MKT 310 Lecture 8: Audiofiles Week 8 - Identifying and Evaluating Alternatives
14 Jan 2017
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AUDIOFILES #8 - Identifying and Evaluating Alternatives
Cost-Benefit, Payback and Breakeven Analysis
● cost vs. the expected benefits must be examined before marketers make implementation
of a marketing plan
● Cost benefit Analysis
○ can determine the merits of initiative or compare multiple targets to another (to
identify the strongest)
○ the benefits that derive over time (Time value of money) are compared against
the costs which are paid over time to present day dollars using net present value
● Benefits
○ Tangible Net measurable Dollars that result from an initiative like a marketing
program
○ Generally Gross Margin is UP is labour is DOWN
○ Gross Margin is UP is Sales are UP
● Time Value of Money
○ is the recognition that currency will lose value over time because of inflation
● Steps in CBA
○ Identify each Marketing alternative
○ Identify all expected benefits of the alternative (ie. increase in gross margin,
labour saving in sales, distribution or some other marketing aspect in
management)
○ Measure each benefit in $$$
○ Identify Costs (ie. promotion/ ad. costs, labour costs, increase in other costs that
might not be incurred)
○ Determine NPV - Net Present Value of the Costs and benefits
○ Compare Net Present Value of each
● Shortcoming of CBA
○ Overlook real costs (additional labour costs that may be incurred due to
overtime)
○ Overestimate real benefits through rose coloured glasses (will be determined
thru different forecasts- optimistic, pessimistic, etc.)
● Payback Analysis
○ Marketers will look at it as in Investment in the Future
○ Upfront costs
○ Ongoing costs
○ Immediate benefits
○ Ongoing benefits
○ Cash flow
○ Cumulative cash flow
● Program
○ may be any project or company a marketer is considering; any project that
requires expenditure
■ marketing campaign
find more resources at oneclass.com
find more resources at oneclass.com
Document Summary
Cost vs. the expected benefits must be examined before marketers make implementation of a marketing plan. Tangible net measurable dollars that result from an initiative like a marketing program. Generally gross margin is up is labour is down. Gross margin is up is sales are up is the recognition that currency will lose value over time because of inflation. Identify all expected benefits of the alternative (ie. increase in gross margin, labour saving in sales, distribution or some other marketing aspect in management) Identify costs (ie. promotion/ ad. costs, labour costs, increase in other costs that might not be incurred) Determine npv - net present value of the costs and benefits. Overlook real costs (additional labour costs that may be incurred due to overtime) Overestimate real benefits through rose coloured glasses (will be determined thru different forecasts- optimistic, pessimistic, etc. ) Marketers will look at it as in investment in the future.
