Performance evaluations are used to identify problems and obstacles which prevent the company from achieving its performance goals. There are two primary metrics that are used for marketing evaluation. The first is a financial metric and the second is a portfolio or market share metric.
Financial Metrics
Financial metrics are commonly used to assess revenue, sales, and net profit. Managers must understand how their actions affect multiple performance metrics.
For instance, high sales volume could increase a firm’s activity image, but a firm could increase sales by simply lowering prices. A firm assesses financial performance by evaluating net sales, net profit, and profit margin [net profit / net sales] over previous years or it can compare its performance against other companies.
Portfolio Analysis
A business’s portfolio (in the marketing field) refers to the products (or services) offered by a particular firm; and a portfolio analysis refers to the process in which firms use the bulk of their resources to promote products that will be the most profitable. One of the most popular portfolio analysis methods was developed by the Boston Consulting Group (BCG), which states that companies should classify their products or services in a two-by-two matrix. This matrix's two axis consist of: market share and market growth.
Market Share refers to the percentage of a specific market group a firm owns.
For example, in the fast food market, McDonalds owns the largest market share followed by companies like Wendy’s, Burger King, KFC, etc…
Market Growth or market growth rate measures the attractiveness and the rate of increasing profits that can be produced from a particular market.
1. Stars
"Stars" have a high growth rate and high market share. Stars use large amounts of financial capital and are the top selling product in the business (so they should also generate large amounts of cash.)
2. Cash Cows
"Cash Cows" have a low growth rate but high market share. Profits and cash inflows should be high, and because of the low growth, investments needed should be low.
3. Dogs
"Dogs" have a low growth rate and low market share. Avoid and minimize the number of "dogs" in your company.
4. Question Marks
"Question Marks" have a high growth rate and low market share. Question Marks have the worst cash characteristics of all, because high consumer demand and low returns due to a low market share. If nothing is done to change the market share, question marks will simply absorb a large amount of cash and later, as the growth stops, a dog. - either invest heavily or sell off or invest nothing and generate whatever cash it can. Increase market share or deliver cash.
