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Page 1: How To Create Strategic Marketing Plan

Strategic Marketing Planning:global best practice

[email protected]

[email protected]

Professor Malcolm McDonaldReykjavik 27th February 2008

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Objectives

• To spell out global best practice strategic marketing planning

• To give delegates the necessary knowledge and skills to implement the process

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Agenda

• Challenges and how world class companies deal with them

• The need for marketing planning• Where to begin• An overview of the total process

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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%

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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?

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Challenges

• Market Maturity

• Globalisation

• Customer power

© Professor Malcolm McDonald

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• Technology• Production• Sales• Accountancy• Fads• Marketing

© Professor Malcolm McDonaldPage 7

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Embrionic markets Growing markets

Guerrillas

2nd tier

Leaders

Mature markets

New guerrillas

?

New global leaders

© Professor Malcolm McDonald

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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

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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

%

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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%

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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

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How excellent companies are responding

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© Professor Malcolm McDonald

How excellent companies are responding

Product/Service

Customers

Processes

ProfessionalMarketing People

(UnderstandingMarket Needs)

(Creativity)

(Core Value) (Efficiency)

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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

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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

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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

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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

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AssetBase

Define markets& understand

value

Determine valueproposition

Delivervalue

Monitorvalue

Map of the marketing domain

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LowHighFinancial Risk

Low

High

BusinessRisk

Adapted from Sri Srikanthan, Cranfield School of Management

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Financial Risk and Return

High

Low

Return

HighLow

1

2

3

RiskAdapted from Sri Srikanthan, Cranfield School of Management

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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

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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

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The need for a strategicmarketing plan

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NicheOutstanding

Success

Disaster Lowestcost

High

Low

High LowLowRelative costRelative cost

DifferentiationDifferentiation

© Professor Malcolm McDonaldPage 25

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Operating income

Sales revenue

Operating income

Net assets

Sales revenue

Net assets(Asset

turnover)

= RONA

(ROS) X

© Professor Malcolm McDonald

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Provider Customer Consumer

The value chain

© Professor Malcolm McDonald

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Ansoff matrix

MarketPenetration

ProductDevelopment

MarketExtension

Diversification

Present Newincreasing technological

newness

increasing market

newness

Present

New

PRODUCTS

MARKETS

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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.

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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.

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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

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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

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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

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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?

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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.

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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.

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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

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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).

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LOVE

Low

High

HATE

SalesPotential

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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.”

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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.

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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

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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

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Market overview

• What the market is

• How it works

• Key leverage points

© Professor Malcolm McDonald

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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

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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

Page 47: How To Create Strategic Marketing Plan

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

Page 48: How To Create Strategic Marketing Plan

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

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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

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Relevant?

The Times 19th Jan 2005

Page 50

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low high

low

high

Price

Speed

© Professor Malcolm McDonald

Page 51

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Middle Middle Middle

low low low

high high high

© Professor Malcolm McDonald

Page 52

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Small companies

Low cpm

High cpm

Big companies

X

© Professor Malcolm McDonald

Page 53

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Personalising segments

Page 54

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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

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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

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Understand the different category buyers

Businessperfectionist

Radical thinkers

Profit engineer

Save mybudget

Businessgeneral

Save mycareer

Conservativetechnocrat

Technicalidealist

Radicalarchitect

“Reward” “Relief”

Technical

Business

Page 58: How To Create Strategic Marketing Plan

An undifferentiated market

But one with many different purchase combinations

© Professor Malcolm McDonald

Page 59: How To Create Strategic Marketing Plan

Different needs in a market

© Professor Malcolm McDonald

Page 60: How To Create Strategic Marketing Plan

Segments in a market

© Professor Malcolm McDonald

Page 61: How To Create Strategic Marketing Plan

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

Page 62: How To Create Strategic Marketing Plan

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

Page 63: How To Create Strategic Marketing Plan

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)

Page 64: How To Create Strategic Marketing Plan

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%

Page 65: How To Create Strategic Marketing Plan

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

Page 66: How To Create Strategic Marketing Plan

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.

Page 67: How To Create Strategic Marketing Plan

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

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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

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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

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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

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AssetBase

Define markets& understand

value

Determine valueproposition

Delivervalue

Monitorvalue

Map of the marketing domain

Page 71

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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

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Activities by medium

Personal contact

Direct mail

Telephone

Advertising

Electronic

Recognise potential

Initiate dialogue

Exchange information

Negotiate / tailor

Commit

Med

ium

Activity

Page 73

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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

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Internet Mobiletelephone iTV Broadcast

TV

• Recognise

Negotiate/tailor

Commit

• Exchange value

Traditional channels

Exchange potential

• Initiate dialogue

• Exchange information

• Monitor

The Sunworshippers

Page 75

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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

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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

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AssetBase

Define markets& understand

value

Determine valueproposition

Delivervalue

Monitorvalue

Map of the marketing domain

Page 78

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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

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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

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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

Page 82: How To Create Strategic Marketing Plan

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

Page 83: How To Create Strategic Marketing Plan

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

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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

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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

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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

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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

Page 88: How To Create Strategic Marketing Plan

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

Page 89: How To Create Strategic Marketing Plan

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

Page 90: How To Create Strategic Marketing Plan

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

Page 91: How To Create Strategic Marketing Plan

Appendix 1

Marketing Plan Evaluation Guidelines

Page 91

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Appendix 2

Page 92

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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

Page 94: How To Create Strategic Marketing Plan

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.

Page 95: How To Create Strategic Marketing Plan

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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