Download Strathclyde BS 2011

Ten crucial questions Directors are asking their
marketing colleagues--- and the answers they should be
receiving
by Professor Malcolm McDonald
Strathclyde Business School June 7th 2011
Page
Page
1 1
Objectives
• To show how to ensure that marketers become more
accountable for marketing expenditure
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
Map of the marketing domain
Define markets
& understand
value
Monitor
value
Asset
Base
Deliver
value
Determine
value
Proposition
Financial Risk and Return
High
1
Return
2
3
Low
Low
Adapted from Keith Ward, Cranfield School of Management
Risk
High
Shareholder value-adding strategies
“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.
Profound understanding of the market-place
2.
Creative segmentation and selection
3.
Powerful differentiation positioning and branding
4.
Effective marketing planning processes
5.
Long-term integrated marketing strategies
6.
Rigorous strategy risk assessment
7.
Rigorous marketing measurement metrics
8.
Market-driven organisation structures
9.
Careful recruitment, training and career management
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 11
Some Market Definitions (personal market)
Market
Need (on-line)
Emergency Cash (‘Rainy Day’)
Future Event Planning
Asset Purchase
Welfare Contingency
Retirement Income
Wealth Care and Building
Day-to-Day Money Management
Personal Financial Protection and
Security from Motor Vehicle Incidents
Cash to cover an undesired and unexpected
event often the loss of/damage to property).
Schemes to protect and grow money which are
for anticipated and unanticipated cash calling
events (eg. Car replacement/repairs, education,
weddings, funerals, health care)
Cash to buy assets they require (eg. Car
purchase, house purchase, once-in-a -lifetime
holiday).
The ability to maintain a desired standard of living
(for self and/or dependants) in times of unplanned
cessation of salary.
The ability to maintain a desired standard of living
(for self and/or dependants once the salary
cheques have ceased.
The care and growth of assets (with various risk
levels and liquidity levels).
Ability to store and readily access cash for day-today requirements.
Currently known as car insurance.
Page 12
Market mapping
…including the number of each customer type
vol/
val % N
N
vol/
val %
N
vol/val %
vol/val
%
vol/val %
N Other
Retailers
Local
Distributors
N
Contractors
N
vol/val
% N
vol/
val %
Regional
Distributors
National
Distributors
vol/val
%
vol/
val %
UK Sales
vol/val %
vol/val %
N Spcist.
Retailers
N Detp.
Retailers
Local
Builders
N
Private
Companies
N
Local
Government
Users
N
Domestic
Users
vol/
val %
vol/val %
vol/val %
N Sheds
vol/val %
vol/val
%
National
Builders
vol/val %
vol/val %
N = Number
% = Your Share
vol/val %
NB. Sketch out complex junctions separately. Alternatively, build an
outline map, applying details at the junctions to be segmented.
Page 13
Market mapping
Showing the number of each customer type, volumes and share
Suppliers
Distributors
Retailers
60k 42% (25k)
35k
51% (18k)
15k 33% (5k)
Regional
General
[18]
[9]
300k 28% (84k)
Final users
Sketch out complex junctions
separately. Alternatively, build
an outline map, applying
details at the junctions to be
segmented.
75k 40% (30k)
Contractors
Segment 1
[90]
[2500]
55k 36% (20k)
[320]
35k 29% (10k)
Suppliers
Contractors
45k
22% (10k)
20k 50% (10k)
Segment 3
[3000]
45k 42% (19k)
National
Specialists
[3]
[110]
Segment 4
65k 38% (25k)
60k 40% (24k)
25k
28% (7k)
Local
[45]
90k 22% (20k)
[5500]
Sheds
[4]
80k 19% (15k)
Others
[12 500]
140k 15% (21k)
45k 9% (4k)
Key: Using ‘Segment 3’ as an
example (one of three target
segments); the total number of
customers found here is [3000] and
the total quantity of units they buy is
45k of which your company’s share
is 42% which equates to (19k) units.
Note: The number of units
‘consumed’ by the final users usually
equates to the number of units
entering the market (any surplus
being ‘stock’) – 300k in this example.
Please take some time to follow the
routes through the map and you will
observe that, like the work of an
accountant, it all ‘balances’.
Page 14
Radiator Market Map
Primary Leverage Point
Radiator Manufacturer
Distributor
Installer
Specification Decision
Distribution Sector
Share
Stelrad
2275
41.7%
1
2
3
4
Premier
1
860
2
15.8%
3
4
Supaline
1
605
2
11.1%
3
4
Barlo
1
480
2
8.8%
3
4
Warmastyle 1
300
2
5.5%
3
4
Other Imports1
905
2
17.1%
3
4
5455
1830 70.2
360 17.3
66
11.2
Nil
Nil
555 21.3
280 12.8
26
4.3
Nil
Nil
125
4.8
450 20.5
30
5.1
Nil
Nil
90
3.4
270 12.3
120 20.7
Nil
Nil
5
Nil
255
11.6
40
6.9
Nil
Nil
Nil
Nil
556 25.3
300 51.8
80 100.0
1. National
Merchants
2605
47.8%
5. British Gas 1 295
465
2 170
8.5%
3 Nil
4 Nil
6. Installer
1
2755
2
2. Large
50.5%
3
Independents
4
2190
40.1%
7. Contractor 1
1905
2
34.9%
3
3. Small
4
Independents
560
8. Self Installer 1
10.6%
80
2
1.4%
3
4
4. Sheds
80
9. Direct Works1
1.4%
250
2
4.6%
3
4
5455
Copyright Professor Malcolm McDonald
5455
1065
1360
360
Nil
1135
540
230
Nil
Nil
Nil
Nil
80
120
130
Nil
Nil
Manufacturer 10 Nil
250
11 250
12 Nil
13 Nil
14 Nil
Local
10 Nil
Authority
11 Nil
1350
12 1050
13
50
14 250
Housebuilder 10 Nil
350
11 350
12 Nil
13 Nil
14 Nil
British Gas 10 500
700
11 100
12
50
13 Nil
14
50
Contractor 10 Nil
200
11 100
12 Nil
13 Nil
14 100
Consultant 10 Nil
550
11 Nil
12 Nil
13
50
14 500
3400
End User Segment
31.3 10. Private
Exitsting
2555
46.8%
5 385
6 2010
7 100
8 80
9 Nil
95.4 11. Private New 5 Nil
800
6 50
50.0
14.7%
7 750
27.8
8 Nil
9 Nil
43.8
12. Public
Existing
1100
19.6
20.2%
12.5
4.5
5 50
6 395
7 506
8 Nil
9 150
5.6 13. Public New 5 Nil
100
6 Nil
1.8%
7 Nil
12.5
8 Nil
9 100
11.1
14. Commercial 5 50
900
6 300
16.5%
7 550
8 Nil
50.1
9 Nil
55.6
623
5455
Page 15
Market map – office equipment
Direct
Field Sales
Manufacturers
Type A
Dealer Chain
5%
3%
Type A
Independent
7%
3%
Type B
Dealer Chain
0%
1%
Type B
Independent
1%
8%
Type C
Dealer Chain
15%
9%
Type C
Independent
7%
18%
5%
4%
7%
10%
4%
10%
VARs
Final Users Route to Market
Buying
Consortia
Company’s Route to Market
Retail
Extracted from the complete map
Direct
Response
Other
0%
4%
0%
6%
47%
24%
Final Users
Question 2
• Do we address real segments in our key target
markets?
high
Speed
low
low
high
Price
© Professor Malcolm McDonald
Page 18
high
Middle
low
high
Middle
low
high
Middle
low
© Professor Malcolm McDonald
Page 19
Personalising segments
Page 20
Global Tech
Koala Bears
Teddy Bears
Polar Bears
Yogi Bears
Grizzly Bears
Andropov Big
Bears
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 market
Lots 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 market
Like 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 market
A ‘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 market
Trash 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 payas-when basis - if worth it. Won’t pay for training.
Not small companies
6% of market
My business is totally dependent on your products. I know more about your
products than you do! You will do as you are told. You will be here now! I will
pay for the extra cover but you will ……!
Not small or very large companies.
9% of market
Page 21
Listen to how customers talk about category need
Customer View
Advice
• cutting costs
• future technology direction
Help
• design & configuration
• process engineering
• electron commerce
Run
• international network
• disaster recovery
Supplier View
• fast PAD family
• multimedia FRADs
• PIX firewall
• Solutions
• Gigabit Ethernet
• solutions
• high performance
• LAN support
Page 22
Understand the different category buyers
Business
Business
perfectionist
Save my
budget
Radical thinkers
Profit engineer
Business
general
“Reward”
“Relief”
Save my
career
Radical
architect
Technical
idealist
Conservative
technocrat
Technical
Page 23
Quick Market Segmentation Solution
•
•
Write down the main benefits sought by customers
Hygiene factors are benefits that any product or service must have to be
acceptable in the market. Try to ignore these.
Motivators are those benefits that contribute towards the customer’s
decision about which product to buy
Take the ‘motivators’ and choose the 2 main ones
Draw two straight horizontal lines and make an estimate of the
percentage of customers at each end. So, for example, if service level is
a key motivator of what is bought, see below:
•
•
•
40%
Low service
60%
High service
Likewise, if the breadth of the product range is a key motivator of
what is bought, see below:
40%
low range
•
60%
high range
Take the left hand point of the first horizontal line and drag it over the
second horizontal line to make cross as shown
60% high
Service
24
36
40%
60%
Large product
range
Small product
range
16
24
40% low
service
• Starting at the top, and moving in a clockwise direction,
multiply 60% by 60% to give 36% (see 1st circle).
• Then multiply 60% by 40% to give 24% (see second circle)
• Then multiply 40% (the bottom of the vertical axis) by 40% to
give 16% (see third circle).
• Lastly, multiply 40% by 40% to give 16% (see fourth circle).
• The circles represent segments in the market.
Interpretation
•
The 1st segment (36%), the biggest segment, requires both high service and
a large product range.
• The second segment (24%) prefers a large product range and is less
interested in service.
• The third segment (16%), doesn’t care much about either a large product
range or service.
• The fourth segment (24%) prefers good service and is less interested in a
large product range.
• Although not essential, you might consider giving each segment a name.
Action
• Ensure your ‘offer’, including the product, price, service and promotion
reflect the differing needs of each segment.
Example
• An example of segmentation of the A4 paper market follows. Please note
that if, as in the case of the A4 paper market, there is one very large
segment (in this case 56%), the exercise ca be repeated for just this large
segment, resulting in seven segments in total.
Example = Copier Paper
•
•
•
•
Service delivery – (Fast, paper always ‘there’ – point of
delivery availability of products; service levels)
Product fit for purpose - (Hi quality print finish for colour
copiers; consistency of quality; paper that doesn’t screw up in
the machine; print definition; no waste)
Environmental factors - (Recyclable)
Level of support - (Delivered in small lots; consignment stock;
easy ordering {on-line]; delivered to difficult locations)
Level of Support
(less demanding)
20%
Low
80%
High (want lots
of support)
70%
Breath of Product
Range
Low
(buy a narrow range
But big quantities)
56%
Drag Queens
70%
(narrow
product
range required)
30%
80% (hi support
requirements)
High (buy a broad
range)
Prima Donnas
24% (expect to have their
every whim catered for)
30% (broad product
range required)
14%
Easily Satisfied
(paper is not Key to their
Business - just want reliable supply)
6% Dictators
(know their power as
Large volume users)
20% (low support requirement)
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 McDonald
Page 31
STRENGTHS
OPPORTUNITIES
WEAKNESSES
THREATS
Strengths
• It can create value for the
organisation and customers
• It is unique
• It is inimitable
• It is lasting
Opportunities
• 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
Class size
Media coverage
Exam results,
league table position Events
Int’l connections,
Guest
community links speakers
Life-enriching
Results
opportunities
School
trips
Promotion
Brochure
Social
mix
Student
successesexams, univ,
competitions
Course
subjects/
options
Skills-based
learning
Business
skills
Website/internet
Headteacher quality
Academic
Enhance
ment
Staff image/
qualifications
Classroom
facilities
International (incl ICT)
Qualifications
Art/Music
reputation
Art/Music
facilities/
equipment
GCSEs
Transport
routes/times
& costs
Sports reputation
Cost
s
Results
Fees
Scholarships
& Bursaries
Boarding options
Convenie
nce
Pastoral care
Student
welfare
Bullying
Note: Admissions Policy & Catchment: qualifying factors
Front of house
de
vel
School
Sports
op
buildings
facilities
me
History
nt
Grounds/landscape
Social life
Student
relationship
& happiness
Academic
support
Facilities
Religious/Cultural
understanding
Parent evenings
School:Fa
mily
Relations
hip
Parent
relationship
Parent
communications
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
1. SEGMENT DESCRIPTION
It should be a specific part of
the business and should be
very important to the
organisation
2. CRITICAL SUCCESS
FACTORS
In other words, how do
customers choose?
3. WEIGHTING
(How important
is each of these
CSFs? Score
out of 100)
4. STRENGTHS / WEAKNESSES
ANALYSIS
How 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.
1
2
1
3
2
4
3
5
4
5. OPPORTUNITIES / THREATS
What are the few things outside your
direct control that have had, and will
have, an impact on this part of your
business?
OPPORTUNITIES
You
Total 100
Comp A Comp B Comp C Comp D
5
THREATS
1
2
3
4
5
6. KEY ISSUES THAT NEED
TO BE ADDRESSED
What are the really key issues
from the SWOT that need to
be addressed?
Page 37
Critical
Success
Factors (how
customers
choose)
A
B
C
D
E
F
G
A
B
C
D
E
F
G
Importance
to customer
(1 to 5)
SWOT Summary Matrix
1 = poor performance
5 = excellent performance
1
Your company’s
performance (1
to 5)
Importance to Customer
2
3
4
5
Your Company’s Performance
1
2
3
4
5
1 = relatively less
important
5 = very important
Instructions
1.
List critical success factors – i.e. How customers choose in the first column.
2.
For each CSF score its relative importance to the customer (between 1 and 5)
NOTE: that a score of 1 or 2 doesn’t mean it is unimportant to customers –
only that it is relatively less important than a CSF with a high score (the
second column).
3.
For each CSF, score your company’s actual or perceived performance
(between 1 and 5) (the third column).
4.
Transfer the joint scores for each CSF and performance to the matrix.
5.
Interpretation
•
Scores in the bottom left of the matrix could indicate that you are overperforming
•
Scores in the top right of the matrix could indicate that you are underperforming
Question 4
• Do we all agree on the prioritisation of our markets
and the segments within each market?
Market/segment selection criteria
Market / segment
attractiveness
- Size
- Growth
- Profitability
- Competitive intensity
High
Low
High
Invest /
Grow
Selectively
Invest
Low
Maintain/
manage for
sustained
earnings
Manage for
Cash /
Withdraw
Business Strengths
- Product Range
- Product Efficacy
- Service Quality (Including distribution)
- Price
- Associated Services (e.g. Technical advice)
- Reputation / Image
© Professor Malcolm McDonald
Page 40
High
High
Our competitive position /
business strength
Directors
Seminars
Low
Distance
Education/
CMR
Exec
MBA
C.S.
G.M.Ps
Market
Attractiveness
MANDAS
Research
?
KEY
Present
position
Forecast
position in
3 years
Full-Time
MBA
C.S.
Low
Page 41
Market attractiveness evaluation
Factor
Scoring Criteria
10
5
0
Score
Weighting
Ranking
1.
Market Size (£ millions)
³£250
£51.250
< £50
5
15
0.75
2.
Volume Growth (Units)
³10%
5.9%
< 5%
10
25
2.5
3.
Competitive Intensity
Low
Medium
High
6
10
0.6
4.
Industry Profitability
> 15%
10.15%
< 10%
8
25
2.0
5.
Vulnerability
Low
Medium
High
3
15
0.9
6.
Cyclicality
Low
Medium
High
2.5
10
0.25
Total
7.0
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.
Page 42
Question 5
• Are the objectives for revenue growth and market
share realistic?
Setting expectations of performance
P
P
high
G
C
Supplier business
strength with
High customer
Low
High
Strategic
Star
Strategic
investment
Selective
investment
Status
Streamline
Mkt/Segment
attractiveness
P
medium
Low
C
G
high/
medium
G
C
P
low
Pro-active Manage for
cash
maintenance
C
G
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
Invest
for growth
Maintain market
position, manage
for earnings
Manage
for cash
Selective
Opportunistic
development
Market Share
Maintain or increase
dominance
Maintain or slightly
milk for earnings
Maintain selectivitysegment
Forego share for profit
Invest selectively
in share
Products
Differentiation - line
expansion
Prune for less successful
differentiate for segments
Emphasise product
quality
Aggressively prune
Differentiation - line
expansion
Price
Lead - Aggressive
pricing for share
Stabilise prices / raise
Maintain or raise
Raise
Aggressive - price for
share
Promotion
Aggressive
marketing
Limit
Maintain selectively
Minimise
Aggressive
marketing
Distribution
Broaden
distribution
Hold wide
distribution pattern
Segment
Gradually withdraw
distribution
Limited coverage
Cost Control
Tight control - go for
scale economies
Emphasise cost reduction
viz. variable costs
Tight control
Aggressively reduce
fixed & variable
Tight - but not at expense
of entrepreneurship
Production
Expand, invest (organic
acquisition, joint venture)
Maximise capacity
utilisation
Increase productivity
e.g. specialisation
Free up capacity
Invest
R&D
Expand - invest
Focus on specific
projects
Invest selectively
None
Invest
Personnel
Upgrade management
in key functional areas
Maintain, reward
efficiency,
tighten organisation
Allocate key managers
Cut back organisation
Invest
Investment
Fund growth
Limit fixed investment
Invest selectively
Minimise & divest
opportunistically
Fund growth
Working Capital
Reduce in process extend credit
Tighten Credit- reduce
accounts receivable
increase inventory turn
Reduce
Aggressively reduce
Invest
Page 46
Activities by medium
Activity
Recognise Initiate
potential dialogue
Exchange Negotiate /
information
tailor
Commit
Personal
contact
Medium
Direct mail
Telephone
Advertising
Electronic
Page 47
The Sunworshippers
Internet
Mobile
telephone
iTV
Broadcast
TV
Traditiona
l channels
• Recognise
Exchange potential
• Initiate dialogue
• Exchange information
Negotiate/tail
or
Commit
• Exchange
value
• Monitor
Page 48
John and Mary Lively
Internet
Mobile
telephone
iTV
Broadcast
TV
Traditiona
l channels
• Recognise
Exchange potential
• Initiate dialogue
• Exchange information
Negotiate/ta
ilor
Commit
.
• Exchange value
• Monitor
Page 49
Relevant?
The Times 19th Jan 2005
Page 50
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
- Vehicles
etc.
- Shares
- Loans
- Overdrafts
etc.
£100 million
£100 million
© Professor Malcolm McDonald, Cranfield School of Management
Balance sheet
Assets
- Land
- Buildings
- Plant
- Vehicles
etc.
£100 million
Liabilities
- Shares
- Loans
- Overdrafts
etc.
£900 million
© Professor Malcolm McDonald, Cranfield School of Management
Balance sheet
Assets
- Land
- Buildings
- Plant
- Vehicles
Liabilities
- Shares
- Loans
- Overdrafts
etc.
Goodwill £800m
£900 million
£900 million
© Professor Malcolm McDonald, Cranfield School of Management
Asset Breakdown for the top 6 countries by
Enterprise Value (US$ millions, 2004)
Asset Breakdown for the top 10 countries by
Enterprise Value (US$ millions, 2010)
Brands are key intangibles in most businesses
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
Developed Markets
Brand
Brand
20%
Patents
Marketing intangible
Technology intangibles
Software
Intangible assets
Other
Intangible
Assets
Source: Brand Finance
Customer intangible
Distribution rights
Assembled workforce
55%
Tangible
Assets
25%
Customer relationships
Contract intangibles
Business Goodwill
Tangible assets
Illustrative
Brands Increasingly Drive Business Results
Brands affect business value by influencing the behaviour of a wide range of Shell’s
stakeholders, some of which directly impact Shell’s P&L (and hence value)
STAKEHOLDER
PERCEPTION
Customers
- individuals,
businesses
Trademarks
Suppliers /
Partners
Brand
- businesses,
energy asset
owners
Employees
- current and potential
Reputation Shareholders /
Bankers
- individual and
institutional
Indirect
influence
on value
Other
Stakeholders
- government, media,
opinion formers,
academics, public,
environmentalists
STAKEHOLDER
BEHAVIOUR
• Pay price premium
FINANCIAL
IMPACT
• Buy more
Revenues
• Lower prices
• Better terms
• Willingness to partner
Costs
Revenues
SHAREHOLDER
VALUE
•(more opportunities)
• Better retention
• Lower salary expectations
• Better qualified candidates
Costs
Productivity
• Higher PE ratio
• Lower volatility
• Lower borrowing costs
• Better repayment conditions
Costs
Risk
Influences
business and
brand value
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 valuecreating 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
Service Positive
Value for Money
Share Price (Indexed)
95
85
75
65
55
45
35
25
15
5
Nov 95
Base: M&S Customers
Mar 98
Sept 99
Map of the marketing domain
Define markets
& understand
value
Monitor
value
Asset
Base
Measurement zone
where metrics
are applied
(Levels 2 & 3)
Deliver
value
Strategic zone
where metrics
are defined
(Level 1)
Determine
value
Proposition
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?
Marketing Due
Diligence
Risk Assessment
Market Risk:
Is the market
there?
Strategy risk:
Will we get our
planned share?
Implementation risk:
Will we get our
planned profit?
Market Risk Profile
• Product Category Existence
• Segment Existence
The marketing strategy has a higher
probability of success if the product
category is well established
If the target segment is well
established
• Sales Volumes
If the sales volumes are well
supported by evidence
• Forecast Growth
If the forecast growth is in line with
historical trends
• Pricing Assumptions
If the pricing levels are conservative
relative to current pricing levels
Ansoff matrix
PRODUCTS
increasing technological
newness New
Present
Present
MARKETS
increasing
market
newness
New
Market
Penetration
Product
Development
Market
Extension
Diversification
© Professor Malcolm McDonald, Cranfield School of Management
Market Share Risk Profile
• Target Market Definition
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
• Proposition Specification
• SWOT Alignment
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
• Strategy Uniqueness
• Anticipation of market change
If changes in the external microenvironment
and macroenvironment are identified and
their implications allowed for
Shareholder Value Risk Profile
• Profit Pool
The marketing strategy has a
higher probability of success if
the targeted profit pool is high
and growing
• Profit Sources
If the source of new business is
growth in the existing profit pool
• Competitor Impact
If the profit impact on
competitors is small and
distributed
• Internal Gross Margin
Assumptions
• Assumptions of Other
Costs
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 assets
to be valued include not only tangible assets like plant and machinery, but intangible
assets, such as Key Market Segments.
·The present value of future cash flows is the most acceptable method to
value assets including key market segments.
·The present value is increased by:
- increasing the future cash flows
- making the future cash flows ‘happen’ earlier
- reducing the risk in these cash flows, ie. improving the certainty of these cash flows,
and, hence, reducing the required rate of return.
© Professor Malcolm McDonald
Suggested 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 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% woul
give £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.
Portfolio analysis - directional policy matrix (DPM)
Relative company competitiveness
High
High
Invest/
build
Segment
attractiveness
Low
?
NB. Suggested
time period 3 years
Maintain
No
change
Present position
© Professor Malcolm McDonald
Low
Manage for
cash
Forecast position in 3 years
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
5
Sales Revenue
- Cost of goods sold
£254
135
£293
152
£318
167
£387
201
£431
224
£454
236
Gross Contribution
- Manufacturing overhead
- Marketing & Sales
- Research & Development
£119
48
18
22
£141
58
23
23
£151
63
24
23
£186
82
26
25
£207
90
27
24
£218
95
28
24
Net Profit
£16
£22
£26
£37
£50
£55
Return on Sales (%)
6.3%
7.5%
8.2%
9.6%
11.6% 12.1%
Assets
Assets (% of sales)
£141
56%
£162
55%
£167
53%
£194
50%
£205
48%
Return on Assets (%)
11.3%
£206
45%
13.5% 15.6% 19.1% 24.4% 26.7%
Why Market Growth Rates Are Important
InterTech’s 5 Year Market-Based Performance
Performance (£million)
Base Year
1
2
3
4
5
Market Growth
18.3%
23.4% 17.6% 34.4% 24.0% 17.9%
InterTech Sales Growth (%)
Market Share(%)
12.8%
20.3%
17.4% 11.2% 27.1% 16.5% 10.9%
19.1% 18.4% 17.1% 16.3% 14.9%
Customer Retention (%)
New Customers (%)
% Dissatisfied Customers
88.2%
11.7%
13.6%
87.1% 85.0% 82.2% 80.9% 80.0%
12.9% 14.9% 24.1% 22.5% 29.2%
14.3% 16.1% 17.3% 18.9% 19.6%
Relative Product Quality
Relative Service Quality
Relative New Product Sales
+10%
+0%
+8%
+8%
+0%
+8%
+5%
-20%
+7%
+3%
-3%
+5%
+1%
-5%
+1%
0%
-8%
-4%
Map of the marketing domain
Define markets
& understand
value
Monitor
value
Asset
Base
Measurement zone
where metrics
are applied
(Levels 2 & 3)
Deliver
value
Strategic zone
where metrics
are defined
(Level 1)
Determine
value
Proposition
Overall Marketing Metrics Model
Intention/
actuality
Business
element
Lead indicators
Resource
allocation/
spend
budget
funds &
time
Plan/
action
actions, esp.
marketing
Strategy/
achievement
PFs
Lag indicators
Objectives/
results
Forecast/
profit
product
market
segment
corporate
performance
HFs
budget
Measurement
Positioning
of issues in
the model
application
of spend
£
£
£
£
what
who
what
who
what
who
what
who
costs,
activity
milestones
& outputs
Cost to achieve
Responsibilities
CSFs
metrics on
achievement
of factor to
required level
ms%
sales£
profit£
corporate
rev£
profit£
performance
by product
market
segment
turnover,
profit &
shareholder
value
Required by
Market growth
customers. Customer acquisition/ retention/
Relative to uptrading/ X-selling/ regained
competitors
Product/customer mix
Channel performance
Map of the marketing domain
Define markets
& understand
value
Monitor
value
Asset
Base
Measurement zone
where metrics
are applied
(Levels 2 & 3)
Deliver
value
Strategic zone
where metrics
are defined
(Level 1)
Determine
value
Proposition
Projected cash
flows from
investing in a
promotion
A
DCF and NPV
methods
implicitly make
this comparison
B
C
More likely
cash flow
resulting from
doing nothing
Companies
should be
making this
comparison
Assumed 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 +
£ - 1 million +
2 + 2
+ 2
+ 2
(1+r) (1+r)²
(1+r)³ (1+r)4
= £-0.6 million
2 + 2
+ 2
+ 2
(1+r) (1+r)²
(1+r)³ (1+r)4
= £5.4 million
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
Products
Profit
t.0
© Professor Malcolm McDonald
T+1
T+2
T+3
Existing
Revenue
New
1
2
New
Markets
Existing
3
4
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/Summary
Market definition
Market map showing vol/rev flows from supplier through to
end user, with major decision points highlighted
Where appropriate, provide a future market map
Include commentary/conclusions/implications for the company
At 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 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
Take marketing into the boardroom,
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