The Relevance of the Marketing Audit

Abstract

In order to build and maintain successful relationships with customers, and maintain a competitive advantage over its competitors, organisations should be aware of all the factors which may influence the implementation of their marketing strategy. By taking action, companies can often overcome seemingly uncontrollable environmental events, which is why it is important for marketers to keep up to date with any occurring changes in the wider environment in which their organisation operates in. The technique of marketing auditing has its weaknesses, however, it provides a useful tool in marketing management by providing information about marketing performance. The marketing audit is highly important as it gives managers understanding and knowledge of the marketing environment which is essential for developing a strategy that can be implemented effectively. It will allow the organisation to take advantage of any opportunities that present themselves and respond to any threats effectively.

Introduction

In order to develop and implement a marketing strategy, it is highly important to be aware of the environment in which an organisation operates and the changes that take place (Hooley et al. 2016). The marketing audit is a fundamental part of strategic planning. Kotler et al (1989), define the marketing audit as ‘a comprehensive, systematic, independent and periodic examination of a company’s…marketing environment, objectives, strategies, and activities with a view to determining problem areas and opportunities and recommending a plan of action to improve the company’s marketing performance’. Its purpose is to identify any marketing resources which are currently being under-utilized and produce a strategy which will use these more effectively (Brownlie, 1996). The marketing audit is highly necessary in order to monitor the changes in the environment in which the organisation conducts business. The complexity and degree of change in an organisations environment will have an affect on the intensity of marketing strategy planning. In analysing the marketing environment, there are three elements to consider; The macro-environment; the micro-environment and the internal organisation.

1.0  The Nature of the Marketplace

Success in business can be achieved when a strategy is developed which fits the environment in which it operates, offering customers services and products which satisfy their needs better than competitors. However, consumer needs are continuously changing and competitors develop new products and services which offer added value (Doyle and Stern, 2006). In analysing the marketing environment, there are three elements which need to be considered; the Macro-Environment, the Micro-Environment and the internal organisation.

Kotler and Armstrong (2015) argue that many companies view the marketing environment to be uncontrollable and they must simple react and adapt, designing strategies that will help the company avoid threats and take advantage of any opportunities. On the other hand, they further explain that other companies are more proactive, developing strategies to change the environment, creating and shaping new industries and their structures.

2.0  External Environment

The aim of conducting an external analysis is to identify any current or potential opportunities or threats which face the organisation. The unpredictability of the external environment causes uncertainty in many organisations and can make decision-making complex. For this reason it is critical for companies to be aware and understand the changes that occur in the external environment, in order to make strategic decisions and remain competitive. The external environment is divided into two distinct categories; the Macro-Environment and the Micro-Environment. What occurs in these environments is largely uncontrollable by organisations but can have a significant impact on their performance.

2.1 Macro-environmental Analysis

Marketing-oriented companies are actively concerned with anticipating to changes that occur in the external environment and strategically responding to them (Makepeace, 2012). One of the best known models for analysing the macro-environment is the PESTEL model. It analyses the Political, Economic, Social-Cultural, Technological, Environmental and Legal factors which have an impact on the way an organisation conducts business. An underlying objective of a PESTEL analysis is to methodically, thoroughly and continuously monitor an organisation’s situations and examine for any opportunities and threats which may arise (Mooradian et al. 2013).

Marketing decisions are strongly influenced by developments in the Political environment. This consists of laws, governments and pressure groups which can influence or limit organisations in a given industry (Kotler and Armstrong, 2015). Likely changes which can have an effect on business could include, the government type and stability, the rule of law and levels of bureaucracy and corruption, tax policy and the social and employment legislation.

Economic factors in the environment can have an impact on consumer purchasing power and spending factors. Changes in economic variables such as income, cost of living, saving and borrowing patterns can have a large impact on the marketing environment. However, companies do not have to suffer in economic downturns. With plenty of warning and understanding, they should be able to take advantage of the change in economic environment.

Social changes are difficult to predict because they usually happen very slowly. The social environment is made up of forces which affect a society’s basic values, perceptions, preferences and behaviours. Any changes will potentially affect consumer behaviour, which will have an impact on sales of products and services. It is important for marketers to understand and appreciate the cultural values of the environment in which they operate, particularly in international marketing.

The Technological environment refers to any new technologies which present new product and market opportunities. It is crucial to keep up with any technological advances as, especially in the current climate, technological developments are occurring rapidly. It can be argued that the technological environment is the most dramatic force in shaping the marketing environment (Kotler and Armstrong, 2015). In recent years, technology has had a tremendous impact on life-styles, consumption patterns and the economy. It has also allowed many organisations to reduce costs, improve quality and has led to substantial innovation, developing the way they develop and market their products and services.

Environmental factors in the environment involves the physical environment and the natural resources which are needed or are affected by marketing activities. Recently there has been a growing concern for environmental sustainability, and the impact of global warming and climate change. Sustainability has become a challenge for businesses in recent years, with many organisations having bringing environmental responsibility into their core missions. 

The Legal changes can affect an organisation’s costs and demand. This environment becomes more complicated as organisations expand globally, and face governmental structures which are quite different from those in their own country. This is an important factor to consider when a company has plans to develop and move overseas.

Even the most dominant companies can be vulnerable to changing forces which occur in the marketing environment. Some of these forces are unforeseeable and uncontrollable, however, through skilful management they can be predicted and managed, keeping the organisation competitive and relevant (Kotler and Armstrong, 2015). The PESTEL analysis reveals critical areas in the environment which organisations can’t avoid. However, it does not cover all possibilities as it fails to mention competitors, suppliers or customers. Therefore, analysis needs to be undertaken at another level – the Micro-Environment.

2.2 Micro-environmental Analysis

An organisations Micro-environment consists of the components which have a direct relationship with the company; its current and potential customers, competitors, suppliers and intermediaries. It drives the tactical responses of the market on a daily basis (Makepeace, 2012). It is important to understand the nature of an organisations relationships within the environment to be able to develop strategies to gain a competitive advantage. Even though these elements are out of the organisations control, strategic managerial decisions and activities can exert a degree of influence on them (Fahy and Jobber, 2015).

A popular tool in analysing an organisations micro-environment is Porter’s 5 Forces model.  Porter (1980) suggested that there are five main forces which shape competition and that a systematic analysis of each can help managers identify the keys to competitiveness in a particular industry. Porter (2008) explains how competition is more than just established industry rivals, it also includes four other competitive forces: customers, suppliers, potential entrants and substitute products. By using the Porter’s five forces model, the organisation is able to asses it’s overall competitive position. It reveals their current profitability and also provides a framework for anticipating and influencing competition in the future (Porter, 2008).

Threat of New Entrants: Organisations should also consider the potential for new entrants to emerge in the industry. New entrants can raise the level of competition in an industry and can potentially reduce it’s overall attractiveness (Fahy and Jobber, 2015).

Bargaining Power of Suppliers: Suppliers form an important link in the company’s overall value delivery network as they provide them with the resources needed to produce its goods and services. Many marketers today treat their suppliers as partners as they ultimately work together in creating and delivering customer value (Kotler and Armstrong, 2015).

Bargaining Power of Buyers: In the past 20 or so years, power has steadily shifted away from companies and towards consumers. This has partly been driven by the internet since consumers can now shop around more easily, but also due to the increased understanding they have of marketing techniques (Blythe and Megicks, 2011).

Threat of Substitutes: Substitutes are products or services which offer the same or a similar function in an industry through a different means. They are always present in an industry but can often be overlooked because they may seem completely different from one organisation to the next. Managers should be aware and pay particular attention to changes in other industries which can make new products attractive substitutes, even if they weren’t before (Porter, 2008).

Competitive Rivalry: In order to be successful a company must provide greater customer satisfaction than its competitors do. Therefore, marketers must do more than simply adapt to the needs of consumers, but they need to also gain strategic advantage by positioning their offerings strongly against competitors (Kotler and Armstrong, 2015).  Understanding competitors and their activities can provide several benefits. Understanding the current strategy strengths and weaknesses of a competitor can suggest opportunities and threats that will merit a response. Secondly, Having insight into future competitive strategies can allow companies to predict any emerging threats and opportunities. Thirdly, Decisions about strategic alternatives can easily hinge on the ability to forecast the likely reaction of key competitors. Lastly, Competitor analysis can result in the identification of strategic uncertainties which if monitored closely, could be beneficial (Aaker and Moorman, 2014).

Michael Porter (2008), stated that ‘the point of the industry analysis is not to declare the industry attractive or unattractive, but to understand the underpinnings of competition and the root causes of profitability’. The five forces framework is commonly misapplied to assess the attractiveness of an industry rather than gaining insight into how an organisation can compete strategically and more effectively within its industry (Dobbs, 2012).

Being aware and understanding the objectives, strengths and weaknesses of competitors can be vital in anticipating market actions. In rapidly changing environmental conditions, a company’s competitive advantage is determined by its ability to satisfy a customer’s needs better than its competitors. Therefore, it is unavoidable and most necessary for organisations to focus on competitors and customers as well as the other forces which make up the micro-environment.

3.0 Internal Analysis

Before an organisation can review its strategic options, it needs to evaluate its ability to compete and satisfy customer needs. The current and potential capabilities need to be identified by evaluating the assets and competencies which make up their resources (Drummond et al, 2007). The primary goal of an internal analysis is to identify an organisations strengths and weaknesses and ultimately, respond by developing strategies which will exploit their strengths and either correct or compensate their weaknesses (Aaker and Moorman, 2014). A company’s internal environment consists of the factors which an organisation is made up of; it’s strategy, culture, management style and its information systems. The people who work for the organisations and it’s physical assets are the basis of its capabilities for dealing with the wider external environment (Blythe and Megicks, 2011). For this reason, the internal environment is the root of a company’s corporate strengths.

The internal analysis examines the marketing objectives, strategies, organisation and systems. Kotler et al (1989) identified five distinct areas of the internal analysis; the marketing strategy audit; the marketing organisation audit, the marketing systems audit; the marketing productivity audit; and the marketing functions audit.

The Marketing Strategy audit will review a company’s marketing objectives and corporate goals and asses how well the current strategy being used can achieve these. It will also review whether they can be adapted to future changes that may occur in the macro-environment (Kling, 1985).

The organisation’s capability for developing and implementing necessary strategy in the environment, as well as the interaction between other departments in the business, such as Finance, Human Resources, Manufacturing and Top Management is assessed in the Marketing Organisation audit.

The Marketing Systems audit examines the suitability of the systems that are in place for gathering information, planning and control in the marketing operations.

The Productivity audit will review the efficiency of the current marketing mix. It focuses on evaluating the company profits and revenue, determining where and how the company is making profits and if possible, which marketing costs can be reduced. This audit is significant in assessing marketing performance.

The Marketing Function audit will ask managers ‘How effective is the current marketing mix?’, evaluating each individual element (product, price, promotion and place).  An effective marketing mix will create a competitive advantage, meet and potential exceed their customer’s needs, is well balanced, and matches corporate resources (Carnell, 2018).

The problem in conducting an internal audit is that the staff may feel that it is intrusive or a possible attempt for management to find fault with their work (Blythe and Megicks, 2011). For this reason, the findings from the marketing audit should not be used to discipline staff, but instead, for managers to develop a plan for the future, in assessing how the organisation’s current assets can be utilised to effectively address any changes in the environment.

Conclusion

Marketing strategy must be built on constant, relentless attention to the firm’s industry and sphere of operation (Mooradian et al. 2013). In order to develop and implement a powerful marketing strategy, it is essential that marketers are aware of how the environment in which they operate is changing (Hooley et al. 2016). Therefore, it is of utmost importance for organisations to analyse their marketing environment and deal with any possible threats and take advantage of any opportunities which present themselves. Much of the literature argues that the marketing audit should be conducted at the beginning of the marketing planning process, however, the highly successful companies are those who use an audit-type process to asses anything which may influence marketing activities (McDonald and Wilson, 2016). Therefore as well as contributing to the strategic planning process, the marketing audit also continuously monitors the implementation of marketing efforts, and will advise on any changes that need to be made for optimum company performance. da Gama (2012) stated that the marketing audit ‘does not provide an answer or solution to any existing problems’, though it does provide managers with relevant information for them to implement the right, operational and effective decisions in order to take advantage of all the opportunities which the market presents, and avoid any potential threats. It is a common misconception that the marketing audit should be conducted as a final attempt in defining organisations marketing problems. Due to the unpredictability and uncontrollable elements of the marketing environment, the marketing audit should be an on-going process in order for companies to remain competitive and thrive in the industry they operate in.

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