Chapter 18 - Managing Transformation Marketing    
I.    Learning Objectives
After reading this chapter, students should:
q Understand the relations between performance marketing and transformation marketing
q Know the concepts of marketing patterns, marketing effectiveness, and marketing efficiency
q Know how to evaluate marketing effectiveness
q Know how to measure marketing efficiency
q Know the available ways and tools to improve marketing effectiveness and marketing efficiency

II.    Chapter Summary
Companies look for long-term growth and value through transformation marketing. Performance marketing requires examination of returns from marketing efforts and investments. The returns are measured in financial and profitability terms, as well as in branding and other intangible assets, and in social responsibility. Transformation marketing addresses these goals of performance marketing step by step, enabling the achievement of marketing excellence.
Transformation marketing is dynamic in its marketing pattern. A marketing pattern is adopted in order to reflect synthesized levels and statuses of marketing management. It comprises five aspects of marketing: concepts, organizations, capabilities, strategies, and tactics. Both effectiveness and efficiency of marketing management depend on the marketing pattern. The resulting marketing imperatives will require the improvement of a current marketing pattern, or the creation of a new one.
Marketing effectiveness describes whether an organization’s output meets its goal or expectations, and reflects an organization’s marketing management capacity and deficiency. Marketing management effectiveness can be measured by marketing audit and marketing productivity (capacity) assessments.
Two complementary approaches to measuring marketing productivity are marketing metrics and marketing-mix modeling. Marketing dashboards are a structured way to disseminate the insights gleaned from these two approaches within the organization.
Marketing management efficiency refers to the efficiency of the process of realizing organizational marketing goals, indicating marketing management’s results on the ratio of input to output. To improve this efficiency, marketing implementation has to be measured and controlled. 
Four ways to measure key aspects of the marketing plan’s performance are sales analysis, market share analysis, marketing expense-to-sales analysis, and financial analysis.
Improving marketing efficiency focuses on finding ways to increase the efficiency of the sales force, advertising, sales promotion, and distribution.

III. Chapter Outline
I. Performance Marketing and Improving Marketing Patterns
A. Evaluation of Marketing Patterns
1． Marketing patterns
a) Marketing philosophy
b) Capacity
c) Organization
d) Strategy
e) Tactic
2． Major attributes of marketing orientation
a) Customer philosophy
b) Integrated marketing organization
c) Adequate marketing information
d) Strategic orientation
e) Operational efficiency
B. Improving Marketing Profitability 
1． Companies should measure the profitability of :
a) Products
b) Territories
c) Customer groups
d) Segments
e) Trade channels
f) Order sizes
This information can help management determine whether any products or marketing activities should be expanded, reduced, or eliminated
2． Marketing-Profitability Analysis
a) Step 1: Identifying functional expenses
b) Step 2: Assigning functional expenses to marketing entities
c) Step 3: Preparing a profit and loss statement for each marketing entity
3． Determining Corrective Action
4． Direct versus Full Costing
a) Direct costs - these are costs that can be assigned directly to the proper marketing entities
b) Traceable common costs - these are costs that can be assigned only indirectly, but on a plausible basis, to the marketing entities
c) Non-traceable common costs - these are common costs whose allocation to the marketing entities is highly arbitrary
C.   Improving Company Organization to be Customer-Oriented and Creative 
1． Characteristics that make an organization customer-driven and responsive
a) At the top are customers
b) Next in importance are frontline staff
c) Under frontline staff are the middle managers
d) At the base is top management
e) Management at every level must be personally involved in knowing, meeting, and serving customers
2． Building a creative marketing organization
a) Developing a company-wide passion for customers
b) Organizing around customer segments instead of around products
c) Developing a deep understanding of customers through qualitative and quantitative research
d) Will require a change in job and department definition, responsibilities, incentives, and relationships
e) The organization must also be creative
f) The only answer is for the firm to build capability in strategic innovation and imagination
g) Companies must watch trends and be ready to capitalize on them

II. Measuring and Improving Marketing Management Effectiveness
A. Marketing Effectiveness Review
A company’s or division’s marketing effectiveness is reflected in the degree to which it exhibits the five major attributes of marketing orientation
1. Customer philosophy
2. Integrated marketing organization
3. Adequate marketing information
4. Strategic orientation
5. Operational efficiency
B. Marketing Audit
1． A comprehensive, systematic, independent, and periodic examination of a company’s or business unit’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
2． The marketing audit has four characteristics: comprehensive, systematic, independent, and periodic
C. Measuring Marketing Productivity 
1． Marketing metrics
a) To assess marketing effects: short-term results and changes in brand equity
b) Marketing dashboards
1) Customer-performance scorecard
2) Stakeholder-performance scorecard
2． Marketing-mix modeling
a) To estimate causal relationships and how marketing activities affects outcomes
b) To analyze data from a variety of sources
c) To allocate or reallocate expenditures

III.  Measuring and Improving Marketing Management Efficiency 
A. Measuring Marketing Plan Performance
1． Sales analysis
a) Sales-variance analysis
b) Microsales analysis
2． Market-share analysis
a) Overall market share
b) Served market share
c) Relative market share
3． Marketing expense-to-sales analysis
4． Financial analysis
a) The return on net worth is the product of two ratios: the company’s return on assets, and its financial leverage
b) The return on assets is the product of two ratios: the company’s profit margin, and its asset turnover
B. Improving Marketing Management Efficiency through Control 
1. Annual-Plan Control
a) Management sets monthly or quarterly goals for company
b) Management monitors its performance in the marketplace
c) Management determines the causes of serious performance deviations
d) Management takes corrective action to close the gaps between goals and performance
2. Efficiency Control
a) Sales-force efficiency
b) Advertising efficiency
c) Sales-promotion efficiency
d) Distribution efficiency
3. Strategic Control
IV. Summary
IV. Opening Thought
This chapter puts forward some innovative concepts in marketing management today. The first challenge for the students is to understand the relationship and differences between performance marketing and transformation marketing.

The second challenge is to grasp the new concept of marketing pattern. A marketing pattern is adopted in order to reflect synthesized levels and statuses of marketing management, and comprises five aspects of marketing: concepts, organizations, capabilities, strategies, and tactics. Both effectiveness and efficiency of marketing management depend on the marketing pattern.

Apart from these, the differences between marketing effectiveness and marketing efficiency also require special attention as these concepts may pose difficulties in both understanding and measurement. 

V. Teaching Strategy and Class Organization
PROJECTS
1. At this point in the semester-long marketing plan project, students should review their marketing plans from the angle of transformation marketing. Students are to specify what level of marketing pattern their plans are operating at. Specific attention should be paid to how marketing management strategies are built on the marketing pattern.

2. Students should review different sources from the Internet and produce a brief report on key trends of the marketing environment in the next five to 10 years. How do these anticipated changes affect marketing practices? What are companies’ specific concerns on adapting these changes?

3. Students are to look at the objects, strategies and programs that have been developed for their chosen company in the marketing plan project, then answer the following questions:
· What is the most appropriate organization for the company’s marketing and sales department?
· What can you do to evaluate the company’s marketing pattern? How well does this pattern fit the current marketing environment?
· How should the marketing performance be measured?
· How could the company evaluate its marketing effectiveness and efficiency?
Answers are to be summarized in written form and added to the marketing plan.

ASSIGNMENTS
Small Group Assignments

1. The first edition of Philip Kotler’s Marketing Management was published in 1967. Over the past 40 years, the textbook has undergone revisions and is presently into its 13th edition. In addition, different regional editions (like this one) were produced to reflect characteristics of different markets in the world. In small groups, students should visit the library and research on the various editions of Marketing Management. Major changes in the text contents and concepts should be compared. Students are to discuss why such continuous amendments are needed, and how do they reflect changes in the marketing discipline over time.

2. The idea that “Western marketing models do not fit Chinese companies well” is accepted in some local companies. In small groups, students are to search online for such opinions. They should look at a few leading Chinese companies and large Western MNCs that are operating in China. What marketing patterns do the Chinese companies adopt? How are they different from those of Western MNCs? How could Chinese companies upgrade themselves in terms of marketing patterns?

Individual Assignments
1. Have each student choose three companies that they believe practice a customer-driven marketing philosophy. They are to visit the companies’ websites and look at their organizational structures, then defend their choices by comparing their organizational structures with the one illustrated in Figure 18.2b. Instructors should evaluate how well the customer-centered marketing concept is applied to the selected companies’ organizational structures.

2. Ask students to visit a local retail store and carefully observe the store environment, its frontline sale force, advertising messages, and promotion programs. They are to write a brief report evaluating the store’s sales-force efficiency, advertising efficiency, sales-promotion efficiency and distribution efficiency based on their observation. Students should defend their judgment by using marketing management efficiency concepts and standards suggested by the textbook.

Think-Pair-Share
1. Have each student research the Internet and popular business magazines on 10 major marketing trends of Mainland China in the 21st Century. During class, students are to share what they have found and to evaluate each trend in terms of its importance. A discussion on how a company should adapt itself to such trends for future success should also be carried out.
 
2. Students should learn to identify the differences between marketing effectiveness and marketing efficiency. Ask them to research on a successful company in their area. What are the issues and facts indicating the company’s marketing effectiveness and those indicating its marketing efficiency? Students can outline all relevant issues and facts on the board, and classify them accordingly through the discussion.

END-OF-CHAPTER SUPPORT
MARKETING DEBATE

Transformation marketing only applies to latecomers looking up to multinational corporations versus Transformation marketing can apply to all companies including multinational corporations.

V. Case Study

1. Marketing in China: Starbucks —To Please or Educate Chinese Consumers?  
1) When entering a new market in developing counties, what factors should multinational corporations take into account in deciding whether to localize their previously successful marketing strategies?

2) Should companies adjust to please new consumers in new markets in other countries or educate them to change their consumption habits?

2. Marketing in China: Huawei’s Internationalization of Management
1) Corporations in developing countries are always stuck in the dilemma of being “internalized” or “localized”, two major current ideological trends of management style. After referring to related materials, discuss the meanings of these two types of management trends and illustrate your answer with examples. What main factors should a company take into account in its decisions?

2) What can you learn from the case of Huawei whose focus has changed from “Huawei-characterized” to “internalized”? Discuss the approaches for enhancing marketing transformation with an example of a specific company.

3. Innovative Marketing: Samsung
1) How could Samsung transform itself from an Asian company into a well-known global company? What have you learned from Samsung’s continuous improvement?

2) What innovative strategies did Samsung adopt in the process of its brand development?

4. Innovative Marketing: Alibaba
1) Analyze the factors accounting for Alibaba’s success in e-commerce. What are the attributes of Alibaba’s positioning?

2) What are the major obstacles hindering the development of e-commerce in China? How does Alibaba handle them?

5. Chapter Case: Lenovo  
1) Analyze how Lenovo has transformed and developed in order to adapt to market changes. Among the changes Lenovo made, which were successful? Which proved to be wrong?
2) Compare Lenovo’s advertising slogans: “How the world would be if human kind lost Legend” (1989) and “If you think” (2003). What does the change tell you?

6. To prepare a case study based on the following materials from Chapter 18 and to present this:
• Mini Case: Haier’s Interior Market Chain

VI. Main Topic(s)
A. Transformation Marketing 
Focus: The concept and the importance of transformation marketing.

Teaching Objectives:
• To explain the concept of transformation marketing and the reason it is important to companies in today’s fast-changing marketplace.
• To explain that transformation marketing is dynamic in marketing patterns which comprise marketing concepts, marketing organizations, marketing capabilities, marketing strategies, and marketing tactics.

Discussion:
Marketing management must be adaptive to changes in the marketplace. It should be a dynamic process aiming at long-term growth and value. Transformation marketing is therefore adopted to realize such a dynamic process.
• Our global marketplace has been changing fast over the past 50 years. Some of the main trends include: centers of economic activity will shift profoundly, not just globally, but also regionally.
• Public-sector activities will balloon, making productivity gains essential.
• The consumer landscape will change and expand significantly.
• Technological connectivity will transform the way people live and interact.
• The battlefield for talent will shift to knowledge-intensive industries which highlights the importance and scarcity of well-trained talent.
• The role and behavior of big businesses will come under sharper scrutiny.
• Demand for natural resources will grow, as will the strain on the environment.
• New global industry structures will emerge.
• Management will go from art to science.
• Ubiquitous access to information is changing the economics of knowledge.

Marketers in developing markets should realize the difference between local companies and global companies in terms of levels of marketing patterns. Generally speaking, local companies are at a lower level of marketing pattern. They should upgrade themselves to catch up with the global competition.

The challenge faced by global companies is how to be innovative and adaptive to new developing markets in which regional differences in macroeconomic, social, cultural, and environmental aspects demand specific attention from company management.

B. Marketing Pattern and Improvement
Focus: The concept and content of marketing patterns.

Marketing Insight: Marketing’s Contribution to Shareholder Value
Marketing Insight: The Marketing CEO 

Teaching Objectives:
• To explain the concept of marketing pattern and its function in transformation marketing.
• To illustrate different levels of marketing pattern and how they reflect a company’s current operational situation.
• To introduce different methods of marketing performance measurement.
• To explain the concepts of marketing effectiveness and marketing efficiency, their differences, and how they could be realized by marketing improvement. 

Discussion:
Marketing pattern comprises marketing concepts, marketing organizations, marketing capabilities, marketing strategies, and marketing tactics. It is a method that bridges a company’s current marketing situation and its long-term strategic goal.

Different marketing patterns reflect different levels that a company is at. A company should improve itself through different marketing patterns to achieve continuing progress.

Operationally, a company should pay attention to the measurement and control methods, in order to improve marketing effectiveness and marketing efficiency. Specific methods used to measure and improve marketing effectiveness include: marketing audit, marketing metrics, and marketing mix modeling. Specific methods used to improve marketing efficiency include: sales analysis, market-share analysis, marketing expense-to-sales analysis, financial analysis, annual-plan control, efficiency control, and strategic control.

A company or a division’s marketing management effectiveness is reflected in the degree to which it exhibits five attributes: customer philosophy, integrated marketing organization, adequate marketing information, strategic orientation, and operational efficiency.