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Client Marketing Audit Engine Builders

The paper is intended to outline the marketing situation of the Company and to make reasonable recommendations about the proper tact and development of a strategic marketing position.

As written in A Framework for Marketing Management and Marketing Management Millennium Edition, Tenth Edition (Kotler, Philip), “Modern marketing calls for more than developing a good product, pricing it attractively, and making it accessible to target customers. Companies must also communicate with present and potential stakeholders, and with the general public. The marketing communications mix consists of five major modes of communication: advertising, sales promotion, public relations and publicity, personal selling, and direct marketing.”

Kotler also wrote that for a company to develop an “effective marketing communication requires eight steps: (1) Identify the target audience, (2) determine the communication objectives, (3) design the message, (4) select the communication channels, (5) establish the total communication budget, (6) decide on the communication mix, (7) measure the communications’ results, and (8) manage the integrated marketing communication process.

Within the following marketing audit an honest attempt has been endeavored to accurately observe behaviors and contemporaneously record conversations with employees, ownership, prospects and customers in such a was as not to divulge the identity of the source. Hopefully, such anonymity has bolstered the honesty of those that have given information to the author. In turn, the resulting honesty should have improved the chances for an accurate compilation of the current marketing position of the Company.

To the extent that accrued sales data and financial statement information was not available for review and comparison to industry norms and metrics the audit was limited to interviews and subjective data. While some polling has been executed with customers in order to paint an accurate picture of local and surrounding demographics and market share, the Company should endeavor to obtain more comprehensive market share data to fully exercise their place in the industry.

During the past five weeks, the following elements of the marketing position of the company have been reviewed:

Part I. Marketing Environment Audit

· Macro environment

· Demographic

· Economic

· Technological

· Competitors

Part II. Marketing Strategy Audit

· Business Mission

· Strategy

Part III. Marketing Organization Audit

· Formal Structure

· Functional Efficiency

· Interface Efficiency

Part IV. Marketing Systems Audit

· Marketing Control System

· New-Product Development

Part V. Marketing Productivity Audit

· Profitability Analysis

· Cost-Effective Analysis:

Part VI. Marketing Function Audit

· Products

· Price

· Distribution

· Sales Force

Essentially it is the Auditor’s opinion that the Company suffers no problems that well thought out communication both internal and external to the firm coupled with consistent execution through solid team building processes and a permanent change in attitude cannot remedy. Albeit there lies strong institutional resistance to change in the Company which is endemic to most all small closely held operations, much can be done to effect the positive change absolutely required if the Company ever desires to stretch beyond a local company serving customers haphazardly.

Part I. Marketing Environment Audit

Macro environment

Demographic:

Since the customer demographics include direct retail purchasers as well as automotive engine repair shops we look to the individuals and their buying habits within the two groups. First, the individual buying habits of the customers dictates how to approach not only the existing demographic but new undeveloped markets as well. Traditionally, the Company has combined mass mailing with direct in person customer contact by the outside marketing department.

In 2000, a major competitor in the rebuilt engine company from Indiana, “Jasper”, entered the Texas market by employing a direct sales force with full management staff in the major markets. Jasper sells directly to the end user, the repair shop mechanic and this approach has changed the way customers can buy engines. In addition, ownership has caused Internet exposure via the websites to become formidable additions to the strategic marketing front consistently generating almost 40% of the sales volume according to ownership since no financial data is made available to employees for management purposes.

Jasper prices significantly higher than CLIENT, Inc. but offers a stout warranty. The Company can compete on both the distance advantage and the warranty if it accounts for it in price. In response to Jasper as well as a declined engine market, the company has hired a marketing person to lead the marketing and sales effort for the foreseeable future. Within the last two months, CLIENT., INC mailed 8800 pieces of a combination flyer event invitation to remind customers that CLIENT., INC is still in business. The mailer resulted in approximately 100 attendees to the barbeque event November 8, 2003. Two or three motors were sold as a result.

Economic:

No doubt exists that as long as man drives the internal combustion engine; demand will exist for rebuilt replacement engines. CLIENT., INC stands ready to serve this demand. Several factors contribute to the overall demand in a given market as regards engines. First, the general economic health can contribute to whether people drive their cars longer requiring sometimes a replacement engine or they buy a new one. CLIENT., INC obviously prefers the former. Price conditions currently are tough as what is believed to be an end to general industry compression in the number of engine producers, which started in late 2000 and is now tapering off. Nevertheless, ownership has attributed its loss in volume to a poor economy while this Auditor believes a case could be made that the business has shrunk due to improper handling of several strategic issues.

Ownership’s short-term attitude to the cost of warranty rather than coupling that with the consequences of irritating customers over warranty such that they cease the relationship may not have been realized.

As a response to this compression, CLIENT., INC has laid off much staff shrinking the payroll to have its height in 2000 when gross sales were also double what they are today. The Company has held prices stable for the past eighteen months, as it has found innovative ways to cut costs.

Technological:

The President has indicated a desire to transform the company from a mom and pop operation to a firm that allows rigorously recruited and hired employees to take charge and responsibility of the company’s destiny toward growth and profitability so that all stakeholders will prosper. As such, systems from accounting to order entry to dispatch, communications and fuel and fleet management must be improved and brought up to date so that the company can jump ahead of expectations and get away from the reactionary mode of operating. New skill sets must be recruited to fit the model if this company is going to ever achieve anything more than a fifty-employee company.

Competitors:

As indicated earlier, Jasper Engines is a late entry to the Texas market and at the top of the price tier. Other competitors include Four Star, Thunderbolt, Jasper, Roadmaster and others as well as local small town machine shops. Jasper has effectuated a policy to sell to anyone. Others have marketed repair shops but tend to work through parts distributors where possible.

Summary Conclusion Part I.

In 2000, the Texas remanufactured auto engine market changed by the entry of Indiana’s Jasper Engine and Transmissions to the State. Jasper changed the industry here not only by entering as a formidable competitor but in their marketing tact of selling directly to the consumer through the repair shop rather than through a jobber or distribution network. Jasper seized onto the extreme high dollar end of the market with its pricing structure where the Company and others missed out by pricing too low and delivering lower quality.

Economic conditions generally declined the auto market and this took auto engine remanufactures with it. As a result to market belt tightening the Company’s ownership made the strategic error of electing a perceived cash flow remedy of not paying warranty claims for shabby craftsmanship rather than controlling cost in a more efficient manner and preserving customer relationships. The Company has as a result lost 45% of year 2000 top line sales.

The Company’s technology is par with industry in the plant but at least ten years lagging in order processing and information technology. The Company has no network administrator and problems result.

As the market has stabilized during 2003, the Company by recognizing opportunities and grasping a second wind now endeavors to position itself to capture market share in risk balanced market place activities and niches.

Part II. Marketing Strategy Audit

Business Mission:

Although ownership possesses a clear mind of mission in the generic sense, part of the mission gets confused when verbally imparted to the employees. That is to say that no visible written strategic business plan of action or business mission exists. If one does exist it no promotion exists or is made available to employees for empowerment and accountability purposes.

The owner and leadership have indicated their desire to recapture lost accounts and develop new channels and customer niches and are willing to invest the time, energy and dollars to do so. The entire process of this marketing audit has indirectly caused a spur in the thinking of what the Company is doing and why they are doing it. In other words, the ownership and employees have begun to realize that positive change is a good thing and that in order to thrive in a global engine market a firm must be flexible and “roll” with market conditions and demands. Customers will not accept less than superior service and a proper pricing model; they will just take their order to the competition.

Marketing Objectives and Goals:

The marketing objectives and goals are the proverbial “Let’s grow” which is to say that no formal written goals and objectives are recorded or articulated to the team. The general employee temperament is stagnation at keeping their job rather than working and dreaming to excel and actually enjoy coming to work. In other words, employees take care of themselves first and the Company (the President) and Customers next. As such, the only way to plan marketing and measure performance is from the daily profit and loss statement, which only seems to be available to the owner and not managers or staff. The purpose of this audit is to determine the action items needed to formulate a formal marketing policy that the staff may implement.

Strategy:

While the strategy may be clear in the mind of the ownership of the company, there is tremendous vagueness when an employee is asked the question. The ownership is clear in vision albeit not documented so that it may be measured. The company is not using best basis or best practice for market segmentation nor does it have a clear criterion for rating segments and choosing the best ones the company merely sells to the one on the phone or in their face first.

There is no formal marketing resources allocation mix. Monies are provided when the ownership believes the task will be beneficial. Moreover, “the Marketing Budget” exists in the ownership mind but not on a real budget whereas a management team could be charged and then held accountable for results.

Summary Conclusion Part II.

The Company has no formalized mission statement. Disconnection exists between ownership goals and employee execution. Marketing and sales goals are articulated as “Let’s grow.” The ownership has requested this audit to identify problem areas in order to establish and action plan for 2004.

Marketing strategy should be written and shared among the employees for morale, accountability, incentive, quality and brand imaging.

Part III. Marketing Organization Audit

Formal Structure:

Prior to September 2003, there was no concentrated marketing effort for well over a year. Customer satisfaction has not been made a responsibility of Marketing, Sales or Production but rather the ownership handles “heat cases” as they eventually make their way to him. Once these situations arrive at “firefighter headquarters.”

Headquarters consists of a small desk with an outdated obsolete computer networked to a “Novell” system that is so unproductive when one loads any current day program “the whole network is slowed”, according to one employee. The owner either “handles” it right then or “puts them in cue.” Cue means that they go on a wall file for further negotiation.

Most all of the employees believe that customers’ dissatisfaction is so highly enhanced and embellished by this cuing of complaints or untimely resolution that lost customers are the result. A new warranty mechanism must be articulated and implemented. Marketing activities are ad hoc.

Functional Efficiency:

Good communication and working relations between marketing and sales now exists. Since overcoming a rocky beginning in September between this Auditor and certain long time entrenched employees, sales and marketing are in constant communication with each other. In the past, the “sales guy” would just go about his business and there was no communication between him and other staff. Product managers (General Manager) are not able to plan profit or sales volume due to no reporting available.

Interface Efficiency:

There are substantial problems as regards communication and interaction between sales and manufacturing to the extent that the manufacturing manager seems to employ an “us (manufacturing) against them (sales)” philosopy. This individual told the author in October 2003 in an attempted impromptu leadership meeting that “there is nothing that we can do to get better, we are doin’ it as well as it can be done.”

Many employees in the inside have stated that the manufacturing manager has threatened the owner in the past with a total labor walkout if his demands are not accommodated. As a result to this and this employees general attitude, the inside the office leadership resents this individual and that causes apprehension about the working relationship so both sides ignore each other. Lower quality, customer satisfaction and high warranty costs are the resulting victim in the end.

The established détente and dysfunctional operation cause problems to the extent that communication and cooperation is extremely difficult. The auditor believes that this dysfunctional behavior creates and indeterminable hidden cost to the Company in dollars due to diminished quality and morale.

One only needs to review the accompanying photographs on the next page to understand the true room for improvement just by noticing the filthy and non-inspected for safety working conditions. As such the Auditor, while not a certified safety inspector believes that if a regulatory agency like Occupational Safety and Health Administration were to inspect the plant, the Company would incur massive fines. This slip-shod manner in operations carries over into the general image of the Company through the delivery model.

Summary Conclusion Part III.

No concentrated marketing effort has existed for at least the last year. Customer satisfaction is handled on an emergency basis as a rule and the old adage of the squeaky wheel gets the grease. Sales counter personnel are distracted with too many non-revenue producing activities. Sales and marketing are jointly working to expand the “thinking” of personnel in order to deliver a superior product to customers. Warranty cash expended is weighed more heavily than long-term customer effects.

Part IV. Marketing Systems Audit

Marketing Control System:

There is no annual plan objective to track or gauge achievement. The ownership rather than the management periodically reviews product profitability, markets, and channels of distribution. Marketing costs are ad-hoc evaluated with the gut instinct rather than with formality or plan. Again, if such a plan exists it is not shared with leadership since the owner is the leader. This control system achieves the result of stifling growth rather than enhancing it. The Auditor makes recognition of ownership’s desire and new found efforts to step back and allow leaders to germinate a new initiative of team work, accountability and profitability.

New-Product Development:

The company is not well organized to gather, generate or screen new-product ideas? Idea generation comes from spur of the moment conversations held with many interruptions and no execution or very difficult execution consequences. It is operated with loose, shoot from the hip mentality with the ownership dictating his desires since as the employee consensus says, “he knows everything and a lot better than us.” In the past the owner has executed much research. Employees perceive that personal initiative is fruitless, not rewarded and discouraged. The disconnection between facilitating passive aggressive behavior and honest communication cause tension when the owner “is around.” This complaint requires that goals, targets and minimum standards for performance dictate rewards and compensation increases. The old saying of just giving him/her enough rope to hang him/herself would apply here.

The perception of this attitude by employees is two fold. By placing all blame on the owner, employees avoid taking responsibility for any actions or results. Vice versa, the owner by not properly delegating and then holding personnel accountable only ratifies the employee attitude. Adequate and proper market and product testing is to “whatever the market will bear.” In summation, the owner commits the traditional sin, searching for approval from employees rather than pushing them to develop their talents and allowing them to make mistakes to grow.

Summary Conclusion Part IV.

Information is not disseminated to people that need to take responsibility for their daily performance. New-product development does not exist.

Part V. Marketing Productivity Audit

Profitability Analysis:

The company’s profitability of different products, markets, territories and channels of distribution is unknown to the extent that the ownership does not divulge that information to employees. There are no findings pursuant to entry or exit from markets to the extent rendered in the aforementioned statement.

Cost-Effective Analysis:

Marketing activities are standard and in line given the developmental level of the Company.

Summary Conclusion Part V.

Distribute information to trusted team members and enlist team building with true limited authority for a budget to achieve objectives.

Part VI. Marketing Function Audit

Products:

Product-line objectives are to double sales volume to where it was three years ago so overhead costs are contained. It is unknown which product-lines should be expanded or contracted since that information is not made available by ownership.

Buyers’ attitude toward our general product is good until there is a warranty issue. The ownership executes all warranty claims and takes a short-term approach to solving the claim. While the ownership believes most engine issues are caused by mechanic at installation (this action mitigates costs by blaming the customer), once the claim is not handled to the customers’ satisfaction that customer goes away and tells many to do the same. The general quality of the product to its presentation is in drastic need of improvement.

Price:

The company’s pricing objectives are to be price competitive and we are. The ownership constantly reviews and is aware of the market as regards price. Customers that buy believe that we are competitive. Customers that do not buy do so for an array of reasons.

Distribution:

Since inception the distribution objectives have been ad-hoc with not much order place on efficiency or consolidation. Now, that ownership has developed the means to wholesale our product by way of a special d/b/a/ and website dedicated to the parts distributor (jobber), marketing can develop new customers and channels through such.

The company considers expanding its distribution channels to further diversify its channel mix from delivery and pick up.

Advertising, Sales Promotion, Publicity, and Direct Marketing:

The company has no formalized advertising budget, at least not one known by the staff. The company does not employ media except the United States Mail. Ownership has recently chosen to purchase weekly newspaper type advertisement commencing January 2004 convinced that during the Christmas season peoples cars always run and never need motors. The company has a database but does not employ on-line marketing save the website and sporadically (used once or twice according to staff memory) uses coupons.

Sales Force:

What are the sales force objectives? Unknown. Is the sales force large enough to accomplish the company’s objectives? Debatable. The three salesmen at the counter probably exert more effort and activity during the day than any other employees in the company. The direct issue in sales is not effort or activity but direction or lack thereof. The salesmen serve not only as sales people to walk in customers and in bound phone calls but they also serve the Company in a myriad of functions.

The salesmen answer the phones of the company fielding every single in coming call. This is an issue because it is a distraction from sales. In a move to cut costs in recent memory, ownership decided to retire the receptionist. This move was good and bad. When no receptionist answered all the calls, every call then and now arrived straight at the sales counter.

The resulting poor allocation of labor may have decreased payroll costs significantly but the underlying hidden costs of lost sales is not measured or realized. In a word, sales guys need to be on the phone with customers or prospects. This customer service or prospecting time is lost due to the overwhelming distraction of having to jump to answer the phone when it rings.

While the Auditor is not informed of payroll pursuant to sales personnel, it is imagined with certainty that the lost dollars in opportunity costs relative to lost sales overwhelmingly advocates a better system. The sales force is not organized. The sales manager is also the General Manager as well as a salesman. Procedures are not adequate for setting quotas or evaluating performance.

Without any measurement no incentives are paid and employees are unhappy about lower compensation. How does the company sales force compare to competitors’ sales forces? Unknown.

As the means to determining all of these questions, the Auditor tried to review various data compiled by the Company over the past few years. Specifically, we wanted to look to daily, weekly and monthly sales totals and then compare these to their past equivalents. In order to verify the authenticity of the historical data, we wanted to analyze the data to determine who the customers have been and why, what factors yield the best gross margin as well as net income.

We would have reviewed this data within the prior committed time limits but such data is not made available to employees to craft a timely report to management. The most difficult part of the analysis will be gaining access to the data since the computer system is not now maintained and not administered from a networking position. This cost cutting measure could be catastrophic is any one of a number of issues occurs.

Summary Conclusion Part VI.

Overhead costs have been slashed to a minimum. Ownership has indicated a goal of year 2000 sales volume at $5,000,000. Warranty costs must be managed as well as the good will of the customer. Look to quality deficiencies in the manufacturing process to cut the true cost of warranties by implementing zero tolerance for defects. Wear safety glasses in the plant and institute at least minimal safety procedures. Enforce the procedures and allow no one to work outside the law or rules.

The Company should balance advertising and marketing with a consistent message to customers. Formalize the marketing, advertising and sales budget as well as all other operating budgets. Improve the quality of product by improving the quality of workers. Start with the worst performing 10% and replace them with more hungry individuals. Eliminate those with non-cooperative or difficult personalities. Remember the Company has to deal with the public and that means that everyone contributes to sales, image and quality. Focus employees on their primary and secondary jobs and eliminate distractions.

Recommended Marketing Improvements

· Enlist team work among leadership

· Establish budget

· Set monthly sales targets

· Monitor daily the progress

· Allocate marketing dollars to maximum impact media

· Advertise

· Diversify media used in advertising

· Promote customer events that pay for themselves via increased sales

· Establish safety and quality as internal standards of living

· Translate internal safety and quality to the brand and the market

· Establish competitors product and pricing and achieve “best of class” solutions

References

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