Conducting a marketing audit is the first step in the marketing planning process.
Imagine that you are driving a car in the new city and you are looking for a particular address (your objective). You have a map to help you (your plan), but unless you know where you are at present on the map (situational analysis), you will not be able to direct yourself towards your goal.
What is a marketing audit?
A marketing audit is also called a situation analysis.
A marketing audit is a review of the current situation of the business’s Marketing Mix – Product, Price, Place and Promotion. It is done before writing a formal marketing plan.
The marketing audit has many similarities to a financial audit in that it is a review or appraisal of existing marketing activities. It is an assessment of past and present performance as well as providing the basis for evaluating possible future courses of action for the marketing department.
Why is a marketing audit important?
A marketing audit aims to answer the question ‘Where is the company now?’.
This review aims to assess the effectiveness of the firm’s marketing activities when it comes to the product portfolio, pricing strategies, promotional activities and the distribution network. Also, strengths, weaknesses, opportunities and threats of the firm in the market are benchmarked against competition.
A marketing audit is an important part of the marketing planning process. Very often it is conducted not only at the beginning of the process, but also at a series of points during the implementation of the marketing plan. The marketing audit usually considers both internal and external influences on marketing planning, as well as a review of the plan itself.
Answering the question where we are now will help to answer another question ‘Where does the company want to be in the future?’. This requires looking at the business objectives to see where The Board of Directors (BOD) and its management want to take the business and ensuring that these tie in with the overall corporate objectives of the whole firm.
And finally, ‘How is the company going to achieve these objectives?’. The business needs to develop the marketing strategies to ensure that they achieve their objectives.
To take a business forward with new marketing strategies, it is important to know its current strengths, existing product range and market shares, existing and potential competitors, consumer tastes and trends, the state of the market the business operates in and the external problems and opportunities.
The elements of a marketing audit
This first part of the marketing plan is very important and it can be time-consuming too. It will require extensive market research and detailed analysis of both qualitative information and quantitative data. In situations when the business is being established, or if it is entering new markets, then the data might be quite difficult to obtain.
The development of a marketing plan means looking at a number of crucial questions. Let’s take a look at the areas which situational analysis should cover:
A. INTERNAL FACTORS:
The marketing audit should include an assessment of some of the following internal factors such as the firm’s marketing objectives and marketing strategies, total sales split by area, major customers, brands and products, market share and market growth, etc. As well as marketing research and the effectiveness of the Marketing Mix.
It should also include financial information such as existing Gross Profit Margins (GPM) and Net Profit Margins (NPM), Fixed Costs (FC) and Variable Costs (VC).
A major consideration is the quality and quantity of resources available. This is sometimes categorized as the Five Ms:
- MEN – Labour
- MONEY – Finance
- MACHINERY – Equipment
- MINUTES – Time
- MATERIALS – Factors of Production
An assessment will be made of the marketing team itself asking some of the following questions:
- How is our marketing team organized?
- How effective and efficient is our marketing team?
- What is the current state of new product development?
- How profitable is our product portfolio?
- Have we got our pricing at appropriate levels?
- How effective and efficient is distribution?
- How effective and efficient is our promotion?
The business can use the following tools to conduct marketing audit of internal factors:
- A SWOT Analysis. The review of internal factors about the business itself can be conducted using A SWOT Analysis. The SWOT Analysis identifies a business’s strengths, weaknesses, opportunities and threats. Remember that Strengths (S) such as management skills and Weaknesses (W) such as shortage of finance are internal to the firm and Opportunities (O) such as economic growth and Threats (T) such as high interest rates are external. Firms have control over the internal factors, but no control over the external factors. An internal weakness, e.g. may be a high perceived price. The firm can, if it wishes, reduce this price. A world recession lowering demand for all products is uncontrollable by the firm and is an external factor.
- Product portfolio analysis. This is the most product or brand specific. Clearly, not needed for new businesses. Information in a product portfolio analysis is focusing on current and new products, product categories, product ranges, product lines, etc.
B. EXTERNAL FACTORS:
External factors can be divided into three groups:
- The overall economic environment. Conducting A STEEPLE Analysis or A PEST Analysis (the shorter version of A STEEPLE Analysis) would be the most common way of achieving this.
- Competitive environment. The audit should identify the main competitors, the strengths and weaknesses of their Marketing Mix and who the likely future competitors are going to be. The audit should include an assessment of some of the following external factors: threat of new entrants, threat of substitute products, bargaining power of customers, bargaining power of suppliers, rivalry between existing competitors, key strengths and weaknesses of competitors, etc.
- The firm’s direct market environment. The audit should include an assessment of some of the following external factors linked with market characteristics such as total market size, market growth and market trends, the nature of the customer, the perception of the firm’s products and brands, common distribution channels, etc.
Any change in these groups that impact on the firm by allowing it to compete where it previously could not, or diminishing the ability to compete in the future, should be included in the audit.
The business can use the following tools to conduct marketing audit of external factors:
- A STEEPLE Analysis. This is the business tool to assess different aspects of the external environment of a firm. These factors (considering both opportunities and threats), unlike internal ones, in addition to affecting all businesses on the market, are vastly beyond the control of any individual organization. The acronym ‘STEEPLE’ stands for the Social and Cultural (S), Technological (T), Economic (E), Ecological (E), Political (P), Legal (L) and Ethical (E) opportunities and threats of the external business environment. Social and Cultural include changing demographics (e.g. population growth), lifestyles and cultural values, etc. Technological include communication technologies, the Internet, metaverse, etc. Economic include government behavior, TAX and interest rate changes, privatization, etc. Ecological include changes in buying behavior and consumer perception of firm’s environmental credentials, etc. Political include trade restrictions, etc. Legal include national and international laws in countries where the firm operates. Ethical include the firm’s approach and treatment of its stakeholders.
- A Porter’s Five Forces Analysis. One type of marketing analysis is to consider a market in terms of certain forces that influence how competitive it is for the businesses within it, or for those hoping to enter it. One strategic framework for conducting this analysis is the Michael Porter’s Five Forces model. This model has similarities with other tools for environmental audits, such as A STEEPLE Analysis. However, Porter’s model tends to focus more on the single business or only one SBU (Strategic Business Unit) rather than on a single product or range of products. For example, General Electric might analyze the market for Consumer Electronics or Healthcare as it has Strategic Business Units (SBUs) in both. When deciding on strategy, the five forces are an important part of the decision-making process. Using the analysis, firms should set a strategy to reduce threats from substitutes and new entrants and to reduce the power of buyers and sellers. Managers should not only consider the strength of each of these forces, but also offer conclusions on how attractive the market is.
- Target market analysis. This part should analyze important features of consumer profiles, establish whether it is a mass market, segmented market, or niche market, find out consumers’ perceptions to the company’s existing products using The Position Map, etc.
Guidelines for conducting a marketing audit
The detailed information needed to complete this guideline is not necessarily available without conducting a thorough marketing research investigation. Thus, another purpose of this part of the marketing audit is to identify the correct questions to ask in a formal market study.
1. INTRODUCTION
2. THE PRODUCT
A. Evaluate the product as an innovation as it is perceived by the intended market:
- Relative advantage.
- Compatibility.
- Complexity.
- Trialability.
- Observability.
B. Identify major problems and resistances to product acceptance based on the preceding evaluation.
3. THE MARKET
C. Describe the market or markets in which the product is to be sold:
- Geographical region or regions.
- Forms of transportation and communication available in that region or those regions.
- Consumer buying habits: product use patterns, product feature preferences, shopping habits.
- Distribution of the product: typical retail outlets, product sales by other middlemen.
- Advertising and promotion: advertising media usually used to reach your target market or markets, sales promotions customarily used (free samples, coupons, etc.)
- Pricing strategy: customary markups, types of discounts available
D. Compare and contrast your product and the competition’s product or products:
- Competitor’s products: brand name, features, packaging.
- Competitor’s prices.
- Competitor’s promotion and advertising methods.
- Competitor’s distribution channels.
E. Calculate market size:
- Estimated industry sales for the planning year.
- Estimated sales for your company for the planning year.
F. Judge government participation in the marketplace:
- Agencies that can help you.
- Regulations you must follow.
4. EXECUTIVE SUMMARY
Based on your analysis of the market, briefly summarize the major problems and opportunities requiring attention in the Marketing Mix. This summary should be placed at the front of the report.
5. SOURCES OF INFORMATION
6. APPENDIX
The data generated in this step are used to determine the extent of adaptation of the company’s Marketing Mix necessary for successful market entry and to develop the final step, the action plan.
The example of a marketing audit: The Marketing Audit at Marks & Spencer (M&S)
Benefits for Marks and Spencer (M&S) of engaging in conducting a marketing audit would be to explain some unknown false assumptions surrounding the company that its style is old-fashioned and not trendy. And, to look at how the company has used marketing in the past that has created these assumptions.
Constraints on Marks and Spencer (M&S)’s marketing plan include:
- Finance because of their investing in new stores and fall in profits.
- Different economies in different countries.
- The structure of their management with mostly domestic experience.
Marks and Spencer (M&S) could figure out how to create a new marketing plan that would constitute both food and clothing divisions and target it to where sales were most prevalent. Investor and customer confidence are low and new marketing plan could give perception of a better image.
The SWOT Analysis of Marks and Spencer (M&S) includes:
Strengths:
- Provided good quality food.
- Customer loyalty towards clothes indicating good reputation.
Weaknesses:
- Lack of leadership.
- Too modest in their marketing.
- Management too domestic and structure of management not clear.
Opportunities:
- Expansion abroad to other countries.
- New tilling and stock systems.
- New stores acquired.
- Mail ordering to increase profits.
Threats:
- Other big clothing names with more diversity in their styles.
- Loss in investor confidence.
Marks and Spencer (M&S) sells more in the UK than anywhere else, so marketing must have been very effective there. The decision to go slow on the company’s strategy of opening new shops in Europe may have allowed the business to decrease the need of a larger marketing budget because they would not need to use marketing strategies as often in Europe as in other parts of the world that encompasses more Marks and Spencer (M&S) stores.
What would happen without a marketing audit?
If situational analysis is not undertaken, then the rest of the plan can be completely misdirected, either by aiming to reach inappropriate marketing objectives or by using outdated marketing strategies.
If Apple did not recognize the potential entry of new competitors in the smartphone market, then the company could fail to continuously update and relaunch different versions of its iPhone.
Once the marketing audit is accomplished and produced, it will help to inform the rest of the marketing plan ‘Where do we want to be?’ and ‘How are we going to get there?’.
