The Marketing Audit and Business Performance: An Empirical Study of Large Australian Companies

Abstract

The conceptual framework of the marketing audit has been well developed by different contributors since the late 1950s. At the present time, the popular marketing textbooks and the published academic and general literature deal primarily with the theoretical and practical aspects of the marketing audit without offering any rigorous empirical justification of the practice. The teaching of the marketing audit appears to be based on the logical expectation of its usefulness, isolated case studies, and anecdotal evidence. There is little indication of how the marketing audit is actually being used, the procedure in conducting it, and how the industry perceives and evaluates its benefits. This paper attempts to explore and profile the current practice of the marketing audit in larger Australian firms. The results of this industry- based survey of 216 large Australian businesses indicated that about 48 per cent of the respondents have used the marketing audit, with 75 per cent using the self-audit method in conducting it. The respondents' perception was that the implementation of the recommendations of the marketing audit had contributed mostly between one per cent and 10 per cent to their organisational performance.

Full text

The Marketing Audit and Business Performance:
An Empirical Study of Large Australian Companies
Mehdi Taghian, La Trobe University and Robin N. Shaw, Deakin University
Abstract
The conceptual framework of the marketing audit has been well developed by different
contributors since the late 1950s. At the present time, the popular marketing textbooks and the
published academic and general literature deal primarily with the theoretical and practical
aspects of the marketing audit without offering any rigorous empirical justification of the
practice. The teaching of the marketing audit appears to be based on the logical expectation of
its usefulness, isolated case studies, and anecdotal evidence. There is little indication of how
the marketing audit is actually being used, the procedure in conducting it, and how the
industry perceives and evaluates its benefits. This paper attempts to explore and profile the
current practice of the marketing audit in larger Australian firms. The results of this industry-
based survey of 216 large Australian businesses indicated that about 48 per cent of the
respondents have used the marketing audit, with 75 per cent using the self-audit method in
conducting it. The respondents’ perception was that the implementation of the
recommendations of the marketing audit had contributed mostly between one per cent and 10
per cent to their organisational performance.
Introduction
The growing complexity of the current market environment necessitates a more systematic
scrutiny and evaluation process of the organisational preparedness to deal with the dynamic
market. The existing information gathering and processing methods, generally, lack a
comprehensive and integrated structure that incorporates the entire marketing function as well
as providing strategic recommendations for action. The marketing audit, characterised as a
systematic, comprehensive, objective, and independent approach, can assist the manager to
understand the working of the individual parts of the organisation and their contribution to the
total system geared toward the achievement of the organisational objectives. An empirical
study of the marketing audit can provide some insight into management’s perception of the
benefits of the marketing audit as well as the current procedural aspects of the marketing
audit, which are currently lacking in the literature.
The appearance of the marketing audit in the marketing literature dates back to 1959 (Rothe,
Harvey, and Jackson, 1997). The publication of “Analyzing and Improving Marketing
Performance, “Marketing Audits” in Theory and Practice” (AMA, 1959), provided a
definition and some practical guidelines for marketing auditing (Shuchman, in AMA, 1959).
In 1967, Kotler identified the marketing audit as “something apart from and more
comprehensive than the other control efforts of the firm” (p. 594). It was indicated that a clear
understanding and evaluation of the entire marketing operation would be helpful to avoid
dealing with symptoms rather than addressing the fundamental organisational marketing
problems (Tirmann, 1971).
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The publication of “The Marketing Audit Comes of Age” (Kotler, Gregor, and Rodgers,
1977) was a turning point in the development of the marketing audit. This publication
formulated a definition for the marketing audit that after 25 years still remains current.
Many authors since have contributed to the development and refinement of different aspects
of the marketing audit. Brownlie (1993) suggested a strategic role for the marketing audit as
an instrument of intervention and change. Another important recommendation was the use of
a structured questionnaire to assist with the collection of uniform information (Kotler,
FitzRoy, and Shaw, 1980; Kotler, 1997) and the use of a checklist of diagnostic questions
(Wilson, 1993; Brownlie, 1993). The marketing audit has been also recommended for use as a
necessary part of the marketing planning process (Reed, 1992). Some authors (Kotler, 1977;
Wilson, 1993; Brownlie, 1996b) view the marketing audit as an instrument to be used for
assessing an organisation’s overall commitment to a market orientation strategy.
There is currently no consensus among the contributors to the literature on the process of
conducting a marketing audit (McDonald and Leppard, 1991), although the general approach
is acknowledged by many.
The marketing audit literature deals with theoretical and conceptual aspects without empirical
validation. The only published empirical study available dates back to 1978 in the USA
(Capella and Sekely, 1978). This study used a sample of 134 respondents, 38 of whom (28 per
cent) claimed to have used the marketing audit. This study was limited in scope and
concentrated on processes and implementation issues of marketing auditing rather than the
outcomes. Since then, contributions by many authors have concentrated on providing advice
on the logical and anecdotal usefulness of the marketing audit (McGlinchey, 1996; Yaegel,
1990; Lurin, 1986), to mention only a selection.
The Present Study
The major aim of this paper is to report on the results of a study conducted in large Australian
companies (1) to provide a profile of the current users of the marketing audit in large
companies, (2) to investigate the current practice of the marketing audit, and (3) to investigate
the relationships between the familiarity with, and the usage of, the marketing audit and
organisational performance measures. It was suggested that:
1. The users and non-users of the marketing audit have different demographic
profiles.
2. There are differences in the procedure of conducting the marketing audit.
3. There is a positive relationship between the familiarity with, and the usage of, the
marketing audit, and organisational performance outcomes.
Methodology
The questionnaire for this study was developed as part of a larger marketing research project,
which included a section on the marketing audit. The questions on the marketing audit, in the
absence of an existing instrument used by other researchers, had to be developed using
various sources including a series of personal interviews with some senior marketing
managers familiar with the marketing audit, using the literature on the marketing audit, and
“reverse engineering” the results presented by Capella and Sekely in their study of the
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marketing audit in 1978. The questions developed were modified through a two-stage pretest
process. All measurements were subjective assessments by the respondents using a seven-
point Likert-type scale (Wren, 1997) and other response formats.
The sample frame used was Dun & Bradstreet’s Australian businesses database (September
1999 edition), which included 22,000 businesses. The sample selection was based on the
largest companies, in terms of their reported revenue, in both manufacturing and services. The
assumption was that larger companies had a greater likelihood of practising more
“professional” marketing. Of these organisations, the largest 1,441 were sent questionnaires
with a personally addressed letter to the chief executive requesting that the questionnaire be
completed by the senior marketing person. Complete anonymity was guaranteed. The
returned useable questionnaires totalled 216, which was a response rate of 16 per cent. The
comparison between the outgoing sample profile and the sample returning questionnaires
indicated no significant non-response bias on the demographic variables available.
The data were analysed using descriptive measures and exploratory and confirmatory factor
analyses to identify the items contributing to, and the unidimentionality of, “familiarity” and
“marketing audit (MktAud)” constructs. All measurements were tested for internal
consistency-reliability (Cronbach’s alpha) and predictive validity. AMOS was used for
estimating structural equation models of the marketing audit.
This study considers the marketing audit (1) in terms of the familiarity of the organisation and
the senior manager with the marketing audit and the intention to conduct an audit in the
future, and (2) the organisational practice of the marketing audit. The distinction is that the
familiarity with the marketing audit, even without its practice, may have induced the
organisation-wide notion of the benefits of a methodical and comprehensive evaluation
concept, while the practice of the marketing audit would substantiate the actions taken and the
perception of the benefits achieved. The construct of the marketing audit, “MktAud”, as
presented, reflects the consolidation of the various implementation issues and perception of
benefits of conducting a marketing audit. There are two subjective measures of organisational
performance used in this study: (1) a predominantly marketing influenced measure, market
share, and (2) the overall organisational financial performance.
Results and Discussion
The results indicated that there were no demographic differences between the users and non-
users of the marketing audit except for the age of the organisation and the formal education of
the senior marketing decision-maker. The users of the marketing audit had a larger
representation in companies founded during the periods “1950 or earlier” and “1961-1970”.
At the same time, the formal education of respondents in the users of the marketing audit
appeared to be higher in the TAFE certificate group, followed by possessing a master’s
degree. These differences were significant at the 0.05 level.
About 48 per cent of the respondents indicated that they periodically used the marketing
audit, and the methods used in conducting the marketing audit were dominated by self-audit
(75 per cent), followed by company task-force audit (34 per cent) and outside audit (32 per
cent). There is no evidence of the superiority of the type of audit used in terms of performance
outcome. The procedure used in conducting the marketing audit varied from what Brownlie
(1996b) suggested. The difference may be due to a predominant usage of the self-audit. It is
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important to mention that the usage of checklists, questionnaires, and the review of the
effectiveness of the audit, which could influence the quality and usefulness / benefits of the
audit, had few mentions.
The marketing audit was currently being used mostly to evaluate marketing goals,
strategies, action programs, the external environment, new product development, and the
marketing planning process, and the identification of marketing problems. The major
concerns encountered in conducting a marketing audit included the lack or unavailability of
data and the lack of a standard of comparison (benchmark).
The AMOS results (Model A) suggested that there was a positive, weak and significant
relationship (R=0.20, n=104, p<0.01) between “familiarity”, a construct reflecting the
personal and organisational familiarity with the marketing audit, and organisational
performance in terms of market share.
Additionally, the results (Model B) suggested that the relationships between “MktAud”, a
construct reflecting different implementation issues and the perception of the benefits of
conducting the marketing audit, and market share performance (R=0.32, n=104, p<0.01), and
the overall organisational financial performance (R=0.25, n=104, p<0.05) were positive,
weak, and significant.
There appeared to be a significant difference between the two groups of users and non-users
of the marketing audit “periodically” in terms of market share performance. Respondents
mostly attributed changes in their business performance directly to the implementation of the
recommendations of the marketing audit, ranging from +1 per cent to +10 per cent per annum.
Model A
Familiarity
Market share
Overall financial performance
.20
.07
Personal familiarity
Organisational familiarity
Future usage
Relationships between familiarity with the marketing audit
and performance measures
Standardised estimates
The fit statistics indicated an acceptable model (χ 2 = 1.53, df = 4, p = 0.82, CMIN/df = 0.38,
RMSEA = 0.00, TLI = 1.02, NFI = 1.00, Pclose = 0.92, AIC = 23.53, Chronbach’s Alpha =
0.91).
Relationship Standardised
estimate
Unstandardised
estimate
C.R.
Marketing audit -> Market share 0.20 0.26 2.70
Marketing audit -> Overall financial results 0.07 0.11 0.98
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Model B
MktAud
Conduct periodically
Practical recommendations
Benefits outweigh costs
Marketing's link to market
Implement recommendations
Use before marketing planning
Satisfied with audit results
Benefitial in decision-making
Non- biased audit
Market share
Overall Financial performance
0.32
0.25
Relationship between practice of the Marketing Audit
and organisational performance
Standardised estimates
The fit statistics indicated an acceptable model (χ 2 = 54.51, df = 34, p = 0.01, CMIN/df =
1.60, RMSEA = 0.05, TLI = 0.99), NFI = 0.99, Pclose = 0.40, AIC = 140.51, Chronbach’s
Alpha = 0.91).
Relationship Standardised
estimate
Unstandardised
estimate
C.R.
Marketing audit -> Market share 0.32 0.45 3.34
Marketing audit -> Overall financial results 0.25 0.41 2.57
Implications
The results of this study suggest that the “conduct of the marketing audit “ and
“implementation of the recommendations of the marketing audit” are positively and
significantly associated with the “market share” performance measure. This highlights the
importance of familiarity with, and the conduct of, the marketing audit for the organisational
performance outcomes. Therefore, it can be suggested that personal and organisational
familiarity with, and the conduct of, the marketing audit may benefit the organisation’s
performance outcome. Since there is no evidence of the difference between the types of audit
method used to the performance outcomes, firms may choose to apply their less costly
internal resources to conduct the audit. The study also suggests that there appears to be no
meaningful demographic differences between the users and the non-users of the marketing
audit except for the age of the organisation (1950 or earlier and 1961-1970) and the formal
education of the senior marketing decision-maker (TAFE and post graduate level).
Consequently, no major demographic variable appears to be characteristic of the users of the
marketing audit. However, the differences in the organisational age and the manager’s
education may have some relevance. The implication might be that the study of the marketing
audit may need to be more comprehensively included in the business course structures offered
by higher education institutions. The younger companies (founded 1971 or later) appear to be
less inclined to use the marketing audit, perhaps due to the massive availability of marketing
information, generally, which may have resulted in the perception of a lack of need for a
marketing audit, in the narrower, traditional sense.
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