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Ten crucial questions boards are asking their marketing
professionals--- and the answers they should be giving
by Professor Malcolm McDonald
Marketors Think Tank Seminar 1st February 2010
Page 1Page 1
Objectives
• To show how to answer ten crucial questions boards of directors are asking about marketing effectiveness
Page 2
First, some basic concepts
The purpose of strategic marketing planning
The overall purpose of strategic marketing, and its principal focus is the identification and creation of sustainable competitive advantage.
© Professor Malcolm McDonald
Page 4
AssetBase
Define markets& understand
value
Determinevalue
Proposition
Delivervalue
Monitorvalue
Map of the marketing domain
Financial Risk and Return
High
Low
Return
HighLow
1
2
3
RiskAdapted from Keith Ward, Cranfield School of Management
“The customer is simply the fulcrum of the business and everything from production to supply chain, finance, risk management, personnel management and product development all adapt to and converge on the business value proposition that is projected to the customer”.
(The Customer Information Wars, Sean Kelly, Wiley, 2005)
Key elements of world class marketing
1.1. Profound understanding of the market-place
2.2. Creative segmentation and selection
3.3. Powerful differentiation positioning and branding
4.4. Effective marketing planning processes
5.5. Long-term integrated marketing strategies
6.6. Rigorous strategy risk assessment
7.7. Rigorous marketing effectiveness measurement
8.8. Market-driven organisation structures
9.9. Careful recruitment, training and career management
10.10. Total supply chain management
Copyright Professor Malcolm McDonald
Question 1
• Do we know and understand our key target markets?
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 10
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 11
Market mapping
N NationalBuilders
N LocalBuilders
N PrivateCompanies
N LocalGovernmentUsers
N DomesticUsers
NContractors
N LocalDistributors
N RegionalDistributors
N NationalDistributors
N OtherRetailers
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 12
Radiator Market Map Radiator Manufacturer Distributor Installer Specification Decision
Primary Leverage Point
5455 5455 5455 3400
End User Segment
623
Stelrad227541.7%
1234
183036066
Nil
70.217.311.2Nil
Premier86015.8%
1234
55528026
Nil
21.312.84.3Nil
Supaline60511.1%
1234
12545030
Nil
4.820.55.1Nil
Barlo4808.8%
1234
90270120Nil
3.412.320.7Nil
Warmastyle3005.5%
1234
525540
Nil
Nil11.66.9Nil
Other Imports90517.1%
1234
Nil55630080
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
10651360360Nil
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
50010050
Nil50
19.612.54.5
5.6Contractor200
1011121314
Nil100NilNil100
12.5
11.1Consultant550
1011121314
NilNilNil50
50050.155.6
10. 56789
385201010080
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 McDonald Page 13
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 5%5%
47%47%
7%7%
0%0%
1%1%
15%15%
7%7%
5%5%
7%7%
4%4%
0%0%
0%0%
CompanyCompany’’s Route to Markets Route to Market
Final Users Route to Market
3%24%
3%
1%
8%
9%
18%
4%
10%
10%
4%
6%
Market map – office equipment
Extracted from the complete map
Question 2
• Do we address real segments in our key target markets?
low high
low
high
Price
Speed
© Professor Malcolm McDonald
Page 16
Middle Middle Middle
low low low
high high high
© Professor Malcolm McDonald
Page 17
Personalising segments
Page 18
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 companies 11% 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 19
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 20
Understand the different category buyers
Businessperfectionist
Radical thinkers
Profit engineer
Save mybudget
Businessgeneral
Save mycareer
Conservativetechnocrat
Technicalidealist
Radicalarchitect
“Reward” “Relief”
Technical
Business
Page 21
Question 3
• Do we know for sure what our sources of differential advantage are in each of the principal segments in our key target markets?
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 McDonaldPage 23
STRENGTHS WEAKNESSES
OPPORTUNITIES THREATS
WRONG
Strengths• It can create value for the
organisation• It is unique• It is inimitable• It is lastingOpportunities• It is large• It is accessible• It is lasting
Weaknesses• It is meaningful to the
customer• It is unique• It is difficult to fix
Threats• It is significant• It is lasting
Five Key Buying Factors for UK Independent Schools
Note: Admissions Policy & Catchment: qualifying factors
Costs
Convenience
Academic Enhancement
School:Family
Relationship
Fees
Staff image/ qualifications
Exam results, league table position
Classroom facilities (incl ICT)
Class size
Course subjects/ options Facilities
School buildings
HistoryGrounds/landscape
Front of houseSports reputation
ResultsSports
facilities
Art/Music reputation
Results
Art/Music facilities/
equipment
Promotion
Media coverage
Website/internet
Events
Skills-based learning
Life-enriching opportunities
School trips
Guest speakers
Business skills
GCSEs
Student relationship & happiness
Parent relationship
Pastoral care BullyingAcademic support
Student welfare
Parent commun-icationsParent evenings
Transport routes/times
& costs
Boarding options
International Qualifications
Religious/Cultural understanding
Headteacher quality
Brochure
Scholarships & Bursaries
Int’l connections, community links
Social mix
Student successes-
exams, univ, competitions
Social life
development
Academic Factors
• Personality and vision of Head• Exam results• Class size• League table position (compared to regional competitors)• Student academic successes (Oxbridge, major universities, competitions)• Academic planning: A level, IB, pre-U; IGCSE? New subjects?• Flexibility of subject choice• Academic history (results over a number of years)• Quality/knowledge/experience of staff• Facilities for teaching and learning• Learning opportunities outside mainstream subjects (could be vocational skills)• Reporting procedures• Innovations in teaching and learning
Enhancement/Attractiveness Factors
• Facilities– Buildings and grounds– Specialist facilities (floodlit astroturf, ICT centre, theatre)– Development Planning: plans for new/better facilities
• People– Quality of staff (teaching and specialist – ie sports/music coaching)– Quality of staff recruitment– Front of House/customer focus– Understanding/delivery of mission by all staff– Strong alumni association– Active parents’ association
• “Preparation for Life”– Active careers department– Expertise in university entrance support– Work experience, Young Enterprise, Duke of Edinburgh’s Award, Sports Leader’s Award etc
• Community– Links through activities (charity fundraising, visits to elderly, working with handicapped etc)– Hire of facilities (pool, theatre, sports, hall for weddings and parties)– Compliant with Charities Act– Local reputation
• International links and opportunities– Language visits– Trips and expeditions– Other learning opportunities
• Technology– Up-to-date, campus-wide access– Resources online to enhance study
• Environmental– Clear policy and aims– Strong student involvement in campaigns and issues– Clear priority status within School – put into action
Strategic marketing planning exercise – SWOT analysis
12345
You Comp A Comp B Comp C Comp D
Total 100
12345
1. SEGMENT DESCRIPTIONIt should be a specific part of the business and should be very important to the organisation
2. CRITICAL SUCCESSFACTORS
In 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 NEEDTO BE ADDRESSED
What 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 29
Question 4
• Do we all agree on the prioritisation of our markets and the segments within each market?
Question 5
• Are the objectives for revenue growth and market share realistic?
Page 32
Setting expectations of performance
P
GC
P
GC
P
GC
P
GCHigh Low
High
Low
Mkt/Segmentattractiveness
Supplier business strength with
customer
high high/medium
medium low
Streamline
Manage for cash
Streamline
Manage for cash
Strategic
Strategic investment
Strategic
Strategic investment
Status
Pro-active maintenance
Status
Pro-active maintenance
Star
Selective investment
Star
Selective investment
-
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 thehighly 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 Criteria
Score5
10
6
8
3
2.5
Weighting15
25
10
25
15
10TotalTotal
Ranking0.75
2.5
0.6
2.0
0.9
0.257.07.0
Page 33
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
Question 6
• Are the strategies (including products, services and solutions) consistent with the objectives?
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 36
Activities by medium
Personal contact
Direct mail
Telephone
Advertising
Electronic
Recognisepotential
Initiate dialogue
Exchange information
Negotiate / tailor
Commit
Med
ium
Activity
Page 37
The Sunworshippers
Internet Mobiletelephone
iTV BroadcastTV
• Recognise
Negotiate/tailor
Commit
• Exchange value
Traditional channels
• Exchange potential
• Initiate dialogue
• Exchange information
• Monitor
John and Mary Lively
Internet Mobiletelephone
iTV BroadcastTV
• Recognise
Negotiate/tailor
Commit.
• Exchange value
Traditional channels
• Exchange potential• Initiate dialogue
• Exchange information
• Monitor
Relevant?
The Times 19th Jan 2005
Page 40
Question 7
• Have we assessed dispassionately the risks associated with our strategic marketing plan?
Justifying investment in marketing assets
Whilst accountants do not measure intangible assets, the discrepancy between market and book values shows that investors do. Expenditures to develop marketing assets make sense if the sum of the discounted cash flow they generate is positive.
Balance sheet
Assets Liabilities
- Land- Buildings- Plant- Vehiclesetc.
- Shares- Loans- Overdraftsetc.
£100 million £100 million
© Professor Malcolm McDonald, Cranfield School of Management
Balance sheet
Assets Liabilities
£100 million £900 million
© Professor Malcolm McDonald, Cranfield School of Management
- Land- Buildings- Plant- Vehiclesetc.
- Shares- Loans- Overdraftsetc.
Balance sheet
Assets Liabilities
£900 million £900 million
Goodwill £800m
© Professor Malcolm McDonald, Cranfield School of Management
- Land- Buildings- Plant- Vehicles
- Shares- Loans- Overdraftsetc.
Asset split across selected economies
Asset split across selected economies48
Asset Breakdown for the top 10 countries by Enterprise Value (US$ millions, 2008)
Brands are key intangibles in most businesses
Brand20%
OtherIntangible
Assets
55%TangibleAssets
25%
Developed Markets
Brands are estimated to represent at least 20% of the intangible value of businesses on the major world stock markets. Brands combine with other tangible and intangible assets to create value
Intangible assets
Brand
Software
Patents
Distribution rights
Tangible assets
Assembled workforce
Business Goodwill
Marketing intangible
Technology intangibles
Customer intangible
Contract intangibles
Illustrative
Source: Brand Finance
Customer relationships
Intangibles
P and G have paid £31 billion for Gillette, but have bought only £4 billion of tangible assets
- Gillette brand £ 4.0 billion- Duracell brand £ 2.5 billion- Oral B £ 2.0 billion- Braun £ 1.5 billion- Retail and supplier network £10.0 billion- Gillette innovative capability £ 7.0 billion
TOTAL £27.0 billion
(David Haigh, Brand Finance, Marketing Magazine, 1st April 2005)
“The information appearing in the majority of boardrooms remains predominantly financial in nature. Without (additional) information on value-creating activities management are typically flying blind – when financials tell them there is a problem management have already missed the optimal point for taking appropriate corrective action”.
PricewaterhouseCoopers – ValueReporting™ Review 2003,Transparency in Corporate Reporting, p.25
Marks & Spencer’s Trends
Base: M&S Customers
5
15
25
35
45
55
65
75
85
95
Service Positive Value for Money Share Price (Indexed)
Nov 95 Sept 99Mar 98
AssetBase
Define markets& understand
value
Determinevalue
Proposition
Delivervalue
Monitorvalue
Map of the marketing domain
Measurement zone where metrics are applied (Levels 2 & 3)
Strategic zonewhere metrics
are defined (Level 1)
Three questions need to be answered
• How does the company plan to generate its predicted future sales and profits?
• Will the marketing strategy on which these plans are based work?
• Will this strategy create shareholder value, given its inherent level of risk?
What is Marketing Due Diligence?
Market Risk Profile
• Product Category Existence
• Segment Existence
• Sales Volumes
• Forecast Growth
• Pricing Assumptions
The marketing strategy has a higher probability of success if the product category is well established
If the target segment is well established
If the sales volumes are well supported by evidence
If the forecast growth is in line with historical trends
If the pricing levels are conservative relative to current pricing levels
Ansoff matrix
MarketPenetration
ProductDevelopment
MarketExtension
Diversification
Present Newincreasing technological newness
increasing market
newness
Present
New
PRODUCTS
MARKETS
© Professor Malcolm McDonald, Cranfield School of Management
Market Share Risk Profile
• Target Market Definition
• Proposition Specification
• SWOT Alignment
• Strategy Uniqueness
• Anticipation of market change
The marketing strategy has a higher probability of success if the target is defined in terms of homogeneous segments and is characterised by utilisable data
If the proposition delivered to each segment is different from that delivered to other segments and addresses the needs which characterised the target segment
If the strengths and weaknesses of the organisation are independently assessed and the choice of target and proposition leverages strengths and minimises weaknesses
If choice of target and proposition is different from that of major competitors
If changes in the external microenvironment and macroenvironment are identified and their implications allowed for
Shareholder Value Risk Profile
• Profit Pool
• Profit Sources
• Competitor Impact
• Internal Gross Margin Assumptions
• Assumptions of Other Costs
The marketing strategy has a higher probability of success if the targeted profit pool is high and growing
If the source of new business is growth in the existing profit pool
If the profit impact on competitors is small and distributed
If the internal gross margin assumptions are conservative relative to current products
If assumptions regarding other costs, including marketing support, are higher than existing costs
Question 8
• Having taken account of the risks referred to above and having adjusted the forecast net free cash flows for each major product for market for each year, have we calculated whether the strategic marketing plan creates or destroys shareholder value?
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 assetsto be valued include not only tangible assets like plant and machinery, but intangibleassets, such as Key Market Segments.
•The present value of future cash flows is the most acceptable method tovalue 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 Approach•Identify 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 thepotential 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 offuture 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 futurecash 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, havingadjusted 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% wougive £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 takeninto 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
Question 9
• Have we agreed the measurement of effectiveness metrics we want reported to us and their frequency?
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?
Measuring marketing performance isn’t like measuring factory output – a fact that many non-marketing executives don’t fully gasp.
In the controlled environment of a manufacturing plant, it’s simple to account for what goes in one end and what comes out the other and then determine productivity.
But the output of marketing can be measured only long after it has left the ‘plant’.
HBR, November 2004, McGovern, G., Court, D., Quelch, A. and Crawford, B.
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%
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
AssetBase
Define markets& understand
value
Determinevalue
Proposition
Delivervalue
Monitorvalue
Map of the marketing domain
Measurement zone where metrics are applied (Levels 2 & 3)
Strategic zonewhere metrics
are defined (Level 1)
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/ regained
Product/customer mixChannel performance
Cost to achieveResponsibilities
who
who
who
who
what
what
what
what
Positioning of issues in the model
PFs
HFs
CSFs
AssetBase
Define markets& understand
value
Determinevalue
Proposition
Delivervalue
Monitorvalue
Map of the marketing domain
Measurement zone where metrics are applied (Levels 2 & 3)
Strategic zonewhere metrics
are defined (Level 1)
A
B
C
Projected cash flows from investing in a promotion
DCF and NPV methods implicitly make this comparison
Assumed cash flow resulting from doing nothing
Companies should be making this comparison
More likely cash flow resulting from doing nothing
Note: Most executives compare the cash flow from promotion against the default scenario of doing nothing assuming, incorrectly, that the present health of the company will persist indefinitely if the investment is not made. For a better assessment of the promotion’s value, the comparison should be between the projected discounted cash flow and the more likely scenario of a decline in performance in the absence of promotional investment.
Figure 10
Adapted from Christensen CM et al, ( 2008 )
£ - 7 million + 2 + 2 + 2 + 2 = £-0.6 million
(1+r) (1+r)² (1+r)³ (1+r)4
£ - 1 million + 2 + 2 + 2 + 2 = £5.4 million(1+r) (1+r)² (1+r)³ (1+r)4
Question 10
• Overall, are we happy that the time, effort and expense involved in developing marketing strategies are really worth it?
Conditions determining a strong marketing strategy
• That the marketing strategy defines real target segments.
• That the marketing strategy defines segment-specific value propositions
• That the marketing strategy allocates resources differentially by segment or market
• That the marketing strategy aligns to the market via SWOT
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
Exis
ting
1 2
3 4
© Professor Malcolm McDonald
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
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 plannedposition 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 forthe next 3-5 years and should accord with the financial summaryprovided earlier
© Professor Malcolm McDonald
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Professor Malcolm McDonaldDavid Hanger
Ian WolterProfessor Bryan Foss
Marketors Think Tank Seminar 1st February 2010
Page 82Page 82
MASTER MARKETOR, VENETIA HOWES