How To Create Strategic Marketing Plan
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Strategic Marketing Planning:global best practice
m.mcdonald@Cranfield.ac.uk
m.mcdonald@Cranfield.ac.uk
Professor Malcolm McDonaldReykjavik 27th February 2008
Page 1Page 1
Objectives
• To spell out global best practice strategic marketing planning
• To give delegates the necessary knowledge and skills to implement the process
Agenda
• Challenges and how world class companies deal with them
• The need for marketing planning• Where to begin• An overview of the total process
Page 3
The Impact of Price on Profit
Start Point Vol + 1% Costs - 1% Price + 1%Volume (at $1) 1000 1010 1000 1000Fixed Costs 400 400 396 400Variable Costs 500 505 495 500Profit 100 105 109 110Turnover 1000 1010 1000 1010
Profit Increase 0.0% 0.5% 0.9% 10.0%
Page 4
Thought StartersDeliverables from your strategic marketing plan:
• Can you list your key target markets? (in order of priority)
• Can you describe (quantitatively and qualitatively) the value that is required by each of your key target markets?
• In each of these key target markets, can you describe how your organisation creates this value?
• Do the relevant senior people in your organisation understand and support the above three points?
• Are all the relevant functions in your company organised in a way that is supportive of delivering the value required by the customer?
Page 5
Challenges
• Market Maturity
• Globalisation
• Customer power
© Professor Malcolm McDonald
Page 6
• Technology• Production• Sales• Accountancy• Fads• Marketing
© Professor Malcolm McDonaldPage 7
Embrionic markets Growing markets
Guerrillas
2nd tier
Leaders
Mature markets
New guerrillas
?
New global leaders
© Professor Malcolm McDonald
Page 8
Britain’s top companies (Management Today)
1. Where a company has been top for more than 1 year, the next best company has been chosen in the subsequent year e.g.. Poly Peck was related top 1983, ‘84 and ‘85
2. Pre-tax profit as a percent of investment capital
19791980198119821983198419851986198719881989
Year
MFILasmoBejamRacalPolly PeckAtlantic ComputersBSRJaguarAmstradBody ShopBlue Arrow
Company1
57134
79940128151197819987225653
Market Value(£m)
50973436793632608989
135
ROI2
CollapsedStill profitableAcquiredStill profitableCollapsedCollapsedStill profitableAcquiredStill profitableStill profitableCollapsed
Subsequent performance3
From Professor Peter Doyle, Warwick University Page 9
Britain’s top companies
1. Each company was a FTSE100 when selected 2. Market Values as of 31 December of each year 3. Pre-tax profit as a percent of Equity & Long Term Debt
19901991199219931994199519961997199819992000
Year
Maxwell Communications PlcImperial Chemical Industries PlcWellcome PlcASDA GroupTSB Group Plc British Telecommunications PlcBritish Steel PlcBritish Airways PlcNational Westminster Bank Plc Marconi PlcMarks & Spencer Plc
Company1
1.08.68.31.63.7
22.23.36.1
19.629.8
5.3
Market Value(£bn)2
51340
7201719
71422
7
ROI3
CollapsedCollapsed AcquiredAcquired Acquired Not Profitable Collapsed Not ProfitableAcquiredAcquiredNot Profitable
Subsequent performance
From Professor Malcolm McDonald
%
Page 10
Inter Tech’s 5 year performance
Performance (£million) Base Year 1 2 3 4 5Sales Revenue- Cost of goods sold
£254135
£293152
£318167
£387201
£431224
£454236
Gross Contribution- Manufacturing overhead- Marketing & Sales- Research & Development
£119481822
£141582323
£151632423
£186822625
£207902724
£218952824
Net Profit £16 £22 £26 £37 £50 £55
Return on Sales (%) 6.3% 7.5% 8.2% 9.6% 11.6% 12.1%
AssetsAssets (% of sales)
£14156%
£16255%
£16753%
£19450%
£20548%
£20645%
Return on Assets (%) 11.3% 13.5% 15.6% 19.1% 24.4% 26.7%
Page 11
Performance (£million) Base Year 1 2 3 4 5
Market Growth 18.3% 23.4% 17.6% 34.4% 24.0% 17.9%
InterTech’s 5 Year Market-Based Performance
Customer Retention (%)New Customers (%)% Dissatisfied Customers
88.2%11.7%13.6%
87.1%12.9%14.3%
85.0%14.9%16.1%
82.2%24.1%17.3%
80.9%22.5%18.9%
80.0%29.2%19.6%
InterTech Sales Growth (%)Market Share(%)
12.8%20.3%
17.4%19.1%
11.2%18.4%
27.1%17.1%
16.5%16.3%
10.9%14.9%
Relative Product QualityRelative Service QualityRelative New Product Sales
+10%+0%+8%
+8%+0%+8%
+5%-20%+7%
+3%-3%+5%
+1%-5%+1%
0%-8%-4%
Why Market Growth Rates Are Important
Page 12
How excellent companies are responding
Page 13
© Professor Malcolm McDonald
How excellent companies are responding
Product/Service
Customers
Processes
ProfessionalMarketing People
(UnderstandingMarket Needs)
(Creativity)
(Core Value) (Efficiency)
Page 14
Quality and share both drive profitability
3827
20
25 201321
147
High 60% 25% LowLow
High
40%
-1%
Relative Market Share
Relative ProductQuality
ROI (%)
Source: PIMSPage 15
Key Elements of World Class Marketing
1. A deep understanding of the market place2. Correct needs-based segmentation and prioritisation3. Segment-specific propositions4. Powerful differentiation, positioning and branding5. Effective strategic marketing planning processes6. Long-term integrated marketing strategies7. A deep understanding of the needs of major customers8. Market/customer-driven organisation structures9. Professionally-qualified marketing people10. Institutionalised creativity and innovation
© Professor Malcolm McDonald
Page 16
The purpose of strategic marketing planning
The overall purpose of strategic marketing planning, and its principal focus is the identification and creation of sustainable competitive advantage.
© Professor Malcolm McDonald
Page 17
Definition of marketing
Marketing is a process for:• defining markets• quantifying the needs of the customer groups
(segments) within these markets• putting together the value propositions to meet these
needs, communicating these value propositions to all those people in the organisation responsible for delivering them and getting their buy-in to their role
• playing an appropriate part in delivering these value propositions (usually only communications)
• monitoring the value actually delivered.For this process to be effective, organisations need tobe consumer/customer-driven
© Professor Malcolm McDonald, Cranfield School of Management
Page 18
AssetBase
Define markets& understand
value
Determine valueproposition
Delivervalue
Monitorvalue
Map of the marketing domain
Page 19
LowHighFinancial Risk
Low
High
BusinessRisk
Adapted from Sri Srikanthan, Cranfield School of Management
Page 20
Financial Risk and Return
High
Low
Return
HighLow
1
2
3
RiskAdapted from Sri Srikanthan, Cranfield School of Management
Page 21
The route to Sustainable Competitive Advantage (SCA)
Differentiation HighPrice
HighVolume
Sales Revenue
Low BusinessRisk
Low FinancialRisk
PositiveNPV SCA
Economiesof ScaleLearning
Curve
High CashFlows
GearingInterest CoverWorking Capital RatioOperational Leverage
Financial
OperationsLowerCosts
From Sri Srikanthan, Cranfield School of Management
Page 22
There are only three ways to create value
• Reduce costs
• Buy profitable (or sell unprofitable) business
• Create long-term demand from consumers
• Done to death
• Limited opportunities
• The only sustainable future
Page 23
The need for a strategicmarketing plan
Page 24
NicheOutstanding
Success
Disaster Lowestcost
High
Low
High LowLowRelative costRelative cost
DifferentiationDifferentiation
© Professor Malcolm McDonaldPage 25
Operating income
Sales revenue
Operating income
Net assets
Sales revenue
Net assets(Asset
turnover)
= RONA
(ROS) X
© Professor Malcolm McDonald
Page 26
Provider Customer Consumer
The value chain
© Professor Malcolm McDonald
Page 27
Ansoff matrix
MarketPenetration
ProductDevelopment
MarketExtension
Diversification
Present Newincreasing technological
newness
increasing market
newness
Present
New
PRODUCTS
MARKETS
Page 28
Strategic planning exercise (gap analysis)1 revenue
3. G A P A N A LY SIS
4. G A P A N A LY SIS
A N S O F F P R O D U C T /M A R K E T (M A R K E T P E N E T R AT IO N )
A N S O F F P R O D U C T /M A R K E T M A T R IX (N E W P R O D U C T S / N E W M A R K E T S )
(A ) L is t p r in c ip le p ro d u c ts o n th e h o r iz o n ta l a x is a n d p rin c ip le m a rk et s o n th e v e r tic a l ax is . I n e a c h s m a lle r sq u a re w rit e in c u rre n t sa le s a n d a c h i ev a b le s a l es v a lu e d u r in g th e p l an n in g p e r io d .
(B ) N e x t , p lo t th e m ar k e t p e ne t ra t io n p o s iti o n , p o in t C . T h is p o in t w il l b e th e a d d i tio n o f a ll th e v a lu e s in th e r ig h t h a n d h a lf o f th e sm a ll b ox e s in th e A n s o f f M a tr ix . If th e re is a g a p , p ro ce e d to 4 b e lo w . P le as e n o te , re v e n u e f ro m (1 ) (2 ) (3 ) a n d (4 ) fro m th e p ro d u c tiv i ty b o x s h o u ld b e d e d u c te d f r o m th e m a rke t p e n e tra tio n to ta l b e fo re p lo tt in g p o in tC .
N e x t, l i s t th e v a lu e o f a n y n e w p ro d u c ts y o u m ig h t d e v e lo p w h ic h y o u m ig h t s e ll to e x i st in g m a rk e ts . A lte rn a tiv e ly , o r a s w e l l a s , i f n ec e s s a ry, lis t th e v a lu e o f a n y e x is tin g p ro d u ct s th a t y o u m ig h t s e ll to n e w m a rk e ts . P lo t th e to ta l v a lu e o f th e s e o n th e G a p A n a ly si s G ra p h a b o v e , p o in t D . I f th ere i s s t il l a g a p p ro c e ed to 5 .
5 . G A P A N A LY SIS(D ivers ification )
6 . G A P A N A LY SIS (C ap ital U tilisa tion )
F in a l ly, li s t th e va lu e o f a n y n e w p ro d u ct s y o u m ig h t d e v e lo p f o r n e w m a rk e ts u n til p o in t E is r e a c h e d . (S te p s 3 , 4 a n d 5 re p re se n t a s a le s g ro w th f o c u s ).
If n o n e o f th is g iv e s th e re q u i r ed r et u rn o n in v es tm en t c o n s id e r c h an g in g th e a s se t b as e . T h is c o u ld b e(A ) A c q u is it i o n(B ) J o in t Ve n tu re(S te p 6 r e p r e s e n ts a c a p i ta l u til is a tio n fo c u s )
1 . O B JEC TIV E(A ) S ta rt b y p lo tt in g th e s al e s p o s it io n y o u w is h to a c h ie v e a t th e e n d o f th e p l an n in g p e rio d , p o i n t E .(B ) N e x t p lo t th e fo re c a s t re v e n u e p o s it i on , p o in t A
2. G A P A N A LY S IS (P rod uctiv ity)A re th e r e a n y a c tio n s y o u c an ta k e to c lo s e th e g a p u n d e r th e fo llo w in g h e a d in g s ? P lo t th e to ta l v a lu e o f th e s e o n th e G a p A n a ly si s G ra p h o n th e le ft , p o in t B . (T h e s e re p re s e n t c a sh a n d m a rg in fo c u s ). N ow p ro c e ed to 3 b e lo w .
M arke t 1
E (O bjec tive)
D (N ew Produc ts/M arke ts )
C (M arke t Pe ne tra tion)
B (Prod uctiv ity )
A (Fo reca st)
B ette r P rod uct M ix (1 )
B ette r S a les C alls (4 )
C harge F or D elive ries
B ette r C ustom e r M ix (2 )
In cre ase P rice
M ore S ales C alls (3 )
R edu ce D iscounts
Tota l
R evenueProductiv ity (N B: N ot a llfac tors are m utually exc lu sive)
R ev /Vo l.
t + 0 t + 1 t + 2 t + 3 (b udge t)
M arket 1
M arket 10
P roduct 1
Product 1
P roduct 10
Product 2
P roduct 2
P roduct 11
Product 3
Product 3
P roduct 12
E tc .E tc. E tc .
M arke t 3M arket 3
M arket 12
M arke t 2 M arket 2
M arke t 11
Ect.
A :\m m 5\spe x erc1 .cd r
Ect.
Ect.
Page 29
Strategic planning exercise (gap analysis)2 profit
3. G A P A N A LY SIS
4. G A P A N A LY SIS
A N S O F F P R O D U C T /M A R K E T (M A R K E T P E N E T R AT IO N )
A N S O F F P R O D U C T /M A R K E T M AT R IX (N E W P R O D U C T S / N E W M A R K E T S )
(A ) L is t p r in c i p l e p ro d u c ts o n th e h o r iz o n ta l a x is a nd p r in c ip le m a rk e t s o n th e v e r tic a l ax is . In e a c h s m a lle r sq u a re w rit e in c u rre n t p ro f i t a n d a c h ie v a b le p ro f i t v a lu e d u rin g th e p la n n i n g p er i o d .
(B ) N e x t , p lo t th e m ar k e t p e ne t ra t io n p o s iti o n , p o in t C . T h is p o in t w il l b e t he a d d i tio n o f a ll th e v a lu e s in th e r ig h t h a n d h a lf o f th e s m a ll b o x e s in th e A n so ff M a tr ix . I f th e re is a g ap , p ro ce e d to 4 b e lo w .
N e x t , li s t th e v a lu e o f a n y n e w p ro du c ts y o u m ig h t d e v e lo p w h ic h y o u m ig h t se ll to e x i st in g m a rk et s . A lte rn a tiv e ly, o r a s w el l a s , i f n ec e s s a ry, lis t th e v a lu e o f a n y e x is ti ng p ro d u ct s th a t y o u m ig h t s e ll to n e w m a rk e ts . P l o t th e to ta l v a lu e o f th e s e o n th e G a p A n a ly si s G ra p h a b o v e , p o in t D . I f th e re i s s t ill a g a p p ro c e ed to 5 .
5 . G A P A N A LY SIS(D ivers ification )
6 . G A P A N A LY SIS (C apita l U tilisa tion)
F in a l ly, lis t th e p ro f it v a lu e o f a n y n e w p r o d u c ts y o u m ig h t d ev e lo p fo r n e w m a rk e ts u n t il p o in t E is re a c h ed . (S te ps 3 , 4 a n d 5 re p r es e n t a s a le s g r o w t h fo c u s) .
I f n o n e o f th is g iv e s th e re q u i red r e tu rn o n in v es t m e n t c o n s id e r c h a n g in g th e a s s e t b a s e . T h is c o u l d b e(A ) A cq u is itio n(B ) J o in t Ve n tu re(S te p 6 re p r e s e n ts a c a p i ta l u til is a tio n fo c u s )
1 . O B JE C TIV E(A ) S ta rt by p l o t tin g th e p ro f it p o s i tio n y o u w ish t o a ch ie v e a t th e e n d o f th e p l an n in g p e r io d , p o i n t E .(B ) N e x t p l o t th e fo re c a s t p ro f i t p o s i tio n , p o in t A
2 . G A P A N A LY SIS (P rod uctiv ity)A re th er e a n y a c t io ns y o u c an ta k e to c lo s e th e g a p u n d e r th e fo llo w in g h e a d in g s ? P l o t t he to ta l p ro f it v a lu e o f th e s e o n th e G a p A n a ly si s G ra p h o n th e le f t, p o in t B . (T h e s e re p re se n t c a s h an d m a rg in fo cu s ) . N o w p ro c e ed to 3 be lo w .
M arket 1
E (O bjec tive)
D (N ew P roduc ts/M arke ts )
C (M arke t Pene tra tion)
B (Productiv ity )
A (Forecast)
B ette r P rod uct M ix
B ette r Sales C alls
C harge Fo r D eliveries
B ette r C ustom er M ix
Increase P rice
R educe D eb tor D ays
M ore Sales C alls
R educe D iscounts
C ost R eductionO thers (S pec ify)
Total
ProfitP roductiv ity (N B : N o t a llfac tors are m utually exclu sive)
R ev /Vol.
t + 0 t + 1 t + 2 t + 3 (budge t)
M arke t 1
M arke t 10
Product 1
Product 1
P roduct 10
Product 2
P roduct 2
Product 11
Product 3
Product 3
P roduct 12
E tc .E tc.
E tc.
M arket 3 M arke t 3
M arke t 12
M arket 2 M arke t 2
M arke t 11
Ect.Ec t.
Ec t.
Page 30
Profit improvement
Productivity improvement Sales growth
Productdevelopment
Marketdevelopment
Marketpenetration
Changeasset base
Existingassets
Costreduction
Improveasset
utilisation(experience
andefficiency)
Increaseprice /reduce
discounts
Improveproduct /sales mix(margins)
Newmarkets
Existingmarkets
Convertnon-users
Newsegments
Takecompetitors’customers
Increaseusage
Growth focusCash and margin focus
Investment• Innovation• Diversification
Divestment• Redevelopment of capital resources
Capital Utilisation focus
Page 31
The output of the marketing planning process Strategic marketing plan contents
Marketing theory(Structures, frameworks, models)
Mission statementFinancial summary
Issue management
B.C.G. MatrixDirectional policy matrix
McDonald PRODUCTIVITY MATRIXBlake mouton matrix
ForecastingBudgeting
Measurement and review
Marketing planning and marketing theory (structures, frameworks, models etc.)© Copyright, professor Malcolm h.B. McDonald 1987
Downside risk assessment
Market segmentation studiesMarket researchResponse elasticities
Porter matrixAnsoff matrixBcg matrixDirectional policy matrixGap analysis
Key success factors matrixMarket researchMarket segmentation studies
Market overview
Marketing Strategies
Marketing Objectives
Opportunities Threats
Portfolio summary
Assumptions
Resource Requirements
StrengthsWeaknesses
Issues to beAddressed
Market structureMarket trendsKey market segmentsGap analysis
Marketing auditMarket researchMarket segmentation studiesGap analysisProduct life cycle analysisDiffusion of innovationAnsoff matrixForecastingMarket research
ProductPricePromotionPlace
(4 x 4 ps)(Positioning/branding)
Strategic focusProduct mixProduct developmentProduct deletionMarket extensionTarget customer groups
(By product)(By segment)(Overall)(By product)(By segment)(Overall)(By product)(By segment)(Overall)
(By product)(By segment)(Overall)
The marketingPlanning process
Phase 1
Goal setting
Phase 2 Situation review
Phase 3StrategyFormulation
Phase 4ResourceAllocationAnd monitoring
Financial theory /Structure
Profitability analysis by products / segmentsComparative analysis of competitor productsExperience curves and cost structures
Cash flows and risk evaluationSensitivity analysis
Integrated financial planning Limiting resource analysis
Sensitivity analysisDecision treesProbability theory
Budgeting and financialplanningZero base budgets
Performance targets / ratiosCost, price, volume (CPV)analysisMarginal and absorption costingActivity base costing
Competitor analysisIndustry/sector analysisRisk evaluationRatio analysis, valuation studiesCost of capitalNPV analysisProject evaluationLife cycle costing
Page 32
The contents of a strategic marketing plan (T+3) (less than 20 pages)
• The purpose statement• Financial summary• Market overview• SWOT analysis• Portfolio summary• Assumptions• Objectives and strategies• Budget
© Professor Malcolm McDonald
Page 33
Strategic marketing planning
• What is our purpose?• What is our Market?• Who are our customers?• What are our products?• What does the customer need?• How well do our products satisfy
these needs?• What are our objectives?• How can we allocate our
resources optimally?
• What are our strategies?– What new products should be
developed?– How should we price our products?– What should our channel strategies
be?– What service levels should we provide
for our different customer groups?– How should we communicate with our
target markets?
• How should we measure the effectiveness of our plan?
Page 34
Types of mission statements
•Type IType I ‘Motherhood’ - usually found inside annual reports. Designed to ‘stroke’ shareholders, otherwise no practical use
•Type IIType II The real thing. A meaningful statement, unique to the organisation concerned, which ‘impacts’ on the behaviour of the executives at all levels
•Type IIIType III This is a ‘purpose’ statement ( or lower level mission statement). It is appropriate at the
state/branch/or departmental level of the organisation.
The Generic Mission Statement
Our organisation’s primary mission is to protect andincrease the value of its owner’s investments whileefficiently and fairly serving the needs of its customers.(Insert organisation name…) seeks to accomplish thisin a manner that contributes to the development andgrowth of its employees, and to the goals of countriesand communities in which it operates.
Competitor 1“(ABC offers) comprehensiveIT services integrated withbusiness insight to reducecosts, improve productivityand assert competitiveAdvantage.”
Competitor 4“JKL provides consulting andIT services to clientsglobally – as partners to conceptualise and realisetechnology driven businesstransformation initiatives.”
Competitor 2“DEF is the No. 1provider of integratedbusiness, technology, &process solutions on aglobal delivery platform.”
Competitor 5“MNO is the world-leadingInformation technologyconsulting, services, and business process out-sourcing organisation that envisioned and pioneered the adoption of the flexible global business practices that today enable companies to operate more efficiently and produce more value.”
Competitor 3“GHI provides a broad portfolio of business & technology solutions to help its clients worldwide improve their business performance. Our core portfolio comprises information technology, applications, & business process services, as well as information technology transformation services.”
Competitor 6“PQR is global management consulting, technology services, & outsourcing company. Committed to delivering innovation, PQR collaborates with its clients to help them become high-performance businesses and governments.”
Source: Malcolm Frank, Senior Vice President, Strategy &Marketing, Cognizant, as presented at ITSMA’s MarketingLeadership Forum, April 2006
The technology solutions space is crowded and competitive, and it can be difficult to tell the players by their messaging
Page 37
Unit mission statement
This is the first item to appear in the business planThe purpose of the mission statement is to ensure that the raison d’être of the unit is clearly stated. Brief statements should be made which cover the following points:
1.1. Role or contribution of the unit e.g. profit generator, service department ,opportunity seeker
2.2. Definition of the business e.g. the needs you satisfy or the benefit you provide. Don’t be too specific (e.g. ‘we sell milking machinery’) or too general (e.g. ‘we’re in the engineering business).
3.3. Distinctive competence A brief statement that applies only to your specific unit. A statement that could equally apply to any competitor is unsatisfactory.
4.4. Indications for the future A brief statement of the principal things you would give serious consideration to (e.g. move into a new segment).
LOVE
Low
High
HATE
SalesPotential
Differentiation is at the heart of successful marketing
“For marketers, differentiation today is more challenging than at any time in history – yet it remains at the heart of successful marketing. More importantly, it remains the key to a company’s survival.”
Page 40
Fujitsu Services: ‘Five Genuine Differentiators’
• We take the long view– We are not tied to a 90 day Wall Street reporting cycle, we work only with client
timeframes.• Our structure
– We have a business structure that makes us simple to deal with. It makes all our capabilities more easily available to all of our clients.
• Contracts– We build contracts locally that reflect the client’s business measures and the way in
which value needs to be delivered.• Sense and Respond™
– Our unique way of managing activities to eliminate work and improve end user satisfaction.
• Triole™– Our unique way of delivering infrastructure and desktop projects to reduce delivery
time whilst improving both reliability and flexibility.
Page 41
Market definition and segmentation
Correct market definition is crucial for:• Share measurement• Growth measurement• The specification of target customers• The recognition of relevant competitors• The formulation of marketing strategy
Page 42
Some Market Definitions (personal market)Market Need (on-line)
Emergency Cash (‘Rainy Day’) Cash to cover an undesired and unexpectedevent often the loss of/damage to property).
Future Event Planning Schemes to protect and grow money which arefor anticipated and unanticipated cash callingevents (eg. Car replacement/repairs, education,weddings, funerals, health care)
Asset Purchase Cash to buy assets they require (eg. Carpurchase, house purchase, once-in-a -lifetimeholiday).
Welfare Contingency The ability to maintain a desired standard of living(for self and/or dependants) in times of unplannedcessation of salary.
Retirement Income The ability to maintain a desired standard of living(for self and/or dependants once the salarycheques have ceased.
Wealth Care and Building The care and growth of assets (with various risklevels and liquidity levels).
Day-to-Day Money Management Ability to store and readily access cash for day-to- day requirements.
Personal Financial Protection and Currently known as car insurance.Security from Motor Vehicle Incidents
Page 43
Market overview
• What the market is
• How it works
• Key leverage points
© Professor Malcolm McDonald
Page 44
Market mapping
N NationalBuilders
N LocalBuilders
N PrivateCompanies
N LocalGovernmentUsers
N DomesticUsers
N Contractors
N LocalDistributors
N RegionalDistributors
N NationalDistributors
N Other Retailers
N Spcist. Retailers
N Detp. Retailers
N Sheds
UK Sales
vol/val %
vol/val %
vol/val %vol/val
%
vol/val %
vol/val %
vol/val %
vol/val %
vol/val % vol/val %
vol/val %
vol/val %
vol/val %
vol/val % vol/
val %
vol/ val %
vol/val %
vol/val %
vol/val %N = Number% = Your Share
… …including the number of each customer typeincluding the number of each customer type
NB. Sketch out complex junctions separately. Alternatively, build an outline map, applying details at the junctions to be segmented.
Page 45
Radiator Market Map Radiator Manufacturer Distributor Installer Specification Decision
Primary Leverage Point
5455 5455 5455 3400
End User Segment
623
Stelrad227541.7%
1234
1830360
66Nil
70.217.311.2Nil
Premier86015.8%
1234
555280
26Nil
21.312.8
4.3Nil
Supaline60511.1%
1234
125450
30Nil
4.820.5
5.1Nil
Barlo4808.8%
1234
90270120Nil
3.412.320.7Nil
Warmastyle3005.5%
1234
5255
40Nil
Nil11.6
6.9Nil
Other Imports90517.1%
1234
Nil556300
80
Nil25.351.8
100.0
1. NationalMerchants260547.8%
2. LargeIndependents219040.1%
3. SmallIndependents56010.6%
4. Sheds801.4%
5. 1234
295170NilNil
British Gas4658.5%
6. 1234
10651360
360Nil
Installer275550.5%
7. 1234
1135540230Nil
Contractor190534.9%
8. 1234
NilNilNil80
Self Installer801.4%
9. 1234
120130NilNil
Direct Works2504.6%
Manufacturer250
1011121314
Nil250NilNilNil
31.3
Local Authority1350
1011121314
NilNil
105050
250
95.450.027.8
Housebuilder350
1011121314
Nil350NilNilNil
43.8
British Gas700
1011121314
500100
50Nil50
19.612.5
4.5
5.6Contractor200
1011121314
Nil100NilNil100
12.5
11.1Consultant550
1011121314
NilNilNil50
50050.155.6
10. 56789
3852010
10080
Nil
PrivateExitsting255546.8%
11. 56789
Nil50
750NilNil
Private New80014.7%
12. 56789
50395506Nil150
Public Existing110020.2%
13. 56789
NilNilNilNil100
Public New1001.8%
14. 56789
50300550NilNil
Commercial90016.5%
5455
Distribution SectorShare
Copyright Professor Malcolm McDonaldPage 46
Market Map - Office Equipment
Manufacturers
Type BDealer Chain
Type BIndependent
Type CDealer Chain
Type CIndependent
VARs
BuyingConsortia
Retail
DirectResponse
Other
Type AIndependent
Type ADealer Chain
Final Users
Direct Field Sales 7%
53%
9%
0%
1%
15%
4%
5%
4%
2%
0%
0%
Company’s Route to Market(red)
Final Users Route to Market(black)
3%
14%
3%
3%
8%
7%
18%
4%
10%
10%
8%
12%
ColoursRed Black
Page 47
KeyCharacteristics
MarketingMessage
Sales
Distribution
Price
CompetitiveIntensity
Costs
Profit
ManagementStyle
Unique
Explain
Pioneering
Direct Selling
Very High
None
Very High
Medium/High
Visionary
ServiceDifferentiation
Brand Values
RelationshipBased
Mass Distribution
Medium
Many
Medium/Low
Medium/High
Operational
ProductDifferentiation
Competitive
Relative BenefitsDistribution
SupportExclusive
Distribution
High
Few
Medium
High
Strategic
“Commodity”
Corporate
AvailabilityBased
80 : 20
Low (Consumer Controlled)
Many
Medium/Low
Medium/High Cost
Cost Management
The product/market life cycle and market characteristics
Page 48
Relevance must lead to action
• To build and protect value you must be increasingly RELEVANT to consumers…
• …and RESPOND to this relevance, continually
Page 49
Relevant?
The Times 19th Jan 2005
Page 50
low high
low
high
Price
Speed
© Professor Malcolm McDonald
Page 51
Middle Middle Middle
low low low
high high high
© Professor Malcolm McDonald
Page 52
Small companies
Low cpm
High cpm
Big companies
X
© Professor Malcolm McDonald
Page 53
Personalising segments
Page 54
Global Tech
Koala Bears
Teddy Bears
Polar Bears
Yogi Bears
Grizzly Bears
Andropov BigBears
Uses an extended warranty to give them cover. Won’t do anything themselves, prefer to curl-up and wait for someone to come and fix it.Small offices (in small and big companies). 28% of marketLots of account management and love required from a single preferred supplier. Will pay a premium for training and attention. If multi-site, will require supplier to effectively cover these sites. (Protect me).Larger companies 17% of marketLike Teddy Bears except colder! Will shop around for cheapest service supplier, whoever that may be. Full 3rd-party approach. Train me but don’t expect to be paid. Will review annually (seriously). If multi-site will require supplier to effectively cover these sites.Larger companies 29% of marketA ‘wise’ Teddy or Polar bear working long hours. Will use trained staff to fix if possible. Needs skilled product specialist at end of phone, not a bookings clerk. Wants different service levels to match the criticality of the product to their business process.Large and small companies11% of marketTrash them! Cheaper to replace than maintain. Besides, they’re so reliable that they are probably obsolete when they bust. Expensive items will be fixed on a pay-as-when basis - if worth it. Won’t pay for training.Not small companies 6% of marketMy business is totally dependent on your products. I know more about yourproducts than you do! You will do as you are told. You will be here now! I willpay for the extra cover but you will ……!Not small or very large companies. 9% of market
Page 55
Listen to how customers talk about category need
Customer ViewAdvice• cutting costs• future technology directionHelp• design & configuration• process engineering• electron commerceRun• international network• disaster recovery
Supplier View
• fast PAD family• multimedia FRADs• PIX firewall
• Solutions• Gigabit Ethernet• solutions
• high performance• LAN support
Page 56
Understand the different category buyers
Businessperfectionist
Radical thinkers
Profit engineer
Save mybudget
Businessgeneral
Save mycareer
Conservativetechnocrat
Technicalidealist
Radicalarchitect
“Reward” “Relief”
Technical
Business
An undifferentiated market
But one with many different purchase combinations
© Professor Malcolm McDonald
Different needs in a market
© Professor Malcolm McDonald
Segments in a market
© Professor Malcolm McDonald
Micro-segments
Micro-segment 1 2 3 4 5 6 7 8 9 10Application(if applicable)
What is bought
Where,
When,
and How
Who
Why(benefits sought)
© Professor Malcolm McDonald
Quick Segmentation Exercise
• Write down the main benefits sought by customers• Divide them into:
• Hygiene factors• Motivators (those that contribute towards the customer’s decision on who
to buy from)• Take the ‘motivators’ and choose the 2 main ones• Estimate the percentage of customers at each end• Cross multiply them to create a perceptual map• Give them names
Example = Copier Paper
• Service delivery – (Fast, paper always ‘there’ – point of delivery availability of products; service levels)
• Product fit for purpose - (Hi quality print finish for colour copiers; consistency of quality; paper that doesn’t screw up in the machine; print definition; no waste)
• Environmental factors - (Recyclable)• Level of support - (Delivered in small lots; consignment stock;
easy ordering {on-line]; delivered to difficult locations)
Level of Support(less demanding)
20% 80%
Low High (want lots of support)
Breath of ProductRange(buy a narrow rangeBut big quantities)
70% 30%
Low High (buy a broad range)
80% (hi support requirements)
Prima Donnas(expect to have their every whim catered for)
30% (broad product range required)
20% (lo support requirement)
56%
(narrow product range required)
Easily Satisfied(paper is notKey to their business-Just want reliablesupply)
6%
24%
Drag Queens
Dictators(know their power asLarge volume users)
14%
70%
SWOT analysis
• By segment, what value is required by the customer?
• What value are you offering to entice the customer to buy from you
• Avoid SWAGs
© Professor Malcolm McDonald, Cranfield School of Management
Strategic marketing planning exercise - SWOT analysis
1
2
34
5
You Comp A Comp B Comp C Comp D
Total 100
12
3
45
1. SEGMENT DESCRIPTIONIt should be a specific part of the business and should be very important to the organisation
2. CRITICAL SUCCESS FACTORSIn other words, how do customers choose?
3. WEIGHTING(How importantis each of theseCSFs? Scoreout of 100)
12345
THREATS
5. OPPORTUNITIES / THREATSWhat are the few things outside your direct control that have had, and will have, an impact on this part of your business?
6. KEY ISSUES THAT NEED TO BE ADDRESSEDWhat are the really key issues from the SWOT that need to be addressed?
OP
PO
RTU
NIT
IES
4. STRENGTHS / WEAKNESSES ANALYSISHow would your customers score you and each of your main competitors out of 10 on each of the CSFs?Multiply the score by the weight.
Market/segment selection criteria
Business Strengths
Market / segmentattractiveness
- Size- Growth- Profitability- Competitive intensity
- Product Range- Product Efficacy- Service Quality (Including distribution)- Price- Associated Services (e.g. Technical advice)- Reputation / Image
High Low
Low
High
Maintain/manage forsustainedearnings
Invest /Grow
Manage forCash /
Withdraw
SelectivelyInvest
© Professor Malcolm McDonald
Page 67
MarketAttractiveness
KEYKEYPresentposition
Forecastposition in3 years
High Low
Low
High
Invest/
Invest/BuildBuild
Maintain
Maintain
Manage for Cash
Manage for Cash
??
ResearchExecMBA
C.S.G.M.Ps
DistanceEducation/
CMR
MANDAS
DirectorsSeminars
C.S.
Full-TimeMBA
Our competitive position /business strength
Page 68
Market attractiveness evaluation
This form illustrates a quantitative approach to evaluating market attractiveness. Each factor is score multiplied by the percentage weighting and totaled for the overall score. In this example, an overall score of 7 out of 10 places this mark in the highly attractive category.
1.
2.
3.
4.
5.
6.
Market Size (£ millions)
Volume Growth (Units)
Competitive Intensity
Industry Profitability
Vulnerability
Cyclicality
10£250
10%
Low
> 15%
Low
Low
5£51.250
5.9%
Medium
10.15%
Medium
Medium
0< £50
< 5%
High
< 10%
High
High
Factor Scoring CriteriaScore
5
10
6
8
3
2.5
Weighting15
25
10
25
15
10
TotalTotal
Ranking0.75
2.5
0.6
2.0
0.9
0.25
7.07.0
Page 69
Programme guidelines suggested for different positioning on the directional policy matrix
Maintain or increasedominance
Differentiation - lineexpansion
Lead - Aggressivepricing for share
Aggressivemarketing
Broadendistribution
Tight control - go forscale economies
Expand, invest (organicacquisition, joint venture)
Expand - invest
Upgrade managementin key functional areas
Fund growth
Reduce in process -extend credit
Maintain or slightlymilk for earnings
Prune for less successfuldifferentiate for segments
Stabilise prices / raise
Limit
Hold widedistribution pattern
Emphasise cost reductionviz. variable costs
Maximise capacityutilisation
Focus on specificprojects
Maintain, reward efficiency,tighten organisation
Limit fixed investment
Tighten Credit- reduceaccounts receivableincrease inventory turn
Maintain selectivity-segment
Emphasise productquality
Maintain or raise
Maintain selectively
Segment
Tight control
Increase productivitye.g. specialisation
Invest selectively
Allocate key managers
Invest selectively
Reduce
Forego share for profit
Aggressively prune
Raise
Minimise
Gradually withdrawdistribution
Aggressively reducefixed & variable
Free up capacity
None
Cut back organisation
Minimise & divestopportunistically
Aggressively reduce
Invest selectivelyin share
Differentiation - lineexpansion
Aggressive - price forshare
Aggressivemarketing
Limited coverage
Tight - but not at expenseof entrepreneurship
Invest
Invest
Invest
Fund growth
Invest
Products
Market Share
Price
Distribution
Promotion
Cost Control
R & D
Production
Personnel
Investment
Working Capital
Investfor growth
Maintain marketposition, manage
for earnings SelectiveManagefor cash
Opportunisticdevelopment
Page 70
AssetBase
Define markets& understand
value
Determine valueproposition
Delivervalue
Monitorvalue
Map of the marketing domain
Page 71
Mass media - objectives
- message strategy
- media strategy
Direct mail - objectives
- strategy
Telephone
- objectives
- strategy
Personal contact
- objectives
- strategy
Electronic- objectives
- strategy
PlaceDistribution
Strategy
e.g test drive,demonstration,5 senses
Integrated marketingcommunications plan
Channel/Medium Choice
Other- PR
- POS
- etc
Define marketing strategy for promotion
Page 72
Activities by medium
Personal contact
Direct mail
Telephone
Advertising
Electronic
Recognise potential
Initiate dialogue
Exchange information
Negotiate / tailor
Commit
Med
ium
Activity
Page 73
Live in Braintree in Essex; the family comprises Mum and Dad and three children, the oldest of which is just about to start her GCSEs
Holidays are an important part of their lives: they book early and enjoy the ritual of preparing for their departure
Mrs Sunworshipper and her daughter always book a programme of sunbed sessions in the month leading up to their holiday
Have holidayed in The Med for years, even when the kids were quite young
They always get a package deal to the same tried and trusted resort and tend not to stray too far from the beach or hotel pool
Now that their children are a bit older, they want to spread their wings and are planning to holiday in Florida next year
Background
Holidays
The Sunworshippers
Page 74
Internet Mobiletelephone iTV Broadcast
TV
• Recognise
Negotiate/tailor
Commit
• Exchange value
Traditional channels
Exchange potential
• Initiate dialogue
• Exchange information
• Monitor
The Sunworshippers
Page 75
Live in Luton; childhood sweethearts, John and Mary have been seeing each other seriously for three years
They were planning to buy a house together but put their plans on hold to ensure that they could take a holiday this summer
John DJs part-time in a local nightclub and would happily leave his job as a mobile phone salesman a to pursue a DJ-ing career in a European beach resort
Feel like The Med doesn’t have anything else to offer them and are keen to travel further afield: Mary likes the sound of Tunisia
Tend to book a holiday on the basis of the facilities available, and are always keen to get involved in watersports and other beach activities
Wouldn’t dream of holidaying anywhere that doesn’t have thriving nightlife
Background
Holidays
John and Mary Lively
Page 76
Internet Mobiletelephone iTV Broadcast
TV
• Recognise
Negotiate/tailor
Commit.
• Exchange value
Traditional channels
Exchange potential
• Initiate dialogue• Exchange information
• Monitor
John and Mary Lively
Page 77
AssetBase
Define markets& understand
value
Determine valueproposition
Delivervalue
Monitorvalue
Map of the marketing domain
Page 78
Marketing Measurement
• What needs measuring?• Why does it need measuring?• What is the relative importance of each?• How should they be measured?• What should be the frequency of each?• To whom should the results be reported?• What actions should be taken as a result?
Page 79
AssetBase
Define markets& understand
value
Determinevalue
Proposition
Delivervalue
Monitorvalue
Map of the marketing domain
Measurement zone where metrics are applied (Levels 2 & 3)
Strategic zone where metrics are defined (Level 1)
Page 80
Overall Marketing Metrics Model
product market segment
ms%sales£profit£
corporate rev£
profit£
actions, esp. marketing
metrics on achievement of factor to required level
costs, activity milestones & outputs
Strategy/ achievement
Objectives/results
Plan/action
performanceby product market segment
application of spend
budget funds & time
Resource allocation/ spend
Forecast/profit
corporate performance
turnover, profit & shareholder value
budget
££££
Intention/actuality
Business element
Measure-ment
Lead indicators Lag indicators
Required by customers.Relative to competitors
Market growthCustomer acquisition/ retention/
uptrading/ X-selling/ regainedProduct/customer mixChannel performance
Cost to achieveResponsibilitie
s
who
who
who
who
what
what
what
what
Positioning of issues in the model
PFs
HFs
CSFs
Market segment objectives: Directional Policy Matrix
High Low
High
Low
Segmentattractiveness
Relative company competitiveness
Selectively invest
Manage for cash
Strategicinvest/build
Pro-actively maintain
Cranfield University School of Management 1996
Analysis process•Attractiveness of each segment
(ranked)
•Projected net free cash flow (3/5yrs) - for each segment
•Key risk factors influencing cash flows
•Risk assessment for each segment
•Risk adjusted future cash flows per segment
•Deduct risk-adjusted cash flows from the capital x cost of capital
for each segment
•Aggregated positive net present value
Strategies to increase present value
•Increase future cash flows•Cash flow happens earlier
•Reducing the risk in the cash flows
Critical success factors
Nochange
Present position Forecast position in 3 yrs
The market understanding process
Market 1
Market 2
Market 3
Market 4
Etc.
Marketing Sales Mfg. IT R & DEtc.
Finance &Accounting
HR Logistics
The
“M
arke
ting”
D
irect
or
© Professor Malcolm McDonald, Cranfield School of Management
Page 83
Are you getting these essential deliverables from your strategic marketing plan?Score out of 10Market structure and segmentation• Is there a clear and unambiguous definition of the market we
are interested in serving?• Is it clearly mapped, showing product/service flows,
volumes/values in total, our shares and critical conclusions for our organisation?
• Are the segments clearly described and quantified? These must be groups of customers with the same or similar needs, not sectors.
• Are the real needs of these segments properly quantified with the relative importance of these needs clearly identified?
Differentiation• Is there a clear and quantified analysis of how well our company
satisfies these needs compared to competitors?• Are the opportunities and threats clearly identified by segment?
© Professor Malcolm McDonald
Page 84
Detailed checklist of essential deliverablesfrom a strategic marketing plan
Score out of 10Score out of 10Scope Are all the segments classified according to their relative potential for growth in profits
over the next three years and according to our company’s relative competitive position in each?
Are the objectives consistent with their position in the portfolio? (volume, value, market share, profit)
Are the strategies (including products, services and solutions) consistent with the objectives?
Are the measurement metrics proposed relevant to the objectives and strategies? Are the key issues for action for all departments clearly spelled out as key issues to be
addressed?Value capture Do the objectives and strategies add up to the profit goals required by our company? Does the budget follow on logically and clearly from all the above,
or is it merely an add on?
© Professor Malcolm McDonald
Page 85
Definemarkets/segments
Evaluate market/segment attractiveness
Choose markets/segmen
ts
Define objectives
Estimate expected results
Value required
Value delivered
Value received
How value delivered/
communicated
Define markets & understand value
Understand value required
Understand competitor value
positioning
Define price/value proposition
Define marketing strategies
Determine value proposition
Outbound logistics
Operations
Service
Design/implement marketing communication programmesDesign program Negotiate/ tailorInitiate dialogue CommitExchange information Exchange value
Monitor marcom
programmes
Deliver product/service
Exchange Information
Inbound logistics
R&D
Deliver value
Monitor value
Analysis
MarketingPlan(s)
Customerinformation
PlanEffectiveness
Communicate value
Overview of marketing map
Page 86
The Contents of a Strategic Marketing Plan (<20 pages)
• Mission or Purpose Statement• Financial Summary
RevenueProfit
t.0 T+1 T+2 T+3
Products
Mar
kets
Existing New
New
Exi
stin
g
1 2
3 4
© Professor Malcolm McDonaldPage 87
Key (revenue and profit growth)
• from productivity• by product for market for existing products from existing markets
• from new products in existing markets• from existing products in new markets• from new products in new markets
Plus a few words of commentary
Market Overview/SummaryMarket definitionMarket map showing vol/rev flows from supplier through to
end user, with major decision points highlightedWhere appropriate, provide a future market mapInclude commentary/conclusions/implications for the companyAt major decision points, include key segments
© Professor Malcolm McDonald Page 88
SWOT Analyses on Key Segments • include pictorial representations of the SWOTs, such as bar charts • highlight major conclusions/issues to be addressed
Portfolio Summaries of the SWOTs • include Directional Policy Matrix (DPM) summaries of:-
- the attractiveness of the segments over the next 3-5 years- the current relative competitive position of your company in
each segment- the planned competitive position of each segment over the
next 3-5 years
Marketing Objectives and Strategies for the next 3-5 years • include objectives (volume, value, market share, profit, as appropriate) for the next 3-5 years for each segment as represented by the planned position of each circle on the DPM • include strategies (the 4XPs) with costs for each objective
Consolidated Budget for the next 3-5 years • this will be a consolidation of all the revenues, costs and profits for the next 3-5 years and should accord with the financial summary provided earlier
© Professor Malcolm McDonald Page 89
Actions
• Diffusion of innovation• Product/Market life cycle• Ansoff matrix/gap analysis• Mission statement• Market definition• Market mapping
– Present– Future
• Market segmentation• SWOT analyses (on segments)• Portfolio summary (of SWOTs)• Marketing objectives• Marketing strategies• Integrated communication based on segmentation (branding, CRM,
multi-channel integration)• Marketing measurement/SVA• Complete strategic marketing plan
Appendix 1
Marketing Plan Evaluation Guidelines
Page 91
Appendix 2
Page 92
Valuing Key Market Segments
Background/Facts
Risk and return are positively correlated, ie. as risk increases, investors require a higher return.Risk is measured by the volatility in returns, ie. high risk is the likelihood of either making a very good return or losing all your money. This can be described as the quality of returns.All assets are defined as having future value to the organisation. Hence assets to be valued include not only tangible assets like plant and machinery, but intangible assets, such as Key Market Segments.The present value of future cash flows is the most acceptable method to value assets including key market segments.The present value is increased by:- increasing the future cash flows- making the future cash flows ‘happen’ earlier- reducing the risk in these cash flows, ie. improving the certainty of these cash flows, and, hence, reducing the required rate of return.
© Professor Malcolm McDonald
Suggested ApproachIdentify your key market segments. It is helpful if they can be classified on a vertical axis (a kind of thermometer) according to their attractiveness to your company. ‘Attractiveness’ usually means the potential of each for growth in your profits over a period of between 3 and 5 years. (See the attached matrix)Based on your current experience and planning horizon that you are confident with, make a projection of future net free cash in-flows from your segments. It is normal to select a period such as 3 or 5 years. These calculations will consist of three parts:
revenue forecasts for each year; cost forecasts for each year; net free cash flow for each segment for each year.
Identify the key factors that are likely to either increase or decrease these future cash flows.These factors are likely to be assessed according to the following factors:
the riskiness of the product/market segment relative to its position on the ANSOFF matrix; the riskiness of the marketing strategies to achieve the revenue and market share; the riskiness of the forecast profitability (e.g. the cost forecast accuracy ).
Now recalculate the revenues, costs and net free cash flows for each year, having adjusted the figures using the risks (probabilities) from the above. Ask your accountant to provide you with the overall SBU cost of capital and capital used in the SBU. This will not consist only of tangible assets. Thus, £1,000,000 capital at a required shareholder rate of return of 10% wouldgive £100,000 as the minimum return necessary. Deduct the proportional cost of capital from the free cash flow for each segment for each year. An aggregate positive net present value indicates that you are creating shareholder value – ie. achieving overall returns greater than the weighted average cost of capital, having taken into account the risk associated with future cash flows.
Invest/build
?
MaintainManage for
cash
Relative company competitiveness
Portfolio analysis - directional policy matrix (DPM)
High
Low
High Low
Segmentattractiveness
No change
Present position Forecast position in 3 years
NB. Suggested time period - 3 years
© Professor Malcolm McDonald
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