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  • Strategic Marketing Planning - Part 2

    TEACHER: Welcome back, Student. We shall continue our discussion of Strategic Marketing Planning.

    We will start by describing...
    We are GE...

    "For 125 years, what has remained constant is our dedication to change and progress. And it's what will keep us growing over the next 100 years. From jet engines to power generation, from financial services to plastics, from television to medical imaging, GE people worldwide are dedicated to turning innovative ideas into products and services that make the world a better place."

    GE is a diversified technology, manufacturing and services company with a commitment to achieving worldwide leadership in each of its businesses. GE operates in more than 100 countries around the world, including 250 manufacturing plants in 26 different nations. GE employs 313,000 people worldwide, including 168,000 in the United States.
    In response to the limitations of the BCG model, General Electric and the consulting firm of McKinsey & Company developed a portfolio model that includes more information about the desirability of markets and the organizations competitive position. The matrix in the GE model compares SBUs with high, medium, or low industry attractiveness and strong, average, or weak business strength. Criteria used to measure industry attractiveness and business strength include:

    * market factors such as size of market, the firms share of market, diversity of market segments, and the firm's participation in diverse segments.
    * competitive factors such as types of competitors, level and type of integration, and the firms level of integration.
    * financial and economic factors such as contribution margins, leverage through scale, and barriers to the firm's entry.

    STUDENT: Just a second, please. Will you elaborate on contribution margins and leverage through scale, please?

    TEACHER: Gladly. Contribution is the revenue a product yields over and above its marginal cost, in this way "contributing" to pay for fixed costs. Leverage through scale refers to the reduction in unit costs resulting from mass production; the "economies of scale".

    And one more criterion is:

    * technological factors such as maturity and volatility, the firms ability to handle change, and the firm's level of technology.

    Thus, an industry is most attractive if, for example, it is large, growing, and offers large profit margins. A business (the SBU) is considered strong if, for example, it has a large market share and is a leader in quality and technology..

    STUDENT: Is the GE matrix widely accepted?

    TEACHER: Although the GE matrix rates SBUs according to broader criteria than the BCG matrix, it too has been criticized for overly emphasizing growth in market share. As noted earlier, devoting resources to high growth is not the only -or even always the best- way to be effective and profitable. Furthermore, portfolio analysis using these matrices does not provide much guidance for selecting the best possible portfolio of SBUs; it is better at simply describing what the organization already has. However, the matrix approaches do provide a helpful framework for beginning to evaluate the organization's portfolio of businesses.

    The Role of Marketing in the Strategic Planning Process

    Strategic planning is considered an activity of the organization's top management. Therefore, except for the vice president of marketing, marketing managers may not be directly involved in creating the organization's strategic plan. Like other managers below the executive level, they are most often charged with planning primarily in their area of responsibility. Marketing managers may, however, be called upon to provide top management with information about markets and the organization's environment. They may be spokespersons for the customer's point of view and for a mission and objectives that put the customer first. In addition, marketing managers need to be familiar with the organizations strategic plan so that the marketing effort supports it.

    STUDENT: It is apparent that marketing managers are functional managers. What is their role in strategic planning for the whole firm?

    TEACHER: The precise role of functional managers varies from organization to organization. The role of marketing managers depends on the organization's view of marketing. In an organization that defines marketing broadly to encompass all efforts to satisfy existing and potential customers, marketing managers are likely to be heavily involved in strategic planning. (in fact, strategic planning in such organizations is virtually identical to strategic marketing planning.)

    Allow me to mention an example of strategic planning with a strong emphasis on marketing and sales combined with a non-conventional approach to manufacturing.

    The Case Of ZARA of Spain

    ZARA was started in 1963 as a maker of ladies’ lingerie by Amancio Ortega Gaona with an initial capital of US$ 83. The company is now the world’s fastest-growing apparel retailer. In five years the chain has grown from 180, most of them in Spain, to 450 in 30 countries. Revenue has grown at close to 30% a year for the last several years.

    The success of ZARA is based on a business model consisting of integrating design, just-in-time production, marketing and sales. ZARA is a brilliant exception to the general practice of 100% outsourcing which is the norm in the retail business.

    This business model gives ZARA a flexibility to react to changes in fashion which its competitors do not have. ZARA can bring a full new line to the stores in 3 weeks versus almost 9 months for other fashion retailers, which have to rely on hundreds of independent suppliers. Having low inventories and fast turnover lowers costs, allowing ZARA to be very price competitive. More than 10.000 new designs are year are produced and none stays in the stores for more that one month.

    STUDENT: Interesting case. It proves that sometimes being different may be the key to success.

    TEACHER: Indeed. OK, let’s continue.

    In an organization where marketing is seen only as activities related to planning and executing the marketing mix, marketing managers will more likely play a supporting role in the creation of the strategic plan -for example, by submitting the results of marketing research. And if the organization views marketing primarily as an inflated term for sales management, the marketing manager will probably have little input into the strategic plan.

    Despite these variations, marketing managers usually are expected to support the implementation of the strategic plan by drawing up a marketing plan.

    STUDENT: Will you please define "marketing plan"?

    TEACHER: A marketing plan is a blueprint for a particular strategy to reach a particular target market. It supports the strategic plan by spelling out in detail what marketing actions the organization must take in order to meet strategic objectives. Thus, it includes the products, pricing, distribution channels, and communication the organization will use to serve the target market.

    As defined earlier, the process of creating a marketing plan is known as strategic marketing planning. Whether the marketing manager's role in strategic planning is limited to creation of a marketing plan depends in part on whether marketing has a "traditional" role or participates in cross-functional teams.

    STUDENT: What do you mean by "traditional" role?

    TEACHER: Most large organizations are divided according to the functions performed by various employees. Thus, a company has a production department, a marketing department, a finance department, a research and development department, and so on. Coordinating the work of these various departments are the company's executives (its top management). In this kind of functionally organized company, department managers are expected to contribute primarily -or only- in their area of expertise. Thus, the traditional role of the marketing manager might include projecting the number of potential customers for a given product and advising how to promote the product so as to reach them. Top management is not interested in hearing from the marketing manager about how to make the product or improve its quality.

    I suggest you take a look at these ads: Batdorf offers coffee to lovers of classical music, and Grundig aims its Grundig Porsche Design G2000A AM/FM/Shortwave radio at the top of the market: the price is several hundred dollars for what is, after all, just a radio.Now, it is not possible to discover what the complete marketing plan of a product is just by looking at ads. But it seems apparent that in both cases the product is defined to be aimed at high income people with rather sophisticated tastes. And we can also reasonably assume that while the manufacturing people at Batdorf Coffee probably do not have a lot of say in the development of the marketing plan, Grundig probably involves its manufacturing people a lot, given the complexity of the product design and manufacture.
    STUDENT: I see. But going back to the "traditional approach to planning"...what are the advantages and disadvantages of this approach?

    TEACHER: The basic advantage of the traditional approach to planning is that each person presumably can focus on doing what he or she is most qualified to do. This was long considered the most efficient way to run a business.

    On the downside, this approach can limit communication. As a result, lack of information or insight can lead to errors in judgment.

    STUDENT: And what about cross-functional teams?

    TEACHER: More and more organizations are rethinking the traditional role of marketing. Rather than dividing the work according to function, these organizations are bringing together managers and employees to participate in cross-functional teams. These teams might have responsibility for a particular product, line of products, or group of customers.

    Because team members are responsible for all activities involving their products and/or customers, they are all responsible for strategic planning. Thus, marketers on a cross-functional team will participate in creating a strategic plan for their business unit as well as a marketing plan for carrying out marketing activities. Furthermore, rather than independently coming up with a marketing plan, they must work closely with team members from other functional areas to devise a marketing plan that addresses their concerns. Thus, if someone from manufacturing says, "That size will be expensive to produce/' or if someone from finance says, "We'll never make a profit at that price," the team members from marketing must help resolve the issues before the marketing plan can be considered complete. This approach requires a high degree of cooperation and skill at problem solving.

    Student, can you imagine what the advantages of this approach are?

    STUDENT: I think that the greatest advantage of strategic planning with a cross-functional team is the ability of team members to consider a situation from a number of viewpoints. This is what we assumed must have been the practice at Grundig in relationship to their "super radio".

    TEACHER: Good. When marketers plan as part of a cross-functional team, they are especially suited to contribute in a number of ways. Most obviously, the team will count on members of the marketing staff to provide information and insights drawn from their specialty. For example, it will be primarily the marketers who know how to research the marketplace to learn about wants and needs and who have expertise concerning such technical areas as distribution channels and advertising.

    STUDENT: You frequently mentioned marketing management. What is it, exactly?

    TEACHER: Regardless of how the marketing effort is organized, either traditionally or by teams, a marketing manager will typically be responsible for ensuring the marketing effort achieves the organization's strategic objectives. This responsibility, called marketing management, is formally defined as "the process of setting marketing goals for an organization (considering internal resources and market opportunities), the planning and execution of activities to meet those goals, and measuring progress toward their achievement." Thus, the marketing manager must determine what the organization's marketing objectives are, decide how to meet those objectives; and see to it that the plans are carried out properly. In addition, when efforts to meet marketing objectives fail, the marketing manager is responsible for making whatever changes are necessary to improve performance.
    The marketing managers position varies according to size and type of organization. In a large corporation, the marketing effort may be headed by a vice president of a marketing division, or each product division may have a marketing manager or marketing vice president. A small company may not have a formal marketing department, relying instead on the sales manager to handle many aspects of marketing.
    Marketing Management Functions

    As implied in the definition of marketing management, the marketing manager carries out several basic functions. These functions are

    1. setting objectives (goals) and strategy,
    2. executing or implementing the strategy, and
    3. controlling, which relies on measuring progress.

    The feedback from controlling provides information for modifying existing objectives and developing new ones.

    In all but the smallest organizations, the marketing manager makes these things happen through other people. Thus, another important dimension of the manager's functions includes the activities necessary to obtain qualified people and enable them to carry out their responsibilities. These activities begin with the staffing function: the manager must identify the skills and talents the organization needs in its marketing employees, then find and hire people who meet the requirements. To carry out their responsibilities effectively, most employees will need various kinds of training. Therefore, the marketing manager is responsible for identifying needs for training and seeing to it that these needs are met. The manager also must provide leadership and see that marketing employees are motivated to do good work. Finally, the marketing manager needs to ensure that all employees are receiving feedback on their performance, including formal performance appraisals and informal feedback such as praise for good work. Depending on the organizations size and structure, the marketing manager may carry out these activities independently or with support from the human resources department.
    Developing A Marketing Plan

    As top management develops the organization's strategic plan, marketing management can carry out the core of its planning process: developing a marketing plan. This process involves several steps:

    1. Reviewing the strategic plan
    2. Conducting a situation analysis
    3. Developing marketing objectives and strategies.

    For action-oriented managers and small-business owners, preparing a marketing plan may seem unduly formal and time consuming. It’s tempting to get so busy handling day-to-day concerns that no time remains for planning. However, the lack of a marketing plan can stall even the best operations. When sales don't materialize because markets weren't targeted effectively or the product's package is unappealing, the marketer spends more time fixing the problems than he or she would have spent creating the original plan.
    Review Of Strategic Plan - To develop the marketing plan, the marketing manager begins by reviewing the organization's strategic plan, including its mission statement and organizational objectives.

    It is important to identify specific marketing objectives. If a company sells many very different products under the same brand many consumers may be confused about what exactly the brand name means. It is necessary to be clear about what needs each product is meeting and who would want the product. A business definition that focuses only on the products, rather than on existing and potential customers and their needs (a marketing focus), is not effective.

    Situation Analysis - With the organization's strategic plan in mind, the marketing manager next conducts a situation analysis. The marketing manager identifies the organization's marketing strengths and weaknesses, such as funds available for a large advertising campaign or high distribution costs. The marketing manager also identifies opportunities and threats in the organization's current and potential markets.

    The other important determinant of marketing strategy is competitive position, or the size of the organization relative to competitors. The market leader tends to enjoy widespread name recognition and has the cash to maintain this position through intensive distribution and communication. A smaller competitor will more likely have to compete by offering the lowest price, unique features, or a marketing mix aimed at a single niche of the total market. Thus, followers and niche marketers will have to be particularly aware of their strong points. A small cosmetic company’s strength might be the fact that its products are organic, since all-natural products appeal to today's consumers.

    Marketing Objectives And Strategies - The analysis of competitive position and market strength leads to creation of marketing objectives and strategies that take advantage of opportunities in the marketplace and strengths of the organization and its marketing department. These objectives and strategies constitute the marketing plan. To create them, the manager takes three steps:

    1. Establish marketing objectives.
    2. Select the target market(s).
    3. Develop a marketing mix to serve each target market.

    As stated earlier, the marketing objectives should be consistent with organizational objectives.

    The strategies for achieving marketing objectives are the choices of target markets and the marketing mix used to serve each target market. In general, the organization must decide whether to use one marketing mix to serve a single broad market or to adapt parts of that mix -the product, price, channels, or communication- to serve one or more segments of the total market. Then the plan spells out what the marketing mix(es) will be. Part of this strategy is a budget for implementing that marketing mix. Selection of target markets, and various aspects of developing a marketing mix will be discussed in Marketing Management II.

    A typical marketing plan could specify how much growth the firm wants to achieve over the next one to five years. To achieve that growth, the strategies might include which benefits of the product to emphasize and which consumers to target.

    Martin Edic developed a useful check:

    * What need was the product originally designed to satisfy?
    * Was it successful?
    * Is it still competitive?
    * What changes have you made or should you make to keep the product up to date?
    * What are the specific features of the product?
    * Who are your customers?
    * Why would they want the product?
    * How do the product's features benefit your customers?
    * How well do your promotional materials reinforce these benefits?
    * Which advertising pieces were most successful? Why?
    * Do your promotional materials reach the target market?
    * Can you reach your target market through special-interest organizations or other avenues you are not already using?
    * Do your sales presentations cover all the ways your products features benefit your customers?

    Implementing The Marketing Plan

    Once the marketing plan is complete, the marketing department puts it into action. This implementation process is described in the next Module. As the marketing plan is implemented, the marketing manager will learn which aspects of the plan are producing the desired results and where problems are occurring. Using this information, the manager can modify the marketing plan so that: it achieves the desired results.

    Answering the questions in Edit's checklist can help the marketing manager evaluate the marketing plan and identify changes that need to be made.

    Marketing plans are influenced by expectations of future demand for the organization's goods and services. When marketers' expectations are realistic, their plans will more likely succeed. In contrast, incorrect assumptions about the future can be costly.

    STUDENT: No room for wishful thinking, that is your message, right?

    TEACHER: Exactly.

    Determining what to expect is known as forecasting. Marketers depend on two broad categories of forecasts.

    First, they are interested in forecasting market potential, or the expected total demand in the market they are investigating. For example, Dell would want to know how many personal computers and servers consumers and businesses will be buying over the next three years. Marketers also need a sales forecast, or an estimate of the organization's share of the market potential. In general, the techniques for creating such forecasts involve measuring past and current demand, then using that information to make predictions about the future.

    Measuring Demand

    The demand for a product is the amount of sales of a product at a given price. Thus, when marketers measure existing demand for a product, they measure its sales. They measure sales both in terms of the products percentage share of the total industry and in terms of its dollar and unit sales. For example, producers of personal computers would want to know both their annual sales and what percentage that represents of all personal computer sales for the year.

    To learn current demand for a total industry, the most efficient approach is to use data available from marketing research services and industry trade groups. The organization can purchase the data or look for information in business and trade publications.

    For information about sales of the organization's own products, the marketer should be able to use company sales records.

    Forecasting Future Demand

    Because no one can predict the future perfectly, forecasting future demand is necessarily inexact. Consequently, as is true for measuring current demand, the best sources for forecasts of market potential are trade groups and services that specialize in this type of information.

    Several techniques are available to create sales forecasts. The techniques based on judgment or opinion are classified as "qualitative." The techniques based on statistical analysis of historical data are classified as "quantitative."

    The marketer can use a combination of forecasting techniques to gain a broader perspective on the possible range of demand.

    Qualitative Forecasting Techniques - The simplest way to arrive at a forecast is to ask "experts" what they predict demand will be. Who might be expert enough to provide a reliable opinion? One approach is to seek the outlook of the organization's executives. Such a jury of executive opinion provides insights from people working in a variety of areas, including finance, marketing, and production. The marketing manager can average the estimates to arrive at a single forecast.

    The estimates also can come from the organization's salespeople. They are, after all, the organization members who work most closely with customers. In this case, the forecast would be the sum of the estimates.

    STUDENT: I notice that this approach assumes that salespeople will give unbiased estimates. However, if they think their sales forecasts will be the basis for sales quotas they must meet to earn a bonus, salespeople might be tempted to give pessimistic forecasts. What about asking customers themselves?

    TEACHER: Sure, one approach is conducting a survey of the buying intentions of a sample of the target market. This approach assumes that actual buying patterns will match the stated plans of the survey sample. However, people do not always do exactly what they say they will, so this information can be misleading. Industry

    experts also forecast industry growth, and marketers can get this information from trade groups and business publications.

    STUDENT: I hear marketing people often mentioning the "Delphi" technique. What is it?

    TEACHER: Some organizations use a more complex approach to forecasting known as the Delphi technique. In this approach, the marketing department sends a survey to experts inside or outside the organization, asking them to provide a forecast. The results are averaged and sent to the experts along with another questionnaire asking them to review the results and provide another forecast. This process is repeated until the experts reach a consensus.

    With the exception of the Delphi technique, these qualitative forecasting techniques are relatively simple. Especially when experienced people provide the numbers, they can also be quite accurate. However, inexperience or poor judgment can lead to woefully inaccurate forecasts.

    Quantitative Forecasting Techniques - To forecast demand less subjectively, marketers use quantitative techniques such as time-series analysis and market tests. Time-series analysis is the use of past data to predict future outcomes. It assumes that demand follows a pattern over time.

    STUDENT: This means that this technique is reliable only if past trends continue into the future.

    TEACHER: Correct. To use the form of time-series analysis known as trend analysis, the analyst looks for the pattern in the data, then uses it to project future demand. For example, if sales have risen an average of 5 percent per year over the past several years, the analyst would predict that they will continue to increase at the same rate. Of course, most patterns are not so obvious. Therefore, computer programs that perform computation, like regression are readily available to conduct such forms of trend analysis.

    A form of time-series analysis that tries to overcome some limitations of trend analysis is exponential smoothing. Exponential smoothing is a form of time-series analysis that gives more weight to more recent data and less to older data by assigning a weight to each year's data. The sales figure for each year is multiplied by the weight assigned. Thus, to analyze sales data for the past three years, the analyst might multiply the current year's sales by 0.8, sales from a year ago by 0.6, and sales from two years ago by 0.4. Then the analyst completes the forecasting by using trend analysis.

    STUDENT: I realize that trend analysis and exponential smoothing are useless for new products.

    TEACHER: Naturally, since both require records of past sales. Therefore, they are not useful for forecasting demand for a new product. Marketers of a new product who want to use a quantitative forecasting technique might use a market test. This involves offering the product in a few test markets, assuming the response will be similar when the product is offered to the total target market. Market tests are expensive but have the advantage of measuring actual customer behavior.

    Note that the quantitative techniques are not a substitute for judgment by the marketer. In fact, they require that the marketer make judgments about many of the figures. For example, to use exponential smoothing, the marketer must decide what weights to assign to each years data. To use a market test, the marketer must select test markets that he or she believes are representative of the total market. Thus, all of these forecasting techniques are only as good as the judgment of the marketer using them.

    Evaluating The Forecast

    Before using the numbers generated by a forecast of demand, the marketer should carefully and critically evaluate the forecast. Because marketing plans are influenced by such numbers, the marketer can avoid costly errors by making sure that the forecast is reasonable. The marketer should review the assumptions and judgments used in preparing the forecast. Upon review, do they still seem reasonable? This is especially important given modem use of computer technology to prepare forecasts. Managers should not be so awed by a computer model or detailed spreadsheet that they fail to judge the assumptions underlying them.

    The marketer should also look at the results of the forecast. Do the numbers seem realistic? If not, the marketer should review the estimates, judgments, and computations used to arrive at the results. Perhaps the data came from an unreliable source. When a result seems odd, chances are a mistake was made somewhere. It's less costly and embarrassing to prepare a revised forecast than to have to rework the entire marketing plan after trying to implement it.

    Finally, the marketer should bear in mind that the accuracy of forecasts cannot be guaranteed. Too many uncontrollable factors may make the future impossible to predict. To cope with the remaining uncertainty, marketers should prepare contingency plans and monitor the environment and the reaction of target markets to the organization's efforts. When marketers observe a development that calls for a change, they must modify their plans. Thus, the planning process continues after the last word of the marketing plan has been typed and evaluated -even after the marketing department has begun implementing that plan.

    STUDENT: Yes, I know, no it's question time now, right?

    TEACHER: You are very perceptive, Student. Se you soon.


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