Method of Enterprise Marketing Risk Early-warning and The Index System Construction

Zhou Mei-hua Wang Fu-dong Zhang Hong-hong Meng Jan

School of Management, China University of Mining & Technology, Xuzhou 221008, China marketing risk emphasizes on the marketing activity participants and the enterprises; its loss mainly comes from the economic reduction or loses, and most of the risks are attributed to the marketing activities or some related aspects. The first step of the enterprise marketing risk early warning is to establish a set of advanced indexes, after that it will make judgment of the present and the tendency of the enterprise's marketing situation and to the question it will send out the warning signal in advance and provide the support for the enterprise decision-making affairs. From the concept of the enterprise marketing risk early-warning we can find that it have several functions as follows: appraisal, monitor and early warning. The enterprise marketing risk early warning includes several stages: defining warning meaning, analyzing warning omen, forecasting warning degree, seeking warning source, which is showed in Fig. 1:
Enterprise marketing risk early-warning flow

Abstract-The avoiding of marketing risk is the critical safeguard for the existence and development of enterprises, it is also an important content in modern business management. The risk early-warning indexes act as the carriers of the information in enterprise marketing activities and take the duty of providing the information for the enterprise marketing early-warning system. The index is also the basis and core of effective operation in the system. The index system describes a comprehensive goal, it aims to seek a group to have qualitative representative and at the same time it can comprehensively reflect the synthesis goal and the requested characteristic index from various aspects, these indexes and the combinations can appropriately express the synthesis judgment of people, that is also the purpose of the establishment of the index system. The article had analyzed the enterprise marketing risk influence factor from the interior and exterior perspective. It constructed the risk early-warning index system by using the system analysis and the AHP method, rejected the small technical progress index factor through the principal components analysis method, and carried on the actual description of the concrete content of each index. Comparing with the existent index system, the index system constructed in this article is not only relatively succinct in exterior target, it increases the establishment of enterprise interior marketing risk index at the same time, this index system is relatively comprehensive, and in the end, using the BP artificial neural networks, it obtained satisfactory result.

Defining warning meaning

Research scope limitation

Analyzing warning omen

Analyzing risk measurement in quantitative method

Forecasting warning degree

Formulating warning line in a certain forecast way

Seeking warning sources

The reverse seeking for the concrete risk factor

Taking measures

Taking measures according to different factors

I.

INTRODUCTION II.

Fig. 1

Enterprise marketing risk early-warning flow

Marketing risk is caused by various elements which are unable to predict beforehand in the enterprise marketing process, and it also causes the deviation between the real earning and the anticipated revenue of the enterprise marketing, so it is possible for the enterprise to sustain a loss or obtain extra revenue. The differences of marketing risk and risk are that: A. MARKETING RISK EARLY WARNING INDEX SYSTEM
ESTABLISHMENT

Significance of index system The establishment of the scientific and reasonable early

warning index system is the critical stage to realize the

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enterprise marketing risk early-warning system function, and it is the prerequisite of the recognition, the judgment and the control of early-warning system. The aim of the marketing risk early-warning is to put the unsafe marketing behavior and the unsafe entire marketing process under supervision and provide the marketing management pattern to control the marketing risk. B. Indexes selection principle The enterprise marketing activity is an extremely complex process, and the index factors that affect or cause the enterprise marketing activity risks are also numerous and diverse. Therefore, before the index selection, a set of corresponding principles should be used, they are: systematic principle, regulation principle, commeasurable principle, comprehensive principle, feasibility principle, qualitative and quantitative index principle, high-concise quality and the relevant principle. C. Index system establishment The enterprise marketing risk formation is a result of many factors; it takes the risk origin as the standard and divides the enterprise marketing risk into the external and internal aspects. The external risk factor includes the macro-environment and the micro-environment risk. Bases on the enterprise marketing risk controllability, this article establishes the enterprise marketing risk early-warning index system (Fig. 2):
Competition Risk Client Risk Exterior Risk Supply Risk Marketing Risk Interior Risk Behavioral Risk Third party Risk

Competition risk: As for the enterprise, the competition risk mainly comes from the enterprise's product and service in the market performance, this article reflects competition risk from the marketing share and the market sale situation aspects. Client risk : It includes: Enterprise's reason (product quality or service and so on) which cause client loss because of the unsatisfactory of the client. As a result of the customers disloyalty, from the analysis, client risk reflects mainly through customer's psychological change and customer's behavior. Supply risk: The supply risk focuses mainly on the purchase risk and the settlement risk. The third party risk: It includes: financing organization, medium, government, social public, community organization and so on. Financing organization and the public play an important part in the third party; it affects enterprise to gain the fund ability; the common manner of public of the enterprise and the product will decide its success or failure. Moreover, the modern enterprise is an open system; its marketing activity has relation with various aspects. If this kind of risk can not be processed properly it will affect the enterprises image. Generally speaking, the enterprise's reputation and financial condition can reflect the enterprise's third party risk. B. Exterior marketing risk early-warning index system The early-warning measurement index can reflect the influence factors, in other words, exterior marketing risk factor may affect the early-warning measurement index introduced directly, and these exterior indexes can reflect the degree of the enterprise exterior marketing activity risk more directly and conveniently, the concrete relationship shows in Fig. 3:
Exterior Risk

Organization Risk

Fig. 2

Enterprise marketing risk early-warning index system frames

III.

EXTERIOR MARKETING RISK EARLY WARNING INDEX

Client wants Product sale Market share

Client behavior

Settlement risk

Financial state

Purchase risk

Reputation

SYSTEM

A.

Enterprise exterior marketing risk decomposition In the environmental factor, competitors, suppliers,

customers and the third party have the direct influence in the enterprise marketing process; these four parts are the main origin of the enterprise marketing external environment risk.
Fig. 3

Exterior marketing early-warning index

Exterior marketing influence factors and early- warning indexes

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(i)

Market

share

situation

includes:

Competition

reflected from the enterprise raw material quality standard achievement degree; Misleading plan degree: As a result of the market change, the misleading enterprise commodity purchase behavior causes all kinds of faults and deviations in the purchase process, and it is very possible to create economic losses. ( ) Settlement risk includes: Supply contract risk: it means all kinds of risks in the supply contract, including: the possibility and the loss of suffering the contract cheat, the dead end contract, the contract trap, the supplier suspending the contract, the change of contract provision, the breach of contract for no reason and so on; Supply settlement risk: it means all kinds of risks which occur in the purchase settlement process between the enterprise and the supplier, including: settlement risk, social risk and moral risk. ( ) Enterprise reputation includes:

concentration degree; Market share change; Marketing experience (the richer the marketing experience, the stronger enterprises withstand competition risk and also easier get out of danger). (ii) Product sale situation includes: Price competitive power; Product sale realization rate =[this year product sale (business) volume/This year plan volume]100% The product sale realization rate is the measurement of the enterprise marketing condition, the achievement and the market competition ability, and the forecast index of service development tendency; it is also the premise of the enterprise expansion increase and the capital storage quantity. (iii) Market differentiation: If the market difference is small, the market correlation product can be substituted easily, the product sale situation is irregular. Customer wants includes: Price sensitivity = [ex-premium purchasing volume-premium purchasing volume]/ [ex-premium price - premium price]; Customer loyalty: The customer loyalty is more comprehensive comparing to the price sensitivity index. ( ) Customer behavior situation includes: Sales contract realization rate; Customer request solution rate (it is the behavior of the customer that accounts for the enterprise total customer's number); Selling on credit ratio, this is another name of the credit sale. In the present market conditions, the selling on credit is inevitable, but it not only can promote the sales, it also causes a lot of massive debts and bad account, thus it makes the enterprise have to face two difficulties of sales and withdraw money. In the marketing process, the enterprise must control the selling on credit ratio in the certain degree in order to make full preparation to face with the huge commercial risk. ( ) Purchases risk includes: Supply competition: The enterprises' supply competition degree is decided by the supplier's numbers and its scale size. The supply competition degree is a reverse index regarding to enterprise's purchase risk, in other words, the more intense the supply competition, the easier to control in the cost and the purchase risk is smaller; Purchase qualified rate: The purchase qualified rate is

Enterprise exposure: it is called the enterprise well-known degree. Although a good enterprise image cannot gain profit directly, it is actually the invaluable and intangible asset. Moreover, the enterprise image can strengthen the fund ability and seek the reliable sale channel. ( ) Enterprise financial condition includes: Return on net assets= (net profit/average net assets) 100%, the return on net assets manifested the investors ability to invest enterprise own capital to gain net income, and prominently reflects the relationship between investment and reward; Return on total asset = [(total profit + interest disbursement)/average gross asset] 100%, The return on total asset expressed the ability of enterprise to make profit including the net assets and the debt property, it is the operation benefit index which is used to appraise the enterprise property, and comprehensively reflects the enterprises ability of making profit and input and output condition; Liability/asset ratio = (debt amount/gross asset) 100%, Liability/asset ratio is an important measurement of the enterprise debt ability and the risk degree. Moderate liability/asset ratio indicates the enterprise investors, creditor's investment risk is slightly low, and can also

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indicate that the enterprise management is security, steady, and effective. Current ratio = (current assets/Current liability) 100%, It indicates that the higher the index, the quicker the current assets flow and the ability stronger the enterprises repay the current liability. C. Interior index system establishment Enterprise interior marketing risk division The enterprise interior marketing risk comes mainly from the management structure, the running status risk and the enterprise marketing organization behavioral risk. Therefore this article divides the interior marketing risk into organization risk and behavioral risk according to the marketing management, it shows in Fig. 4:
Organizational strategy risk Organizational structure risk Marketing organization risk Organizational function risk Interior marketing risk Organizational system risk Marketing organization risk Information communication risk

Enterprise

marketing

organizational

structure

risk:

Management reasonable range, maintaining the reasonable management range is the work principle for design; Organizational structure compatibility, It includes the personnel co-operation and the personnel composition. ) Enterprise marketing organization risk The marketing function completed degree means whether the enterprise marketing organizational structure has the daily marketing management function, the market innovation management function and the overall situation strategy completely, and "the high cohesion, the low coupling" principle combination. ) Enterprise marketing organization system risk Management system completion: The marketing system includes two aspects the quality and the quantity systems. But at the same time, the system also must guarantee the archery index request: system scientific nature, logic and systematic characteristic between systems. Responsibility execution rate: Responsibility execution rate is a responsibility system that the practical performer occupies in the total performer number.
Managerial risk

Marketing organization risk Marketer risk

) Enterprise marketing organization information

communication risk Conflict frequency and intensity: there are some complex and indefinite phenomenon which causes the communication impediment and conflict. Information channel unimpeded degree: in order to keep up with the external environment changes, from upward to downward, and from inside to outside. ) Leaders capacity ) Enterprise marketing behavioral risk Training completion: Training capacity = (Training completion persons/ total number of Training persons) 100% Individual goal realization rate = (individual sales realization /Individual sales plan) 100% Marketing personnel turnover = (marketing personnel jumping up / total personnel) 100% The enterprise marketing risk early-warning index system Enterprise marketing administrative risk includes: influence; Administrator decision power; conduct; Administrator comprehensive

Fig. 4

Enterprise interior

marketing risk division

(i)

The marketing management organization risk

The marketing management organization risk includes: marketing management organizational structure risk and organization operation risk. The enterprise marketing organization structure risk includes the marketing organization strategy risk, the marketing organizational structure risk, the marketing organization function risk and the marketing organization system risk. ( ) Behavioral Risk marketing and behavioral therefore persons include: risk staffs, behavioral Enterprise managements personnel risk. Enterprise marketing organization strategy risk: The marketing strategy is the method by which the marketing strategic mission can be realized, it has flexibility and changes along with the situation, the power correspondingly.

Administrator

decomposes into administrative action risk and marketing

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shows in Fig.5:
Enterprise Marketing Risk

Exterior Risk

Interior Risk

Competition Risk

Client Risk

Supply Risk

Third party Risk

Behavioral Risk

Organization Risk

Conflict frequency and intensity

Individual goal realization rate

Marketing personnel turnover

Performance of sales contract

Responsibility execution rate

Competition intensity degree

Information channel fluency

Organization adaptability

Price competition power

Qualified purchase rate

Selling on credit ratio

former index system, the article mainly studied the establishment principle, the flow and the method of the enterprise marketing risk early-warning index system, according to the origin of the inside and outside factors, it has constructed a set of interior and exterior indexes system separately for the common enterprises marketing risk early-warning, and provided basis for further study on the risk index screening. REFERENCE
[1] Basak.S.Shapiro A.Value-at-Risk-based risk management, optimal policies and asset prices. The Review of Financial Studies, 2001, pp. 371-409. [2] Laitinen EK, Chong HG. Early-warning system for crisis in SMEs preliminary.evidence from Finland and the UK, Journal of Small Business and Enterprise Development, 1999, pp. 89-102. [3] Bromiley.C, Individual differences in risk taking, Risk Taking Behavior 2002(11), pp. 87-132. [4] Aziz. Emanuel, Lawom, Bank prediction, an investigation of cash flow based models, Journal of Management Studies, Vol.25, 2001, pp. 419-437. [5] Mark R.Greene, How to rationalize your marketing risks, Harvard Business Review May 2001, vol. 47, Issue 3, pp.114. [6] Hoptroff R.G.Bramson MJ, Hall T J .Forecasting Economic Points with Neural Nets. Proceedings of IJCNN, U.S.A, 2002, pp. 123134.

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Market share change

On the basis of summarizing the characteristic of the

Sales realization rate

Return on total asset

Training completion

Supply competition

Liability/asset ratio

Fig. 5 Enterprise marketing early-warning index system

Price Sensitivity

Settlement risk

Current ratio

IV.

CONCLUSIONS

2006 IEEE International Conference on Management of Innovation and Technology