Marketing Metrics and Consolidated Media Holdings - Case Study Example

Analysis of Marketing Metrics: Consolidated Media Holdings Name Institution Table of Contents 1.0 Table of Contents 2 1.0 Executive Summary The report herein analyzes the marketing performance of Consolidated Media Holdings using marketing metrics. It starts with a brief review of the company profile and its area of engagement which is the media industry. The report then evaluates marketing metrics as an area of study with specific reference to its justification as a method of performance measurement in the modern business context. The report makes a review of the usability of the concept of marketing metrics with regard to areas of its application. A summary of the attributes that companies measure using this technique are reviewed. The rationale behind its popularity among modern marketing executives is expounded. A detailed review of available literature is made with a view of guiding the assessment of the specimen company. The literature concerns majorly three sub-topics. The first is the significance of planning in materializing the usability of marketing metrics. The second one is the institutional theory that underlines the importance of culture and history in assessing performance. Finally, the aspect of market orientation and the contribution it has had in measuring performance from customer’s point of view. The chosen metrics are analyzed each at a time. The data used is gathered from company’s annual reports. The trend is compared overtime. Then a comparison is made with three close competitors namely APN News and Media, News corporations and Southern Cross Media Group Limited all of which serve the same industry. Finally, a conclusion is drawn from the analysis of the metrics. Consolidated Media Holdings is noted to be fairing comparatively well. The hurdles identified are noted and possible causes well pronounced. In the light of the discussion and the conclusions reached, a recommendation is formulated based on the professional principles on the best cause of action the company should take to enhance better market performance in future. 2.0 Introduction The specimen of this study Consolidated Media Holdings that is a media investment company operating in Australia. The company has stakes in Foxtel and is a joint owner of the Fox Sports television. The company has made commendable progress in the last couple of years standing out firm even in times of global economic meltdown and hence the choice to study its market performance. Based on its market engagement and financial performance this paper will evaluate the impact the investment strategy of the company has had in comparison to other players in the media industry. The focus will be the years between 2009 and 2011 inclusive. The entities of comparison shall be APN News Media, Southern Cross Austereo limited and News Corporation. The last few decades have seen many scholars take an interest in the analysis of market performance. This to a large extent has been propagated by the huge investments that organizations are throwing to marketing. This explains the rationale to assess just how many the investments bear financial and sometimes non-financial returns. Marketing metrics have been on the center stage as the basis of this assessment (Ambler, Kokkinaki & Puntoni 2004). The performance methods in the field of marketing have been subjected to much criticism on grounds of being short term oriented just as many performance measurement techniques. Also, critics have complained about the numerous techniques in use that make comparison just impossible. There has also been concern for little attention accorded to the shareholder value creation. Marketing metrics has proven to a great extent as to rationalize the aspect of performance measurement in marketing. This approach pays attention to what the whole company performs and the extent to which customer preference has been sought. It widely applies the tools of accountants to assess the input of the marketing function to the financial well being of the company (Ambler 2000). To explain more on the company’s success in market and service provision, the various applied marketing metrics of the company specifically seven underwent analysis and appropriate comparison. Metric analyzed are the profitability ratios being gross profit margin, net profit margin and pretax profit margin; return on assets; return on equity; asset turnover; return on marketing investment and EBITDA. All the analyses were based on the company’s statistics as stated in their annual reports (Dobni & Luffman 2000). 3.0 Applied Marketing Metrics Business planning and market regulation & control is the whole idea or goal of marketing metrics. It ensures a particular company is marketing initiatives and programs are kept on check to certain business success. The term metrics stand for a trend, changing phenomena and specifically, it is all about the investments of capital on marketing activities such as advertisements. A company analyzes the various marketing metric in order to ascertain whether their marketing investments are worth or if they should undergo changes and other investments strategies adopted. The marketing metrics of the company were analyzed both qualitatively and quantitative according to the financial documentation on the annual reports. Actually, many companies utilize analyses such as the company’s position, new service or product creation, competition, advertisement strategies, price setting and the complete market approach. All these require statistical examinations in order to achieve reliable and effective analytical results (Dobni & Luffman 2000). The examination and analyses of marketing metrics helps business professionals to acquire appropriate market information that bases on the customers and users of their particular business services or products. They need to stay focused on their marketing strategies for them not to lose their current market monopoly (Dobni & Luffman 2000). Considering the analyses conducted for the company’s marketing metrics, the future and steady growth of the company were the first priority. This was with regard to their online advertisement base through the proper analyses of the effects of the potential competitive and economic aspects. After that, the financial analyses based on the net profit, returns on assets, sales, marketing investments, equity, and cost of capital were performed. The financial analyses showed that the company still had a susceptible market to take advantage of and rip all the benefits for it to continue it gradually and steady growth in the job recruitment service industry. One of the future challenges the company is likely to face is the reduction of profits due to the emerging economic trends and substitutive factors. In response to the future challenge, the company management strategy involves widening its services and incorporating diversification such as the extension and partnership with education service providers. Their general operations and returns of profit are promising to the overall economic success of the company. Therefore, until now the company still has the advantage of market monopoly when compared with the other competitors in the same industry (Dobni & Luffman 2000). This report paper has its information on the Consolidated Media Holdings’ marketing metrics analyses acquired from annual reports and it also states clearly why the company has maintained its success. The world is going online and the use of prints is reducing to the decreased preference by many. The management regards this as a move towards an effective company marketing strategy. The company strategies are also driven by the rapidly growing internet utilization and labor market in the general global investment avenue. 4.0 Conceptual Framework Reasons for measuring marketing metrics emerges from the important role the marketing function plays in the whole process of wealth maximization of a profit-making firm. The marketing department takes pays attention to marketing metrics to have it included in the final analysis of the company’s periodic results. There are two reasons why this is done: One is to provide for a comparison with other departments to show the performance of the entity’s marketing function against other departments. Next is the desire to measure the effectiveness of what the function did over the reporting period. This enables for an evaluation of the areas they performed well and those that require improvement. The earlier work of scholars in the concept of performance measurement concentrated on accounting driven methods of assessing company results. Such attributes included periodic profits, sales volume, cash flows among others. Authors of the modern times have, however, expressed concern for this approach citing a number of shortcomings. For instance they argue that accounting information is dependent on historical data which makes it an inaccurate predictor of the future. These people therefore advocated for methods that can capture the potential for the future of the firm (Eccles 1991). One of very new emergent attributes to marketing metrics has been the concept of brand equity. Consequently the attention of marketers has been drawn at evaluating possible methods for its measurement. Planned marketing has been highlighted as the benchmark behind enabling application of marketing metrics. Planning is what enables the management to undertake monitoring by comparing planned performance against the actual performance. What is invested in marketing is consequently assessed against increase in returns, asset base and other measurable characteristics (Jaworski 1988). Institutional theory suggests that management’s action pattern is dependent upon the cultural values, the history of the company in question as well as that of the industry. This calls for appropriate analysis of market information and trends and availing the same to the decision makers. The set of marketing metrics that a particular entity selects is reflective of intended performance level. Due to changes in the market, trends and conduct of business no one set of metrics can subsist in a company forever. Instead, a company keeps revising its metrics depending on the choice of objective intended to be fulfilled at the point in time (Dobni & Luffman 2000). The aspect of market orientation has a significant influence the type of system chosen to determine and analyze performance. This approach concentrates on analyzing performance from the customer’s perspective. In this sense the financial performance is taken as a passive attribute rather than an active one. The rationale is that good perceptions from consumers would always translate to high sales and consequently high monetary gains (Kohli & Jaworski 1990). 5.0 Analysis of the Marketing Metrics This analysis is based o the company’s annual postings to the shareholders as availed in their respective websites. The ratios have been applied as provided in those reports unless where the reports have failed to disclose the same. In these circumstances, the figures given have been used to compute the required ratios. 5.1 EBITDA This account for the fraction of earnings before the deductions on interest on loans and other finances, tax deductions, depreciation on fixed assets and any amortizations on items such as goodwill. The rationale it to gauge the efficiency with which operation expenses held in isolation contributes to periodic revenue creation. $ MILLIONS 2009 2010 2011 CMH 3016 6237 6203 APN 230.5 244.3 208.9 News Corporation 321 429 732 SCMG 123.4 129.8 158.3 In comparison to the three firms, CMH is by far the most efficient in utilizing its operational expenses. A steady growth in the figure is promiscuous between the year 2009 and 2010. Largely the low EBIDA in 2009 can be attributed to the world economic crisis of 2008. The effect it had on businesses across the industries is that entities could spend on their normal operations without proportionate gains realized due to dwindling fortunes in the demand side of the market. 5.2.1 PROFITABILITY RATIOS – CMH Profitability ratios assess the net gains obtained from sales made by the company. The higher the ration the better for the company as this would demonstrate high periodic gains out of operations. It is worth noting that profitability is the most widely used method of assessing company performance in virtually all companies and industries. However, a big profit posting sometimes do not reflect a company that is in a healthy financial status. Sharp accounting practices have been applied by scrupulous managers to reflect big profits while in real sense the company is struggling. These facts just imply that a mindset of sensitivity need to be floated in dealing with the ratios but do not in any way water down heir viability in performance measurement. YEAR 2009 2010 2011 Gross Profit Margin 12.3% 23.1% 26.6% Net Profit Margin 7.9% 15.4% 18.0% Pretax Profit Margin 10.2% 19.5% 21.2% 5.2.2 PROFITABILITY RATIOS – NEWS CORPORATION YEAR 2009 2010 2011 Gross Profit Margin 12.3% 12.4% 12.4% Net Profit Margin 6.9% 7.2% 7.9% Pretax Profit Margin 4.6% 5.0% 6.1% 5.2.3 PROFITABILITY RATIOS – SCMG YEAR 2009 2010 2011 Gross Profit Margin 11.2% 11.5% 12.1% Net Profit Margin 7.4% 7.9% 8.3% Pretax Profit Margin 2.8% 3.0% 3.2% 5.2.4 PROFITABILITY RATIOS - APN YEAR 2009 2010 2011 Gross Profit Margin 15.1% 18.0% 18.2% Net Profit Margin 4.0% 4.2% 4.3% Pretax Profit Margin 7.1% 10.2% 12.1% Gross profit margin = Gross Revenues/ Cost of Sales Net Profit margin = Net profit before interest and tax/sales 5.3 ROA It evaluates the gains per unit of assets utilized in creating revenues. This measure evaluates the degree to which the assets of the company have been utilized in the purpose for which they were hired. YEAR 2009 ‘000’ 2010 ‘000’ 2011 ‘000’ CMH 12.3% 18.2% 21.4% APN 22.3% 18.9% 18.4% NEWS CORPORATION 28.7% 29.9% 33.2% SCMG 24.0% 25.8% 26.8% The company’s utilization of total assets is to be treated at suspect. There are a number of explanations that can be forwarded for this state of affairs. One is that probably that the company is utilizing less than appropriate number of staff leading to sub-utilization of assets. The human resource function should check how well the employees are making use of the company’s physical resources. Another argument could be that the company is carrying a big proportion of intangible assets like goodwill, copyrights and such. The corrective measure could be to revalue the same. 5.4 RETURN ON EQUITY Return on equity is obtained from periodic earnings as a ratio shareholders equity. It evaluates the rewards shareholders get for taking risk in investing in the shares of the company. YEAR 2009 2010 2011 CMH 23.9% 27.2% 32.1% APN 4.2% 3.9% 5.1% NEWS CORPORATION 8.8% 9.4% 9.9% SCMG 7.3% 7.5% 8% CMH is again ahead by far in utilizing the resources of its shareholders. This is a healthy status as it reduces the amount of borrowed capital required to keep the company going. In future, the company may want more resources for expansion and this can be a major incentive to invite new shareholders or entice the existing ones to increase their stake. 5.5 ASSET TURNOVER Asset turnover evaluates the return gained out of proper utilization of the capital employed. This capital comprises of both the non-current and the working capital obtained from the current assets less the current liabilities. YEAR 2009 2010 2011 CMH 21.2% 25.0% 31.2% APN 8.9% 7.2% 11% NEWS CORPORATION 12.1% 12.6% 13.2% SCMG 12.3% 12.7% 12.9% CMH leads in the list of asset utilization. With the nature of industry being highly technical, involving modern technology high quality and expensive gadgets, an asset turnover of over 20% percent is highly commendable. 6.0 Conclusion and Recommendation The market performance is commendable going by the metrics studied. The efficiency levels in investment utilization are well above the other close competitors. Another significant attribute is the high margin levels of the company profits. There is a great concern for the EBITDA, in the year 2009 following economic slowdown of 2008. A prudent move to mitigate the effects of such trends would be to devise a contingency marketing plan. In this plan, the resources channeled to distribution of services would be channeled at promotion of the company’s services at its strong holds to tighten its market grip. Such a move would help to rationalize the demand behavior in a worsening situation. In an attempt to check the low return on total assets the company management should consider revaluing goodwill and other intangible assets available in the company’s balance sheet. If this move is still not capable of correcting the situation another option would be to do an internal reconstruction. This would provide an option to revalue its assets in light of market rates and the degree of utility for each one of them. 7.0 Bibliography Ambler, Tim and Kokkinaki, Flora (1997), "Measures of Marketing Success", Journal of Marketing Management, Vol.13, pp.665-678 Bhargava, Mukesh, Dubelaar, Chris and Ramaswami, Sridhar (1994), "Reconciling Diverse Measures of Performance: A Conceptual Framework and Test of a Methodology", Journal of Business Research, Vol.31, pp.235-246 Bonoma, Thomas V. and Clark, Bruce H. (1988), Marketing Performance Assessment, Boston, Harvard Business School Press. 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