Section title: Marketing as an investment Introduction Marketing as an investment The product life cycle The Boston Matrix Marketing and data analysis Glossary Test     Businesses must consider a range of marketing options Photograph: CIMA Companies invest in marketing. Like any other investment, companies need to monitor and evaluate carefully the effectiveness of their marketing spending. The return on good marketing could include any of the following: sound market research that leads a company to not develop a product that would ultimately make losses and therefore reduce a company's overall profit data that identifies a new product or extension strategy that will be most likely to have high sales and profits in the future an advertising campaign that boosts sales of a product a packaging or pricing strategy that boosts sales or profits No business can afford to finance marketing that does not eventually lead to increased profits or increased sales or to enabling the business to survive. The challenge in marketing is to ensure that every pound that a business spends on marketing is effective. A simple example of this was highlighted by one Business Studies student's coursework on a chain of opticians. The opticians were spending 30% of their gross profit on advertising in the local press and on the local radio. When the Business Studies student analysed why people made purchases at these shops he found that 90% of customers were attracted into the shops by the window displays or by word of mouth recommendations from friends. On the basis of this research the chain of opticians cut their advertising expenditure completely and focused their energy on delighting their customers with excellent service and window displays. The company's profits increased in the short term just by cutting the excessive costs of marketing. In the long term the company's marketing was more focused and customer orientated. Shops aim to maximise their profit per square centimetre of shelf space. Therefore anything going on shelves in their stores must either have a high profit margin or have very high demand. Manufacturers can persuade shops to stock their goods or give them extra shelf space by offering some of the following: discounts special discounts on other goods supplied by the manufacturer special offers on the products advertising campaigns in-store promotional displays Usually manufacturers offer a variety of these special deals to shops throughout the year. When you walk around a store look at the amount of shelf space different products and brands get and look out for special promotional displays. For each special deal to a shop the manufacturers must calculate the cost of the deal and the benefit in terms of increased sales. There is not always an exact answer, but the data must be monitored to ensure that gross errors are not made. For example, which of the following deals should a business consider? A national advertising campaign plus discounts to shops costing £100,000 that will result in increased sales of £1,000,000 with a gross profit margin of 15% Free crates of goods to shops plus in-store promotional displays costing £25,000 that will result in increased sales of £100,000 with a gross profit margin of 15% A special offer of a keyring with the product plus an in-store promotional display and a national advertising campaign costing £150,000 that will result in increased sales of £100,000 with a gross profit margin of £15% An example of calculating gross margin Value of gross margin = Sales x % of gross margin Sales = £1,000,000 Gross margin = 20% Therefore, value of gross margin = £1,000,000 x 20% = £200,000 Look back at your work on the Shinkendo Oi marketing strategies: Can the team afford to implement every marketing strategy that you thought of? How can the team prioritise which strategies to use at each stage of the launch? Draft a marketing plan for the launch of the new Shinkendo Oi.