem [17]. was used to a limited extent or not at all [12].
WIOLETA DRYL – TOMASZ DRYL 21 Marketing Audit as a Tool of Minimizing the Marketing Risk
MARKETING ENVIRONMENT AUDIT Macro environment: demographic, economic, environmental, technological, political, cultural Task environment: markets, customers, competitors, distribution and dealers, suppliers, facilitators and marketing firms, publics MARKETING PRODUCTIVITY AUDIT MARKETING STRATEGY AUDIT Profitability analysis, Marketing objectives and goals, strategy cost – effectiveness analysis
MARKETING FUNCTION AUDIT Products, price, distribution, advertising, sales promotion, publicity, direct marketing, sales force
MARKETING ORGANIZATION AUDIT Formal structure, functional efficiency, interface efficiency
MARKETING SYSTEMS AUDIT Marketing information system, marketing planning system, marketing control system, new-‐ product development system
Figure 1 The scope of marketing audit Resource: own study based on: KOTLER Ph., KELLER K. L., 2012, Marketing, Dom Wydawniczy Rebis, Poznań, pp. 694 – 695. Kotler and Keller presented a very comprehensive coverage of the scope of marketing audit. They made the categorization of individual audited components by mentioning the following elements of audit [18]: − marketing environment audit, − marketing strategy audit, − marketing organization audit, − marketing systems audit, − marketing productivity audit, − marketing function audit. The scope of analyses of specific areas of marketing audit is shown in Figure 1. An important aspect of the environment, contributing to the enterprises is its enormous complexity and uncertainty, and the accumulation of conflicting interpretations of individual factors. The balance of the organization is exposed to factors that often are the source of both opportunities and threats. Moreover, more difficulties supply reconciling short-‐term goals and those of a further term. Companies priorities are subject to the disorganization. Decision-‐making process in such a dynamic and complex environment carries a high risk. Marketing audit in terms of Kotler, Keller, as well as the previously mentioned Kohler should include marketing strategy. The authors also agree on the scope of the audit of this area. As important they consider here: the mission, strategic goals and objectives. Audit of mission requires first of all consideration issues such as its feasibility, clarity and uniqueness of the formulation and adaptation to market realities. Although the aim of the mission is its timelessness, marketing audit requires its verification. As the basis for all planning work is the correct identification of purposes, this aspect is also subjected to a thorough analysis in marketing audit. As mentioned above the main factor generating the risk is the possibility of the failure in achieving the objectives. This aspect of the audit appears, therefore, particularly important in reducing the risk. Marketing audit not only verifies the correctness, clarity of formulation of goals, but also confronts them with the enterprises position on the market, its resources and capabilities. In addition, subject to suitability assessment are
the goals as a basis for marketing planning and measurement of the results of the actions undertaken by the company. The need of regular monitoring and updating of the strategy stems from its susceptibility to the effects of the environment. The main objective of the marketing strategy audit is: the early detection of threats of its implementation, appropriate corrective action, identification of opportunities and adaptation of strategies so that it became possible to use them. The knowledge about the quality of enterprise’s marketing strategy, its adaptation to market conditions is deeper and more topical, the risk is easier to predict and to minimize. The uncertainty of the environment in which businesses operate also requires flexibility in the organization of company's marketing services. The shape of the organizational structure is not the final decision. It is the result of many considerations. Marketing audit by revising the marketing organization allows for an early detection of faults in this area and reduction the risk of taken actions. A clear division of work and decision-‐making powers, rules of organizational behaviour and design of marketing information system are the main components of organizational governance. This aspect often determines the competitive advantage of the firm and the ability of a company to an early and effective response to the impact of environmental factors [19]. Undoubtedly, part of the marketing activity that generates a high level of risk is the planning system. The risk arises mainly from uncertainty about the possibility of achieving the objectives. Marketing systems audit examines among the others this aspect. In the evaluation, marketing planning system is verified in terms of the effectiveness of the plans, feasibility of the objectives. This is a key element in the risk assessment of marketing activity. The marketing systems audit also carries out marketing information, marketing control and new product development. The risk assessment is based primarily on access to the necessary information. The key here is, therefore, a workable system of marketing information. Marketing audit examines the validity, scope, accuracy of information at company's disposal, as well as its use,
22 WIOLETA DRYL – TOMASZ DRYL Marketing Audit as a Tool of Minimizing the Marketing Risk converting and sharing. From the point of view of risk extend to process, personnel and physical evidence. Quite a assessment these are key factors for risk identification and unique approach to marketing functions audit shows Ph. the ability to its minimization. Kotler. According to the author marketing functions audit Taking action about innovative character carries a very should cover such areas as: Products, price, distribution, high risk. Certainly, such activities may include a new advertising, sales promotion, publicity, direct marketing, product development. Although the practice provides and sales force [20]. Attempt to identify a universal set of areas of marketing companies a number of solutions to minimize the risk in this area, still the final result of action remains in the consumers to be audited is doomed to failure. There are several factors hands -‐ whose reaction is extremely difficult to predict. that determine both the frequency, the tools used and the Marketing audit verifies the companies preparedness to scope of the marketing audit. Every company should, process of a new product implementation. Given the high therefore, develop a unique marketing audit procedures, cost of this investment, its risk assessment is a key element which are an effective strategic tool to control the of the new product development marketing area only for the company. However, to Another area of marketing audit is a marketing functions effectively minimize the risk of marketing decisions, audits audit. In marketing theory, marketing mix includes 4 P scope can not be limited only to problem areas. The more (product, price, promotion and place). Given the specific complex a company's approach to marketing audit, the nature of the service, marketing systems audit of should greater its effectiveness in reducing risk [21]. REFERENCES [1] [2] [3] [4] [5] [6] [7] [8]
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Tomasz DRYL, PhD – Wioleta DRYL, PhD University of Gdansk, Faculty of Management, Institute of Management, Department of Marketing e-‐mail:
[email protected],
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