Market Segment cost analysis

Sales Analysis is detail study of net sale of the company (Data is

derived from P&L A/C). The total sales volume may be bifurcated
under 4 headings 
1) Territories (Geographical) 2) Product Groups
3) Customer Groups and 4) Salesman wise.
The sales figures should be compared with company’s goals or
targets and industry data (Market share).
Analysis of sales volume is helpful in evaluating & controlling
marketing efforts. Volume analysis also tells us about company’s
profitability. Marketing cost analysis helps the company to
determine the relative profitability of territories, product groups,
customer groups & salesman wise. It is a detail study of operating
expenses. These also help the organizations in formulating
budgetary goals and analyze variation between actual expenses &
budgetary costs.
For purpose of clarity marketing cost should be distributed to
different marketing activities such as personal selling, advertising
& promotion, warehousing & transportation, order processing and
marketing administration.

Net Sales

- Cost of goods sold _____________________

Gross Margin.

Personal selling
Advtg. & Promotion
Warehousing & Transportation
Order processing
Mktg Administration _____________________
PADT
Analysis of activity expenses is starting point of scrutiny.
It enables the mgmt to pinpoint areas of concern. It may be
compared to budgeted cost or industry data if same is available.
By combining sales analysis data and cost details helps the
company to get comprehensive picture of each segment.
Marketing administration is an indirect expense. It also includes
overheads. It is allocated to all segments or territories.
Company may adopt a suitable methodology. 2 most common
methods are 
a) Equally among all segments.
b) Proportion to sales volume.
At this stage mgmt knows what has happened. Now it wants to
know why it has happened – analyze each territory – potential
level of competition –market potential – productivity of sales price
– indices such as C.S.I.
This approach gives the mgmt better insight of the situations.
This performance evaluation helps the mgmt to decide what should
be done & this is reflected marketing plan.
If the mgmt feels due to inherent differences in different territories,
the allocated expenditure (mktg expenditure) gives a distorted
picture for purpose of comparison. Mgmt should adopt
contribution margin approach for better clarity.

Net Sales A

- Cost of goods sold B

______________________
Gross Margin.

- Mktg Expenses ________________________

Contributing Margin
In this case Mktg expenses & overheads should be deducted from
Gross Margin or total company level. Both the approaches have
their advantaged & disadvantages. For example  A particular
territory T1 – Contribution margin may be positive – after
providing for indirect expenses it becomes negative. That implies
that territory T1 is weak. For this purpose company may use ratios
such as Net Margin as % sale or Gross Margin as % sale. At this
stage mgmt knows what has happened, it is necessary to know why
it has happened. This requires micro analysis.

A) Territories (Geographical)
Mgmt may decide to expand or contract territory – organize
training to salesman (for salesman productivity) – changes in
channels/distribution – modification in advtg & promotion plan.
It is easy to abandon certain territory but it must be borne that
though there is no visible surplus but territory still contributes to
overhead expenses and there is future change in revival of this
segment.
B) Product Groups
Some products may be withdrawn from the market and company
should promote any high margin items.
In case of industrial products, for standard items company may go
in for individual distributors. Thus reduce expenses on personal
selling. While discontinuing a product, the mgmt should consider
whether it will have effect on sale of other products. In this case
customer may shift all his purchases to a counter where every thing
is available.
C) Customer Groups
Here 80 % - 20 % priciple is applicable.
Low volume customer may be dealt by intermediaries (industrial
products) instead of direct selling. Small order business should not
be abandoned over a period of time as this business may grow and
become profitable accounts. It is quite possible that their total off
take may be substantial. Marketer may only look at administration
cost burden. Marketing cost analysis helps in shaping decision or
marketing plan level.