Strategic Marketing Profit Impact Marketing:

Strategic Marketing

Profit Impact Marketing: History, Pros and Cons

As a thirty-four-year-old manager for a glass coatings firm, it is difficult to be unaware of the presence of the theory of Profit Impact of Marketing Strategy or (PIMS), a way of assessing and thus gaining and competitive advantage within any given indstury -- but particularly manufacturing industries such as glass, metal, and other tangible products. This method of assessing how a company measures up to competitors within an industry long been popular, especially in industries involving durable goods beginning with its inception at General Electric. PIMS ascertains the current profit rate, the success rate of current company strategies in relationship to industry competitors and the projected results of prospective corporate management strategies to determine how to select the best future strategy and to improve upon crucial areas of competitive sucess.

The intent of a Profit Impact of Marketing Strategy analysis is to describe the interaction between different and perhaps seemingly unrelated marketing factors, profitability and cash flow in relation to competitors and thus allow a company to evaluate the potential effects of various marketing strategies on the performance of its products. According to one advocate of PIMS, "the most valuable contribution of PIMS was not in providing an answer, but in its elegant approach to framing the questions and issues that drive enterprise competitiveness. Questions and issues that are more relevant today than they were back in the late 1970's," and the increased competition in today's global economy means that PIMS may be more, not less important, than the era when it was developed. (Smock, 2006)

The concept of "ROI (Return on Investment) or ROE (Return on Equity)" is very important in PIMS. ("Profit impact marketing strategy," Small Business plans, 2006) This is why it is first necessary to determine the potential market or "the total demand that there is for your product or service." ("Profit impact marketing strategy," Small Business Plans, 2006)

Is the product's market a niche market? What are the available mix channels and strategies currently being deployed? All of these are crucial factors in the first, critical assessment of what constitutes the market of the good. Of course, profit maximization is always desirable, even a businessperson not versed in PIMS knows this! But Profit Impact of Market Strategy analysis stresses that one should not simply keep an eye on one's own ROE be but assess ROI and ROE against publicly available statistics or trade associations to achieve the highest possible ROI and ROE within the company's specific market. Market strategy profitability, rather than individual firm profitability is what is important to PIMS thinking. Even if a firm's ROI is acceptable, then one must ask what is the status of the market in relation to one's competitors.

For example, if there seems to be substantial threats in relation to superior competitor marketing, the advertising or marketing campaigns may need to be reassessed or the potential market needs to be re-evaluated. Is the marketing campaign "cost effective" as well as persuasive? ("Profit impact marketing strategy," Small Business Plans, 2006) The strengths of a PIMS report in strategic planning is that it is always very industry specific and focused on the competition. First, a report consists of a so-called "par" report, showing the ROI and cash flows typical of the industry, given the basic type of business, market, competition, technology, and cost structure. Then, there is a "strategy analysis" report computing the likely results of different strategic action plans as gauged against one's competitors. A third, closer analysis aims at trying to find examine similar businesses making similar moves, from a similar starting-point and in a similar business environment. A report on company look-alikes predicts the best combination of strategies for that particular company, by analysing more similar business within the industry. Finally, an optimal strategy predicts the best combination of strategies for that particular company (Lancaster, Massingham and Ashford, 2002, Appendix, cited in "Profit impact of marketing strategy," Dictionary of Marketing Terms, 2000) Michael Porter's more famous analysis of strategic strengths, weaknesses, threats, and opportunities is a practical assimilation and application of the concepts quantified in PIMS analysis, which relies upon a database to quantify historical threats from competitors (Smock, 2006)

The Strategic Planning Institute's PIMS databank "was first conceived on the early 1970s when the Marketing Science Institute and the Harvard Business School created a study to investigate the relationship between management strategies and company profitability by accumulating a large database of material from a number of industries, mainly from the automotive industry (Lancaster, Massingham and Ashford, 2002, Appendix, cited in "Profit impact of marketing strategy," 2000, Dictionary of Marketing Terms) General Electric was the first firm to use the strategy, trying to "answer the question of drivers of profitability" by "gathering information based on reporting of confidential data by more than 3,000 business units belonging to over 300 corporations." (Strassman, 2002) Know thy enemy, or know thy competition was GE's central motto -- only by knowing where a company was falling short in relation to the competition, could it know where to target its improvement strategies, and how different strategies could potentially maximize the advantages it did possess in relation to the competition.

Central to PIMS methodology is statistically assessing the impact of different strategies rather than simply determining how efficient a company could be, by targeting small improvements. (Strassman, 2006) In some ways, its holistic philosophy and focus on the future runs contrary to accepted Total Quality Management principles, which focus on making changes in how the firm manufactures and produces its goods, and how the quality may fall short of its specific, internal standards. "How quickly you get your invoices out, how quickly you get your personal records straightened out...Not more than 15% of the factors of profitability can be attributed to operating effectiveness. Clearly a company can be very efficient as it marches rapidly toward oblivion. I've seen it happen," says one former board member of GE. (Strassman, 2002)

Learning from others is also central to PIMS. "PIMS obtains its insights by an examination of relevant data from healthy businesses that have consistently shown leadership, profitability, and growth. The measurable traits of the healthy businesses have then been correlated with every other conceivable ingredient of success and used to shed light on the drivers of profit," not simply upon operating effectiveness...that does not mean that one should disregard operating effectiveness and forget about invoicing. All this means that what really differentiates corporations is their competitive position, that is, their strategic positioning as well as the strategic moves they make in order to achieve greater advantage against their competitors who are also trying to achieve similar gains." (Strassman, 2002)

Keep an eye upon the competition is thus the hallmark of PIMS, as well as evaluating the potential profits from a variety of strategies. But even PIMS staunched advocates admit that there are drawbacks to its forward-thinking approach. PIMS data is "historical and may be misleading in conditions of rapid change," and "the underlying assumptions of the PIMS model are not clarified" and finding what is the 'typical' business may be difficult in a global economy. (Strassman, 2002) In today's environment, where technology is constantly changing the way firms do business, PIMS rigorous scrutiny of a variety of strategies may be helpful, but may simply provide an array of incomplete roadmaps, should the nature of the industry experience a seismic shift because of a change in the geopolitical climate, new technology, or new patterns of consumer demand. Furthermore, diversification of offerings amongst larger global economic actors means that a company's competitors may be harder to define and more diffuse than in previous eras of commerce. (Strassman, 2002)