Professional Documents
Culture Documents
2.4 Company performance analysis .......................................................................................... 42 2.4.1 Key financial assumptions............................................................................................. 42 2.4.2 Key non-financial assumptions...................................................................................... 42 2.5 Marketing information and market sensing .......................................................................... 43 2.5.1 Sources of information .................................................................................................. 43 2.5.1.1 Internal data ........................................................................................................... 43 2.5.1.2 External primary data.............................................................................................. 44 2.5.1.3 External secondary data ......................................................................................... 44 2.5.2 Types of research ......................................................................................................... 45 2.5.3 Choosing marketing research methods ......................................................................... 46 2.5.4 Marketing information systems...................................................................................... 47 2.5.5 Other MIS issues .......................................................................................................... 48 2.5.6 Legal and ethical matters in research............................................................................ 49 Section 3 Marketing strategy formulation ................................................................................ 51 Learning objectives ................................................................................................................... 52 3.1 Determine the basis for marketing strategy.......................................................................... 53 3.2 Fundamental marketing strategy options ............................................................................. 55 3.2.1 Market and product life cycles....................................................................................... 55 3.2.2. Company competitive position ..................................................................................... 56 3.2.3 Strategic balance .......................................................................................................... 56 3.3 Strategy for exploiting the opportunities differentiation, positioning and branding ............. 58 3.3.1 Competitive strategy ..................................................................................................... 58 3.3.2 Positioning strategies .................................................................................................... 60 3.3.3 Branding ....................................................................................................................... 62 3.3.3.1 Branding decisions ................................................................................................. 63 3.3.3.2 Levels of branding .................................................................................................. 64 3.3.3.3 Functions of the brand ............................................................................................ 64 3.3.3.4 Business-to-business branding............................................................................... 65 3.3.3.5 Managing brands over the product life cycle........................................................... 66 3.4 The product/ market matrix.................................................................................................. 69 3.5 Market entry ........................................................................................................................ 71 3.5.1 Markets to enter ............................................................................................................ 71 3.5.2 Methods of entry ........................................................................................................... 72 3.5.3 Marketing programme ................................................................................................... 73 3.5.4 Organising for international marketing........................................................................... 74 Section 4 Marketing tactics ....................................................................................................... 75 Learning Objectives................................................................................................................... 76 4.1 Overview of tactics and impact of IT .................................................................................... 77
4.1.1 The marketing mix......................................................................................................... 77 4.1.2 The impact of IT ............................................................................................................ 83 4.1.2.1 IT and the marketing mix ........................................................................................ 84 4.2 Service and product marketing ............................................................................................ 86 4.3 A customer-focused organisation ........................................................................................ 87 4.3.1 A customer-centred outlook .......................................................................................... 87 4.3.1.1 Customer Relationship Management (CRM) .......................................................... 89 4.3.1.2 Direct marketing ..................................................................................................... 91 4.3.1.3 The marketing and sales budget............................................................................. 91 4.3.2 Achieving ownership of the marketing strategy ............................................................. 92 4.3.3 Organisational implications ........................................................................................... 93 4.4 Resources - monitoring and control ..................................................................................... 95 4.4.1 Evaluating marketing strategy ....................................................................................... 95 4.4.2 Strategic evaluation....................................................................................................... 96 Appendix 1 Typical sources of external information................................................................... 99 References and Useful Information ......................................................................................... 100 References .......................................................................................................................... 100 Useful books and articles ..................................................................................................... 100 Useful organisations and web sites...................................................................................... 101
Section 1 The role and responsibility of the board in determining marketing strategy
Director Development Copyright Institute of Directors 2007 EMS reference notes 2007 Vn01FC Dec 06 Page 1
Learning objectives
Section 1 - The role and responsibility of the board in determining marketing strategy
This section provides you with the knowledge to be able to: Demonstrate what marketing strategy is and explain why it is important in delivering strategic objectives. Produce an outline marketing plan and show how it is linked to business strategy Identify the outcomes of a well-managed value-based relationship for buyer and seller Describe the relationship between marketing strategy and financial performance Appreciate the implications of a customer-focused approach for how the business is managed Identify and locate the source of key legal and regulatory references
Director Development Copyright Institute of Directors 2007 EMS reference notes 2007 Vn01FC Dec 06 Page 2
Introduction
Sales- or production-oriented organisations sell what they can make. Customer-oriented organisations make what they can sell.
Anon
The purpose of business is the creation of value for key stakeholders, customers, shareholders, employees, and other collaborators in the process. An organisation cannot create value for any of them unless it can create value for customers. The essential element in marketing is to view the exchange process from the perspective of the customer. The marketing function within an organisation is the primary means by which customer value is created and delivered. It can be thought of as the process by which an organisation focuses its resources, systems, structure and culture on achieving value for customers as the key to achieving its own objectives. Directors have to create value in global markets and against global competition. They have knowledgeable and highly critical customers and demanding shareholders. Marketing-orientated thinking is absolutely vital for success in this business environment. Company directors have to: Understand their companys market position and capability, and their customers real needs and the influences on themUse this knowledge effectively to establish and maintain the companys place in its chosen markets.
A marketing-led company
Marketing is an attitude of mind, a philosophy and a culture which must permeate the organisation at all levels and in all functions. To achieve this, a company must retain its customer focus at all times, change with its customers, develop new products and move into new markets at the right moment. The company must be prepared to adapt in line with market changes. This implies an understanding of both the changes that are taking place and their causes. The board must also be able to change in the right direction in order to keep ahead of both current and potential competitors. However, even identifying competitors has become a complex issue in its own right, as customers have an ever-wider choice of ways in which to satisfy their needs. The marketing function's primary task is to deliver the marketing strategy as a starting point for the determination of the company's corporate strategy. Directors will only be able to maximise their companys potential if they have a good understanding of marketing strategy and are prepared to apply marketing principles throughout the organisation. The board must give strong commitment and support to strategic marketing, and the directors must personally ensure that marketing attitudes prevail at all levels of the company. The marketing approach is sometimes contrasted with the approaches of production-led and salesled companies.
A production-led company
A production-led company focuses on optimising the use of its own production facilities. Typically, this involves maximising use of production capacity and staff time, streamlining operations and improving product quality. It may be highly time-efficient, cost-efficient and apparently thriving.
Director Development Copyright Institute of Directors 2007 EMS reference notes 2007 Vn01FC Dec 06 Page 3
The problem with such companies is that they can lose touch with market needs and sometimes even develop products to fill production capacity, without a clear idea of whether there is a demand for them. At best they react to market changes but are often too late to take advantage of new opportunities, so any success is likely to be short lived.
A sales-led company
A sales-led company might have problems that arise from the focus on maximising sales. They see resistance by potential customers as a problem that can be overcome by stronger selling techniques and more active promotion. Goals tend to be short-term and general. The tendency is to use pressure-selling techniques to chase turnover at almost any cost. Salespeople who are judged on meeting sales targets are tempted to offer lower prices in order to win business. The sales force may then be blamed for loss of business, lower margins or even selling below cost. The result is a de-motivated and vulnerable sales force who cannot rectify the problems. They have no defence against competitors who can match their product to the needs of their target customers and offer a more attractive proposition.
Director Development Copyright Institute of Directors 2007 EMS reference notes 2007 Vn01FC Dec 06 Page 4
Marketing is the process of planning and executing the conception, pricing, promotion and distribution of ideas, goods and services to create exchanges that satisfy individual and organisational objectives
American Marketing Association (2003)
Marketing is selling goods that dont come back to people who do.
Anon
Director Development Copyright Institute of Directors 2007 EMS reference notes 2007 Vn01FC Dec 06 Page 5
Marketing is about creating value for customers and extracting value from them.
John Lines, IoD Consultant (2006)
Benefits to the seller include: Greater customer loyalty Purchase decisions less influenced by price Marketing programmes generally more effective (greater return on investment) More focused product/ service development More flexible response to change with respect to customers.
Director Development Copyright Institute of Directors 2007 EMS reference notes 2007 Vn01FC Dec 06 Page 6
Business strategy PESTLE e.g. develop the brand, diversification Marketing Tactics Promotion Pricing Marketing Audit Segments Customer needs Position Competition Value partners Measurement & control Distribution Other functional strategies People Processes Physical evidence
Figure 1.1 The corporate planning process Figure 1.1 illustrates the place of marketing planning within corporate planning. It shows that all stages of the cycle interrelate both horizontally and vertically. This denotes the need for continuous communication between the different functions involved. Each stage of planning is dependent upon information gained during other stages of the cycle. The most effective approach to strategic planning is to start by gaining a clear picture of the company, its position in the marketplace and the wider environment, its strengths and weaknesses, and all the options open to it. This makes it easier to set realistic objectives based on sound market information, and to create a workable plan to achieve the objectives. The corporate plan should answer three questions:
Director Development Copyright Institute of Directors 2007 EMS reference notes 2007 Vn01FC Dec 06 Page 7
1. Where is the company now? 2. Where does the company want to be? 3. How does it propose to get there? The strategic marketing plan answers the same three questions in terms of the companys products/ services and markets: What is the current competitive position of the companys products/services within its chosen markets? With which products/services, and within which of the markets accessible to it, is the company best able to meet its objectives over an agreed period (usually three to five years)? Which activities with which products/services and in which markets will enable it to meet those objectives?
Only once the strategy has been decided should the tactical plan be prepared. A tactical marketing plan simply adds detail, timings and responsibilities to the first year of the strategy. It will usually determine the marketing mix, for example. It should contain plans for advertising and promotion, including costs and expected returns wherever possible. It may show costs and timings of activities such as investment in capital goods. It may detail when new recruitment will take place and when market research will be undertaken. This order of events forces management into the discipline of completing the necessary analytical and longer-term planning work before making short-term decisions. It also helps to ensure that these decisions are based on a thorough analysis of the environment in which the company operates. This approach is likely to be much more effective than that of a company that simply projects targets forward from its current position. While this may appear to produce an effective plan, it is actually blinkered because it is not taking into account any changes in the marketing environment.
Director Development Copyright Institute of Directors 2007 EMS reference notes 2007 Vn01FC Dec 06 Page 8
The company, philosophy, purpose, pledge to staff, customers, etc Clear, measurable objectives
Marketing audit
Where is the company now? Detailed analysis using company information and market trends
Marketing information
Systems provide marketing information in usable form Structures to ensure that data feeds back into the system for future use
Ensure accessible data to meet marketing needs at all times and at all levels of the company
Marketing objectives
Where does the company want to be? How can the company best achieve its corporate objectives?
Clarifies company goals in a marketing context, i.e. in terms of products and markets
Marketing strategy
How will the company get there? Examining all options and creating a workable strategy
Creating strategy based on marketing analysis increases potential for achieving company objectives Shows who does what and when to achieve the first year of the marketing strategy
Costed action plan for the first year of strategy Actions, responsibilities, timings and a plan for planning
Control systems
Monitoring and checking systems to ensure that: Opportunities are not missed Potential problems are foreseen
Increase sales/profit opportunities and allows proactive not reactive response to problems
Figure 1.2 Key components of the strategic marketing and planning processes
Director Development Copyright Institute of Directors 2007 EMS reference notes 2007 Vn01FC Dec 06 Page 9
of the twin pot market by 1995. By 2002, however, this market had diminished but they had moved strongly into the single pot health food market with Mullerlight, Fromage Frais and Vitality Probiotic Yoghurt. By 2004 they had added Mller Corner, My First Mller Corner (yogurt for young children), Mllerice Banana with added Glucose, Mllerlight yogurt with blackcurrant, and Mller Vitality with prunes (promoted as being a powerful antioxidant, an important source of boron, to help maintain healthy bones, and a good source of potassium). By 2006 there were also Mller Little Stars with 100% natural ingredients matched by a new direction for yoghurt with Mller Amor to treat your tastebuds to some Continental indulgence and Cadbury Chocolate Bliss. Easily accessible marketing information gives them tight cost control, leading to potential price or profit advantage over competitors. By maximising cost efficiencies, they can match or better the margins of their competitors. This gives them a margin cushion, and they can use it either to enjoy the benefits of high margins or perhaps to adopt an aggressive stance. The latter is vital when price competition becomes severe, as they are at least as strong as their competitors to withstand a price war. For example, Dell has always focused its production on building custom PCs against direct telephone and internet orders which set the specifications of each package required. The system flags up changing needs. In 2004 they became the leading US PC supplier. But now because of changing market and competitive conditions Dell are reassessing their strategy looking at new products, new markets, new suppliers and improving service levels nothing is forever. Focused monitoring of external markets helps them to anticipate developments. They are ready to react to market developments, or even to pre-empt them. Contact lenses are no longer made individually for each customer and soft lenses come off production lines. They are a commodity, albeit in a tightly regulated market. A qualified optician set up a company, Postoptics, to sell lenses online. In 2003 the company was increasing turnover by 30 - 40% a year and had 90% of an online market expected to grow to 15% of the total market. One potential rival was taken to court by the General Optical Council for failing to verify prescriptions. By 2004 Postoptics had increased its online and mail order market share by using Google. In 2006, however, the Association of Optometrists claimed there was no evidence of the forecast rise of internet sales. They accept the need for continuous change and are better prepared for it, having the right attitudes and culture in place throughout the organisation. 3M's declared business policy is to have at least 50% of income derived from products less than five years old. They can allocate resources to meet short- and longer-term goals for sound commercial reasons, thus reducing waste. For example, a well-planned manufacturing company might decide on a factory extension to meet anticipated growth within one of their key markets. Had they only planned short term, they might have installed higher capacity production lines within the existing factory. Then they might have found in the longer term that these were inadequate, the growth exceeded their expectations and the factory extension was still needed. Their pricing is strategic and based on solid market information. They can make both long- and short-term decisions on such issues as whether to adopt a market skimming high price strategy, a market penetration low price strategy, or perhaps a two-stage combination of the two. Market information helps the company to identify the optimum price in either case. Managers have better direction and focus, and are more motivated as a result. Key managers have contributed to the plan, understand and accept the objectives, take ownership and feel commitment to the strategy. They are also more ready to be measured against clear goals, especially when they have contributed to setting them.
Director Development Copyright Institute of Directors 2007 EMS reference notes 2007 Vn01FC Dec 06 Page 11
Marketing strategy and planning are now company-wide activities, not a task to be left to the marketing department. Inter-functional relations are improved by shared goals and clear objectives. Well-defined direction for all and clear responsibilities for each function in achieving the shared goals tend to iron out perennial differences between the functions. Planning should specify sales activity to meet expectations based on sound marketing information and customer targeting, and plan production capacity needs accordingly. To be effective, planning must have strong support from the board, and must be built into the companys total activities. Good planning processes feed off existing strategy and feed into future planning and make it both easier and more accurate. The idea of a plan for planning is simply to ensure a mechanism exists through which to update the marketing plan on a regular basis. Strategy may be reviewed quarterly, and tactics weekly or even daily. The results of a quarterly review can be analysed and adjustments made to improve the accuracy of the plans remaining years, and add a further quarter to the strategy. It can also take into account any changes in the external environment which alter previous estimates. The people who are involved in planning vary with company size and culture, and may even change at different stages of the companys life cycle. It is more important that the process is supported and guided strongly and visibly by the board, and that input is sought from as broad a range of management and staff as is practical and relevant. Board level support is essential to maintaining momentum and keeping the planning process on track. Broad-ranging input does more than just ensure a wide range of valuable ideas. If it is well handled, it also means that all employees: know what is going on feel that they are contributing to the plan gain a sense of responsibility for making it succeed.
The communication process during consultation for marketing planning should be two-way: management gain valuable input for the marketing plan, and those being consulted gain an insight into the reasons for marketing planning. When it works well, staff are less threatened by the perceived change, and often become more marketing-orientated as a result.
Director Development Copyright Institute of Directors 2007 EMS reference notes 2007 Vn01FC Dec 06 Page 12
Changing the rate of profit by raising the price, lowering input prices or reducing variable costs produces:
Changing the turnover of assets by improving productivity and improving working capital utilisation (reduce stock, longer credit terms, shorter payment terms etc.) produces:
X X X X
= = = =
If making both changes at the same time is possible the impact is:
Table 1.1 Financial effect of changes in marketing activity The marketing function can play an important in both elements. Customer value can be improved by a better understanding of customer needs and consequent improvements to the offering, which may lead to higher sales volume and higher prices. The same information can assist in the more accurate (and cost effective) tailoring of customer service and ensure better control over input prices as procurement becomes more accurate.
Director Development Copyright Institute of Directors 2007 EMS reference notes 2007 Vn01FC Dec 06 Page 13
The boards investment in the marketing function is required for both the short and long term. While short-term support for particular promotional campaigns or limited discounts is important, long term investment in the marketing infrastructure is critical. This establishes the long term positioning, branding, distribution systems, recruitment and training, customer relationship management and so on. Shareholder value creation is determined by three main issues: 1. Funds from operations sales revenue and direct and indirect costs 2. Investment in assets the acquisition, disposal and efficiency of assets and working capital 3. Financing costs the mix of funding between debt and equity. Marketing strategy, therefore, needs to be evaluated in terms of the impact it will have on these three issues. New strategies will almost certainly alter the means by which the company creates value for its customers by introducing a new value chain and a new value system. Their success will largely be determined by the combination of attractive markets and appropriate offerings. The profit and cash generation will be determined by the cost drivers associated with the revenue generation. These include the capital expenditure and outlay on working capital. The board will have to assess: 1. The implications for all of the cost drivers direct and indirect, capital expenditure, capital efficiency, and financing costs. 2. The sources of finance (internal, debt, equity) 3. The implications of (2) above for the capital structure of the company and for key ratios such as return on capital, asset turnover, gearing. The functional implications for the strategy will affect the cost and value drivers. For example a differentiation strategy may require investment in new products, marketing campaigns, systems, and training. In addition, if some of the cost and revenue drivers are outside the company there are implications for the management of relationships with key collaborators. Alternative marketing strategies must always be considered and compared in the light of their ability to generate value for shareholders in keeping with the long term objectives of the organisations key stakeholders.
Director Development Copyright Institute of Directors 2007 EMS reference notes 2007 Vn01FC Dec 06 Page 14
A customer-focused approach has significant implications for the board, management and the structure of the organisation. The customer focus must become an integral, continuous and longterm feature of the corporate culture, its values, beliefs, ways of doing things, relationships, structure and systems. The directors should show leadership and commitment to the philosophy to ensure it is embedded in what is popularly called the organisations DNA. Management can then: Identify suitable target markets and concentrate resources on them to achieve the overall business goals Ensure everyone in the organisation understands that their clear purpose, and the prime source of business success, is to create value for customers, shareholders, external value partners and employees Use the structure and governance of the organisation to facilitate the focus and co-operation of the different functions on value creation Implement measurement and reward systems that connect the individuals daily activities with the pursuit of this philosophy Deliver focused training and development to enhance capability Demonstrate the financial implications of customer focus customer lifetime value, profitability, shareholder value, investment, costs Invest in high quality information about customers real needs in terms of the benefits they seek from the companys offering, and their psychological and environmental wants that determine and determine their needs Collect similar information about competitors Benchmark the companys performance Maintain systematic approaches to the delivery, monitoring and control of marketing strategies and resources Support the companys position, image and brand both inside and outside the organisation Encourage the belief in the companys global opportunity.
Director Development Copyright Institute of Directors 2007 EMS reference notes 2007 Vn01FC Dec 06 Page 15
The act prohibits anti-competitive agreements designed to prevent, restrict or distort competition within the UK. The effect on trade has to be appreciable, which is taken to be over 25% of a market. Abuse of a dominant position is also unlawful. The OFT can define a relevant market because market shares can be calculated only after the boundaries of a market have been defined. The Data Protection Act 1998 repealed all previous law in relation to data protection. In 2004 the Information Commissioner issued a statement to help organisations get it right. The act gives rights to individuals to access personal data from which the living individual can be identified. Special protection is given to sensitive personal data (relating to race or ethnic origin, political or religious beliefs, trade union membership, physical or mental health/condition, sexual life, commission or alleged commission of an offence and proceedings relating to the committed offence and the sentence imposed). There is a bar on the transfer of data outside the European Economic Area (subject to exceptions). Those involved in processing data must register with the Data Protection Registrar. Data is defined as any information which: is processed automatically by means of equipment or is recorded with the intention that it should be processed or is or is intended to be recorded as part of a relevant filing system or forms part of an accessible record.
The Data Protection Principles, principles of good conduct set out in the act, are that: data held should be accurate, up to date, relevant and not excessive for the purpose for which data is obtained before data can be processed either the Data Subject must consent to the processing or it must be necessary for certain specified purposes if the data is Sensitive Personal Data explicit consent is required appropriate technical and organisational measures have to be taken to prevent unauthorised or unlawful processing and against accidental loss destruction or damage to the Personal Data
Director Development Copyright Institute of Directors 2007 EMS reference notes 2007 Vn01FC Dec 06 Page 16
An individual has the right to be told if his personal data are being processed by the Data Controller. Subject to some exceptions the Data Subject can require a Data Controller to cease or refrain from commencing processing on the grounds that it will cause substantial damage or distress. The Data Subject can prevent the use of his personal data for direct marketing purposes. In addition, the telephone, mailing and fax preference services enable an individual to register a name, address, telephone and fax numbers to prevent unauthorised approaches via these media from organisations. For marketing purposes an organisation is only allowed to use any of these media for a registered person if they have a previous or existing relationship with the individual. The marketing industry is further regulated by a series of industry codes of practice. These are issued as required by regulatory and advisory authorities such as the Direct Marketing Authority, the Advertising Standards Authority, the Committee of Advertising Practice (CAP), and the Broadcast Committee of Advertising Practice (BCAP) The ASA is here to make sure all advertising, wherever it appears, meets the high standards laid down in advertising codes.
www.asa.org.uk (2006)
Further information on relevant legislation can be found in the module reference notes for The Director and the Law.
Director Development Copyright Institute of Directors 2007 EMS reference notes 2007 Vn01FC Dec 06 Page 17
Director Development Copyright Institute of Directors 2007 EMS reference notes 2007 Vn01FC Dec 06 Page 18
Learning objectives
Section 2 - Situation appraisal: the position of the company with respect to its strategy for current markets, performance and value creation.
This section provides you with the knowledge to be able to: Carry out an internal and external situation appraisal to underpin the creation of marketing strategy. Analyse customers needs/ problems, and how they are influenced Demonstrate how customer value is created and its contribution to competitive advantage Demonstrate the means by which marketing information can be successfully obtained and managed.
Director Development Copyright Institute of Directors 2007 EMS reference notes 2007 Vn01FC Dec 06 Page 19
Director Development Copyright Institute of Directors 2007 EMS reference notes 2007 Vn01FC Dec 06 Page 20
Financial Results sales (value/volume) & profit Marketing mix variables: by: Product range/quality/development customer, product, Industry/market segment Pricing Non-financial Results: Discounts and credits customer satisfaction, loyalty Stockholding policy Market share by: Unit of sale total market Distribution Industry/market segment Sales channels Marketing organisation: Sales support: Organisation structure Advertising and promotion Marketing control systems and data Point of sale Marketing procedures: Public relations Current marketing planning system Packaging Marketing information systems Sampling Measurement and control procedures Exhibitions Marketing data analysis Training and development Action planning and results feedback Marketing HR responsibilities Inter-functional responsibilities
Table 2.1 Capabilities subject to internal audit To put this internal audit analysis in context the organisation should benchmark itself where possible against each major competitor. It is important to align internal information collected for marketing purposes with the information collected for the board when preparing or updating corporate strategy. The purpose of the marketing information on the firm's resource strengths and competitive weaknesses is to determine the best strategic fit between the firm and its environment. The main areas are:
Financial resources - Present assets, their sources and uses; liabilities; financial ratios for comparison with industry ratios; level of risk; basic sales and cost analyses. Physical resources - Current, short- and long-term facilities, such as property, plant, equipment, inventory. Human resources - Talents and abilities of managers and all other human resources, including outside specialists, key suppliers and customers. Technological resources - IT facilities and processes, including production, databases and intellectual property. Organisational resources - Firm's structure, systems, and procedures that support implementation of the strategic plan.
Director Development Copyright Institute of Directors 2007 EMS reference notes 2007 Vn01FC Dec 06 Page 21
PC market
Few of the many players who entered the PC markets in the 1980s and 1990s have survived. Even Compaq and Hewlett-Packard, huge companies in their own areas, had to merge to avoid collapse. Their merger has still failed to ensure their future as PC suppliers against the domination of Dell. When HP and Compaq were at their height, Michael Dell was a college drop-out building PCs in his bedroom to his friends specifications. His vision of the PC market and enormous success were based on build to order. When a market reaches relative equilibrium of supply and demand, it does not remain static. The remaining players then develop competitive strategies based on:
Director Development Copyright Institute of Directors 2007 EMS reference notes 2007 Vn01FC Dec 06 Page 22
price high volume low cost product and service differentiation market niche domination.
Markets may become polarised and those suppliers caught in the middle find it increasingly difficult to remain profitable.
Supermarkets
In UK food retailing, large supermarkets became concentrated in the hands of Tesco, Sainsbury's and Asda/Wal-Mart, all of whom entered the battle for Safeway in 2003. Morrisons were allowed by the Competition Commission to take over Safeway in 2004 as this acquisition did not give a monopolistic advantage to any one player. Sainsburys struggled to deliver top-quality along with low prices. At the other end of the scale, family-run corner shops with long opening hours survived. Companies in the middle such as Gateway suffered badly and were taken over. A similar polarisation occurred in price positioning. The major store groups moved either towards the quality or discounted price ends of the spectrum, and mid-priced outlets suffered if they could not offer differentiated benefits. The retail food market continued to change in 2005. The major supermarkets bought into the corner shop sector as the OFT put this into a different class of provision. Morrisons failed to turn the Safeways branches outside its more northern patch into profitable outlets quickly enough for its shareholders. The Executive Chairman, Sir Ken Morrison, managed to avoid being forced to step down by taking a non-executive role and appointing a separate CEO. By 2006, four non-executive directors, a finance director and deputy chairman had been appointed and Morrisons had retrained 90,000 Safeway staff, integrated the operational systems and become a national provider. The OFT had reversed its decision and was investigating the role of supermarkets in the small store sector. Sainsburys recovered its profitability, mainly by focusing on quality. Concentration in the hands of buyers and suppliers is a growing trend that represents a threat to many smaller companies. It often results from mergers and take-overs. Large companies may reduce the number of their suppliers to improve efficiency. This creates an interdependency which can benefit both supplying and buying companies. It also leaves smaller companies to find niches in which to survive.
Director Development Copyright Institute of Directors 2007 EMS reference notes 2007 Vn01FC Dec 06 Page 23
Total and individual market segments: Size (value/volume) Growth trends (value/volume) Buying patterns Geographical trends Demographic trends
Communications: Principal methods used Sales methods and structures Levels of advertising and promotion
Products and industry segments: Innovation trends Quality expectation Product usage Product sourcing Packaging Legal requirements
Industry structure: Major (i.e. closest) competition by relevant measurements from internal audit Number, hierarchy and characteristics of companies in the industry Their capacity to produce, market and deliver Their ownership, origins, level of investment and likely diversification Trends in new entrants International links Levels of concentration
Table 2.2 Typical external marketing audit issues Competitor analysis can be applied to an industry or market, or preferably both. In its narrowest definition a firms competitors are other firms in the same industry supplying similar products. From a broader perspective, there are latent competitors that could supply similar products if they chose to do so, but do not currently produce them. From a market perspective, substitute products could fulfil the same needs for the same customers. Video or DVD movie rentals and downloads compete with cinemas, for example. So suppliers of these substitutes could be regarded as competitors. From a still broader perspective, a competitor includes any alternative use for the same portion of the customers spending power. In this sense, DIY products compete with holidays. The competitive position within an industry is also affected by the bargaining power of buyers and suppliers, a function of supply and demand. Where demand exceeds supply, suppliers exert their bargaining power by raising the price of raw materials. When supply exceeds demand, buyers increase their demands or force prices down. Both situations represent a threat to stability by intensifying competition. Competitor analysis helps to identify the behaviour patterns competitors might adopt in response to marketing tactics such as price-cutting or promotion. Kotler (1991) describes the most common competitor reaction profiles as: the laid back competitor, which does not react quickly or strongly to a competitive move. This may be because it is confident of customer loyalty, because its strategy is to milk the business, or because it is ill-informed. Kotler adds that the reasons for laid back behaviour should be assessed.
Director Development Copyright Institute of Directors 2007 EMS reference notes 2007 Vn01FC Dec 06 Page 24
the selective competitor, which will react only to certain types of attack such as price cuts but not to advertising. the tiger competitor, which reacts quickly and strongly to anything it sees as an attack, and will fight to the last. Kotler adds that it is always better to attack a sheep than a tiger. the stochastic competitor, which does not have any predictable reaction pattern.
A particular competitive pattern may permeate a whole industry. Markets with many similar competitors tend to be unstable and in a state of perpetual conflict. Undifferentiated commodity markets, for example, tend to have price wars as a result of the overcapacity. Analysing an industrys competitive pattern can help directors and marketing managers make strategic and tactical marketing decisions such as pricing changes, promotion and advertising spend. The types of industry where competitor analysis is most important are those that show the least growth and the least potential, since market share can only be increased by taking it away from competitors. The information gathered can be used to create a map of the likely actions and reactions of particular competitors in different situations. Some idea of each competitors strategy helps define the best market opportunities and the likely outcome of particular actions such as price changes or new product launches. Analysing competitor information reveals which competitors are weak and open to attack. A weak competitor in a highly valued segment may lose customers to others with relatively few resources. Strong competitors may be moving ahead and setting industry standards but they too have weaknesses, and parts of their business may be vulnerable. Other reasons for examining the strengths and weaknesses of competitors are: the strongest competitors may act as a benchmark or industry standard the failure of a weaker competitor may not be beneficial to a strong company.
Porter (1985) makes the point that there are good and bad competitors, and it is in the interests of the industry as a whole to support the good and attack the bad. Porter defines as good those competitors who play by the rules, make reasonable assumptions about the industrys growth potential, set sensible prices in relation to costs, limit themselves to a certain market share and cooperate to some extent with others to encourage lower costs or differentiation. Bad competitors are those who take risks to win share for themselves, and upset the equilibrium of the industry to their own advantage. The wider point made by the good and bad competitor example is that an industry and its participants benefit from having competitors. Competition increases total awareness and demand, reduces the risk of anti-trust legislation, shares development and technology costs and increases total market coverage by serving different segments.
Director Development Copyright Institute of Directors 2007 EMS reference notes 2007 Vn01FC Dec 06 Page 25
conditions, Socio-cultural trends, Technological developments, Legal issues and Environmental issues. Table 2.3 shows some typical areas of influence that the company may need to investigate in order to find out whether the factors will affect the business either positively or negatively. Political issues: Regulations: safety, quality, labelling Government policies Taxation Technology issues: New materials New manufacturing processes Information technology New inventions
Economic issues: Inflation, labour costs House prices, labour mobility Energy prices Unemployment Party political stance on particular issues
Legal issues National and international legislation Import and export regulations
Environmental issues Popular attitudes to aspects of the environment Pressure group activity Media coverage
Social issues: Lifestyle changes Consumer attitudes Demographic factors: age, wealth, geographical distribution
Table 2.3 Typical PESTLE factors Directors should have regular discussions on the areas of PESTLE analysis, as they are the main sources of the changes that influence longer-term strategy. The factors will help determine the most appropriate areas of marketing research. Having explored the relevant PESTLE factors marketing planners can use this information to examine trends and identify the likely impact of each factor on the business over the planning period. A SWOT analysis (strengths, weaknesses, opportunities, threats) is a useful marketing tool because it can be used to crystallise the key issues that arise from the marketing audit. It can act as a stepping stone between the audit and the later stages of marketing planning. The SWOT combines well with brainstorming sessions with a group of managers to produce a creative result. The SWOT analysis should not simply be a repetition of the audit. It should concentrate on eliciting the Critical Success Factors (CSF) and analysing the key issues surrounding them. A company operating in a single market may need to complete one SWOT analysis. With complex and diverse markets, it may be necessary to split the business by market sector, and complete a SWOT analysis for each one.
Director Development Copyright Institute of Directors 2007 EMS reference notes 2007 Vn01FC Dec 06 Page 26
Internal factors
Strengths Company serves high growth markets Well known company name 20% share of market with main product Higher gross margins than main competitors Low staff turnover Highly qualified management team Products perceived as high quality High tech/efficient production facility Weaknesses Low penetration in export markets Main products easy to copy High level of company borrowing Distribution location of production facility No succession plan for managers retiring soon Resistance to planning/change Inflexibility in production facility High fixed costs
External factors
Opportunities Investigate/penetrate key export markets Merge with/take over main competitor Relocate production/distribution facility Invest more in new product development Threats Cheap imported copies of products Increase in fuel costs Aggressive competitor pricing policies eroding margins Bad publicity for products
Advertise main product to defend/increase Interest rate increases market share Launch secondary products into new market Technology changes product obsolescence sectors Raise company branding profile through stronger Recession reduction in customer buying power Exchange rates increasing raw material price
Director Development Copyright Institute of Directors 2007 EMS reference notes 2007 Vn01FC Dec 06 Page 27
One reason for making assumptions is to force the discipline of considering such questions, and making a best guess, probably following consultation. This is almost always better than failing to consider the question at all. Another reason is the preparation of contingency plans to allow for the range of possibilities between best outcome and worst outcome. It may be useful to use formal risk analysis techniques to quantify the likelihood of the assumptions being correct.
Director Development Copyright Institute of Directors 2007 EMS reference notes 2007 Vn01FC Dec 06 Page 28
2. It is possible to allocate resources to the areas of the market where they can be most effective and therefore obtain a better return for the investment in marketing effort. 3. It is also possible to tailor the marketing mix more precisely to the specific needs, perceptions etc. of the customers in the target segment. 4. Segments provide the basis for a strategy that differentiates between one group of customers and another marketing.
Customer needs or benefits sought should be Professional women aged 25-45 with no similar within a segment children could be an attractive segment for an upmarket clothing brand to target There should be identifiable differences Women of 18-25 would have clearly different between segments in terms of benefits sought needs from the example above generally greater price sensitivity, shorter life expectancy of clothes, more fashion conscious Measurement criteria must exist and be relevant Segmenting the womens clothing market by alcohol consumption habits or leisure pursuits would be less relevant than factors such as age, social class or income
Segments must have distinct and recognisable Age, sex, geographical location, housing type characteristics etc. are all clear characteristics. Alcohol consumption habits or weekend leisure pursuits would be more difficult to isolate Segments must be large enough to provide a Women of 18-25 in full time education might be worthwhile return too small a segment to be worthwhile, and would also be likely to have a limited level of disposable income Segments must be accessible Even if the alcohol consumption of women was relevant to their choice of clothing, it would be much more difficult to reach them as a target than if they were segmented according to age, as well as lifestyle factors such as magazine readership
Director Development Copyright Institute of Directors 2007 EMS reference notes 2007 Vn01FC Dec 06 Page 29
companies that commission it. Psychographic variables are generally assessed qualitatively and although their reliability may not be so easy to verify as their quantitative counterparts, the insights they provide may be of great value.
Geodemographic segmentation
Demographic variables Sex Age marital status family size and background race/ethnic group Education Occupation Income Religion home ownership socio-economic class Geographic variables region urban/suburban/rural population density city or county size market density residential location housing type climate terrain
Behavioural segmentation
Benefit variables usage rate and volume product benefits consumer need satisfied technical aspects price sensitivity brand loyalty End use benefit expectations
Hutchings (1995)
Psychographic variables lifestyles personality self image value perceptions social aspirations psychological aspirations motives
Table 2.7 Segmentation variables used in consumer markets Geodemographic segmentation was developed in the late 1970s by CACI Ltd. The initial product was ACORN (A Classification of Residential Neighbourhoods), which linked demographic and geographic data. This created a grouping system based on the assumption that people living in similar neighbourhoods behave in broadly similar ways. Birds of a feather flock together ACORN divided the population into 17 main groups. These were then subdivided into 54 neighbourhood types matched to corresponding social grades. Districts were then analysed according to the number of postcodes allocated to each type.
Director Development Copyright Institute of Directors 2007 EMS reference notes 2007 Vn01FC Dec 06 Page 30
A similar system is MOSAIC, developed by CCN (now Experian) as a database. MOSAIC is also available in specialist versions covering international, financial and business to business classifications. Experians Mosaic UK is an award winning people classification system that combines over 400 separate data sources and divides the UK adult population into 61 different types and eleven groups, covering the full spectrum of British and Northern Ireland society.
Experian website November 2006
MOSAIC is also available in specialist versions covering Scotland, Northern Ireland, London, global, automotive, daytime, grocery and financial classifications. A simpler approach has been to classify consumers into groups, assuming similar buying and spending habits. This method resulted in the Social Grading System used as a basis of analysis for many years. It is shown in Table 2.8.
Director Development Copyright Institute of Directors 2007 EMS reference notes 2007 Vn01FC Dec 06 Page 31
Information is available from companies such as D&B that guarantee a speedy service with a high level of accuracy. They list companies by line of business (Standard Industrial Classification code), number of employees, sales turnover, location type, economic regions, UK postcodes and named executives. Database companies also offer financial classifications, information about companies and their subsidiaries, and access to linked databases holding European business data. D&B Market Insight holds the whole D&B Marketing Universe with your customer data overlayed. You can profile any part or the whole of your customer base against any part or the whole of the D&B Marketing Universe at any time from any web browser. You can then score the entire D&B Marketing Universe by how well each record fits the profile you have established. This score can then be used to prioritise the data you chose to purchase.
www.dnbmi.com (2006)
Business markets exist for agricultural services, mining, construction, manufacturing, transportation, wholesale trade, retail trade, finance and insurance, and services. The end user is either the business itself or, at the ultimate end of the distribution chain, a personal consumer. Business customers are usually trained professional buyers though many small businesses carry out the activity without any specialist training
2.1.2.5 Targeting
Markets are segmented in a number of ways and the variables are generally used in combination to create useful profiles. The table below is a simple combination of sector and size producing eighteen segments: Retail Small Medium Large Table 2.9 Market segmentation by sector and size Clearly a company may not find all the segments equally attractive, also they may not have the resources to exploit them. A means must be found of identifying the priority segments, those which if successfully exploited will enable the company to achieve its objectives. Criteria for the assessment of the attractiveness of a market segment include: Size and growth trends of segment: larger companies can target large market segments to achieve higher volume, but a smaller company might be wary of the high investment of resources required to serve such a large market segment. Potential profitability and ROI Number of strong competitors: a segment with a number of aggressive competitors already active in it may be unattractive, especially if it is relatively easy for others to enter the market with similar or substitute products Ease of entry: a market segment that is easy to enter may offer rapid returns with low risks, but this means it is also easy for competitors to enter. This type of segment may be attractive for a short-term venture, but not for a company seeking high margin business over the longer-term Competition and ease of product/service substitution: substitution and obsolescence are dangers sometimes ignored by companies entering new market segments Financial services Manufacturing Distribution Telecoms Entertainment
Director Development Copyright Institute of Directors 2007 EMS reference notes 2007 Vn01FC Dec 06 Page 32
Balance of supply and demand: as the balance of supply and demand determines the bargaining power of buyers and suppliers, it can affect the attractiveness of the segment as a target Matching with the company objectives and capability: the companys longer-term objectives affect the way it views such issues as the investment required to enter a market segment, the risks involved, and the likely long-term sales and profit potential of the segment.
Where the company seeks access to global markets it must consider carefully the current commercial infrastructure in the target area (distribution, communications etc.), geographical & cultural proximity (including language), and political and currency risk. The potential market for any company is the entire world. In practice, however, the scope is restricted to the areas where there is the ability and willingness to buy those products and services offered by company that can be sustained.
Director Development Copyright Institute of Directors 2007 EMS reference notes 2007 Vn01FC Dec 06 Page 33
Director Development Copyright Institute of Directors 2007 EMS reference notes 2007 Vn01FC Dec 06 Page 34
The second essential requirement is that the customer is satisfied in ways that are consistent with their circumstances. It may not be enough that the drill makes holes, as there may also be a need for advice and instructions to facilitate the correct hole, and thus fulfil the real need. The seller must understand the whole process by which value is created for the customer. Merely meeting the customers apparent needs may not be enough to guarantee success. The supplier has to satisfy the elements that the customer has a right to take for granted from the supplier. For example, plumbers must be able to bend pipes and fix taps, but to be really successful they have to surprise and delight the customer with excellent service cleaning up afterwards would be wonderful! An example of a customer-led organisation is the Disney Corporation. They train their cleaners more thoroughly than any other staff because they come into most frequent contact with the customers and therefore have a very significant effect on the value that is created for the customer. The Disney Institute is used by many other companies for training in this approach to customers.
Director Development Copyright Institute of Directors 2007 EMS reference notes 2007 Vn01FC Dec 06 Page 35
Perceived risk
Potential buyers are sensitive to the perceived risk in the buying decision process. The seller needs to be aware of the form and consequences of risk and to be able to convince the potential customer that it is minimal. The major components of risk are; 1. The probability of error i.e. that the product or service will not perform its function. The marketing implication for the seller is to reduce perceived likelihood of error by creating and maintaining a reputation for quality and reliability for example. 2. The consequences of error i.e. that the customer will suffer loss as result of the error or lack of performance. The marketing implication for the seller is to reduce the perceived consequences of error by offering simple compensation and rapid response for example. Risk may also be in the form of psychosocial elements i.e. the seller may fear losing face or prestige as a result of purchasing in a particular category or particular brand. In these circumstances the seller will probably need to embark on an extensive communications campaign aimed at changing attitudes.
Director Development Copyright Institute of Directors 2007 EMS reference notes 2007 Vn01FC Dec 06 Page 36
purchase from a few sellers use short distribution channels buy from manufacturers and distributors who are centrally located negotiate prices and other terms of sale form long-term relationships with key suppliers require at least some level of customisation in their purchases emphasise specifications and performance are concerned with technology and rate of change require specific services with their purchases. are dealing with derived rather than direct demand often involve technical specialists in the buying process. often expect reciprocity
There is also an important difference between the first purchase and the repeat purchase in terms of the behaviour of the customer Business buyers are often working as a purchasing agent and are subject to a decision-making unit. The key players in the decision-making unit may include: User or initiator - person(s) who will benefit the most, or recognises the benefits of the acquisition. Influencers - the greater the complexity and cost, the more influencers that are involved who can affect the final purchase decision in some way. Deciders - individuals who can approve/disapprove of the proposed purchase, including product specifications and terms of sale, etc. Approvers - individuals who make a go/no go decision about proceeding with the purchase process, and the appropriateness of purchase activities. Buyers have responsibility and authority to select suppliers, negotiate terms of sale, and otherwise complete details of purchase Gatekeepers individuals in a position to control information flows to those involved in purchase decisions
Director Development Copyright Institute of Directors 2007 EMS reference notes 2007 Vn01FC Dec 06 Page 37
Every aspect of the organisation will be called upon to contribute to the value creating process. The ideas, systems, structure, resources of the business must be leveraged to this end. Value that is easy to create is also easy to duplicate. Low value attracts 'me-too' competition. However, high value arising from investment in information, knowledge and other resources is far more difficult for a competitor to duplicate.
Director Development Copyright Institute of Directors 2007 EMS reference notes 2007 Vn01FC Dec 06 Page 38
Creating value, therefore, does not necessarily mean adding a large number of features and delivering them all at a very high level. The Formula One hotel chain, for example, offers a very restricted service, but each element is of good quality. It does not attempt to match the competition in areas of service not considered important by its target customers. So, de-specifying can also create value. In order to compete successfully in the long term, organisations must attempt to innovate. However advanced the value offering it will be copied if it stands still. Investment in innovation can be demonstrated to have a measurable impact on customer growth and value. A customer-led organisation analyses all its activities to identify the part each plays in the value creation process, and to determine how improve it. One approach to the analysis is that of Michael Porter (1985) who uses the term Value Chain to describe the process of linking all the areas within the company where competitive advantage could be achieved. He argues that companies should examine each activity in their value chain to find ways of improving it in terms of both costs and performance. This involves looking beyond the company boundary, and examining the value chains of suppliers, distributors, customers and end users. It should also include an analysis of the value chains of its competitors so as to use these as benchmarks against which to measure their own performance. The end result has two dimensions: 1. The company manages the process of merging the competencies of everyone involved in the product from concept to end-user. 2. The whole chain should work together so that, at every stage of the chain, the company maximises its potential for creating customer satisfaction and loyalty as well as gaining competitive advantage. The practical results of involving all the parties might be an integrated order administration and invoicing system set up jointly by the company and a supplier. For example, Marks & Spencers stock control for gloves was linked by electronic point of sale (EPOS) to the suppliers factory. As a result paperwork was handled by fewer people or eradicated altogether. A manufacturer might offer also merchandising training and support to its retail outlets. Further development of this approach exists in the automobile industry where a customer's purchase order of a new vehicle in an independent dealership transmits information to the distributor, to the factory and right through the manufacturer's supply chain to the suppliers of materials such as sheet metal and paint. A good example of co-operation between companies and their suppliers is in retail category management, where a panel of suppliers work with a buyer to find the optimum selection and layout for a category of products within a store. To maintain successful value creation, companies need a continuous picture of the changing needs of their customers so that they can match them with changes to their products or strategies. In the longer term, they must create and maintain their customers perception of a gap between their offering and that of their competitors. This is their competitive advantage. In simple terms, it may be a lower price or a better offering.
3. The amount buyers are prepared to pay for what a company provides them. Customer value is achieved when the company's offering provides the customer with greater value than their perception of the total cost to them of the offering. This involves the company being able to: 1. Understand how customers create value for themselves or for their own customers or consumers, and identify all the elements involved, including resources, systems and processes. 2. Understand the customer value chain or experience cycle from the search and purchase steps right through to the use and ultimate disposal 3. Be capable of producing and delivering a significant positive impact on these elements through the effective use of products, services, distribution, information etc. 4. Have a well enough informed system to avoid making a negative impact on the process. In other words directors must ensure that their company is part of the customers solution not part of their problem. If the company is successful in creating value for customers over time the relationship will develop to its advantage. Customer satisfaction becomes customer retention or loyalty, and loyalty may become advocacy. The ratio of customers who would advocate the company to others to those who would not, is a significant indicator of its strength and potential. Customer advocates are the key to maximising customer lifetime value and increasing market share. The ability of the organisation to create customer value more effectively than its competitors often results from the companys possession of sustainable, distinctive competitive advantage (DCA).
aware of changes in the market and the wider environment. Regular and effective marketing audits should help to ensure that this is achieved.
Examples of external CSFs, together with the company types to which they might apply, are:
low interest rates mortgage lender favourable exchange rates exporters or importers low oil prices charter holiday operator hot summer ice cream manufacturer
The CSFs might also be prioritised and given weightings according to their relative importance. This helps in further analysis, for example, when comparing the companys performance against that of its closest competitors.
Director Development Copyright Institute of Directors 2007 EMS reference notes 2007 Vn01FC Dec 06 Page 41
Director Development Copyright Institute of Directors 2007 EMS reference notes 2007 Vn01FC Dec 06 Page 42
Sales reports Opportunity and prospect monitoring EPOS customer purchase records Customer complaints Charge and loyalty card accounts Employee surveys Inventory records Accounting and finance reports
Director Development Copyright Institute of Directors 2007 EMS reference notes 2007 Vn01FC Dec 06 Page 43
Information gathered in this way can be used to assess customer profitability, to measure the productivity of marketing effort, sales conversion rates for example, and to identify customer buying patterns and customer payment profiles.
Usage behaviour i.e. How the products are used Motivation and attitudes Responses to company initiatives Process requirements in terms of purchase, search activity etc. Levels of satisfaction and comparisons with competitors Customer behaviour and decision processes Sources of information used Attitudes to prices Reaction to new product ideas Pre-testing promotions Measuring the performance of front line staff.
Director Development Copyright Institute of Directors 2007 EMS reference notes 2007 Vn01FC Dec 06 Page 44
Since the data is already available, it is important to confirm its relevance and reliability. Checks should be made on the original source of the data to ensure that it is totally objective, on the data collection and analysis techniques and on its age. Some examples of sources are given at Appendix 1.
Observation
Observation can be carried out mechanically using cameras or by eye, does not involve the respondent, they are normally unaware of the process. It is useful for the analysis of shopping behaviours, store layout design, traffic flow monitoring etc. Observation can also be used to gain a greater understanding of product-in-use behaviour, although it may not be possible to achieve this without the subject being aware of the process.
Experimentation
Experimentation is more than mere data gathering, it involves the attempt to measure the effects of controlled change significant variables. It is used, for example, to measure the effects of alternative pricing policies, alternative pack designs or store layout, advertising treatments etc.
Surveys
Surveys are the most frequently used data collection technique, they rely on collecting data from a sample of the population under investigation and using the results obtained to draw inferences about the population as a whole. The survey can be used to gather both quantitative and qualitative data, and may be continuous, (collecting data from the same respondent over time using a panel), or ad hoc (one-off) surveys. Particular applications may include on-street interviews, mystery shopper surveys, business-to-business interviews, customer satisfaction surveys etc. If the survey is to generate inferences about the population that are statistically valid it is most important to ensure that: 1. The sampling frame the listing from which the sample is drawn - is representative of the total population. 2. The sampling process produces a sample that is representative and of the correct size. Traditionally the survey could be carried out using three communications vehicles - post, telephone, or face-to-face. The internet is also now available. The characteristics of the three traditional vehicles are as follows:
Director Development Copyright Institute of Directors 2007 EMS reference notes 2007 Vn01FC Dec 06 Page 45
Postal
While the postal survey can offer advantages in terms of speed and cost in the correct circumstances it is limited to the collection of fairly simple information. It is difficult to control the identity of the respondent and to be confident of obtaining sufficient replies to be confident that the response is representative of the population under investigation. Similar problems may occur with the internet.
Telephone
Offers more flexibility than postal surveys, and can also be cost effective in the appropriate circumstances i.e. well targeted business-to-business. It is possible to control the identity of the respondent and, there is an adequate sampling frame - telephone directory. Care has to taken to control interviewer bias.
Personal, face-to-face
Offers the greatest flexibility and opportunity to deal with complex issues. It is also possible to control the identity of the respondent, use visual aids, use observation etc. Care has to be taken to control interviewer bias.
Other techniques
Other research techniques do not fall strictly into any of the categories above. The most notable is the focus group interview or group discussion. This is in effect a group interview designed to provide a richer flow of data than would be possible using a structured survey or questionnaire. It is normally used as an exploratory activity prior to a survey to complement the data gathered by the survey.
likely additional profit through identification of market opportunities avoidance of loss through costly mistakes estimates of the probability and the cost of failure of a project or product maximum loss expectation as a budget ceiling for marketing research.
In general terms, the less a manager knows about a marketing situation and the greater the risk attached to a wrong decision, then the more valuable the information becomes. Those undertaking primary market research normally must recognise that there is a trade-off between accuracy and budget. A sample size that provides a level of accuracy (plus /minus 5%) may be affordable but it may not be ideal. To increase the level above this level will normally require the sample size to grow rapidly and make the project difficult to justify. Market research agencies should be able to give advice about this trade off and indicate where the sample size make the reliability of the information suspect. Overall, it is important that the method of market or marketing research is chosen because it is the most appropriate method to solve the particular problem, and not because of the relative costs of the different types of research (see above postal research).
Companies may create an in-house Marketing Information System (MIS) or outsource the process. The question of outsourcing customer data raises fundamental policy issues as this may be considered to be the heart of the business and the real source of competitive advantage. Many marketing organisations now manage databases that provide the information companies require for their marketing intelligence. The type, scope, and quality of data vary to meet each company's particular needs. For a company to use marketing research to its full potential the board must have: A clear understanding of the scope of marketing information - directors must have a broad view of how it could support the companys activities, so that they can give full and well-thought out direction on the brief for the researcher. A long-term view of information - rather than commissioning marketing research in response to a crisis, or an individual problem or need, the board can gain much greater value from research that is ongoing and planned to contribute to achievement of the companys objectives. An appreciation of the value of information - directors need to be aware of the cost of all the elements of marketing research so that they can evaluate the research itself and not just react
Director Development Copyright Institute of Directors 2007 EMS reference notes 2007 Vn01FC Dec 06 Page 47
to a raw cost figure a long-term approach and an excellent brief for a thorough piece of work are more likely to produce valuable results than a short-term, ill-conceived project. An ability to handle complex research - they need to be well versed in the research objectives and techniques so that they can give a clear briefing at the outset and ensure that the end result is a coherent report which answers the questions asked and can be presented to the board as a basis for action.
Whether outsourced or in-house an MIS should have the components shown in Figure 2.1.
Marketing Analysis Planning Assessing Information Needs Internal Records Marketing Intelligence
Environment Target
Markets
Channels
Implemen -
Competitors Distributing Information Marketing Decision Support Systems Marketing Research Publics Macro -
tation
Control
environment
Figure 2.1 Marketing Information System Marketing information is so valuable that a marketing research plan should be made in parallel with the marketing mix plans. Otherwise information is unlikely to be collated, processed and distributed for the benefit of the organisation as a whole. It is more likely to remain in individual islands or simply never be collected at all. The important feature of the MIS is the interactive nature of the factors. All systems and information should be monitored and kept up-to-date.
Director Development Copyright Institute of Directors 2007 EMS reference notes 2007 Vn01FC Dec 06 Page 48
In-house expertise and ability of internal human resources to perform the research. MDSS/MIS availability (and appropriateness/quality).
4. Adequate financial resources available for quality research. 5. Adequate time available to make decisions if deadlines determine the research that can be conducted. 6. Managerial unbiased objectivity and ability to use and act on information if marketing mistakes are to be avoided. 7. Quality of research information: quality of the research process quality of the data and information obtained quality of the management decision process and implications for use of resources and implementation plans
8. Complex processes of international marketing research which is valuable in spite of cultural and language differences and higher costs.
Director Development Copyright Institute of Directors 2007 EMS reference notes 2007 Vn01FC Dec 06 Page 49
Ethical issues - research ethics include honesty throughout the research process; no manipulation, deception, fraudulent practices to achieve desired results, and respect for the rights of respondents and others. Bias issues - all sources of potential bias related to the researcher and the research process must be eliminated.
Director Development Copyright Institute of Directors 2007 EMS reference notes 2007 Vn01FC Dec 06 Page 50
Director Development Copyright Institute of Directors 2007 EMS reference notes 2007 Vn01FC Dec 06 Page 51
Learning objectives
Section 3 - Marketing strategy formulation
This section provides you with the knowledge to be able to: Specify the elements that form the basis for marketing strategy Identify the fundamental marketing strategy options Create and employ a product/market matrix Recognise and exploit the key concepts of differentiation positioning and branding to define marketing strategy
Director Development Copyright Institute of Directors 2007 EMS reference notes 2007 Vn01FC Dec 06 Page 52
Based on the internal audit, the board should have assessed which of the company strengths are most relevant to its customers and potential customers, and which might provide the basis of competitive advantage. The directors should also have identified any constraints embedded in the vision and mission statements or corporate strategy. These might include limited borrowing levels, commitment to a particular business, retention of a particular production site or selling to a limited market or in a specific geographical area. From the market audit, the directors should have listed the marketing assumptions and should refer to them in considering the strategic options. Essential components of the successful creation and execution of marketing strategy include: Strong support by the board directors have to direct, co-ordinate and motivate all those involved to keep a clear focus and maintain the momentum to become a marketing-led company. This must be continuous not once-a year Clear middle and junior management support managers who have contributed significantly to the marketing planning process will feel ownership and be more committed to its implementation and success. Written plans a real strategic marketing plan is fully described and not a numerical compromise Integration of marketing planning into the total corporate planning structure the board has to ensure that the interdependency of corporate and marketing planning is fully understood and acted upon.
The components of the business strategy are derived from the organisations values, culture and distinctive competencies. They set out its purpose and drive the marketing strategy.
Director Development Copyright Institute of Directors 2007 EMS reference notes 2007 Vn01FC Dec 06 Page 53
Business strategy Vision its highest level of aspiration; how it sees itself and wishes to be seen
Marketing strategy Marketing objectives based on the business strategy: sales revenue profit market share sales volume customer satisfaction some combination of the above.
Mission the functional aspect of the desired achievement, its role and business, distinctive competencies and future direction Goal the general statement of aim or purpose; for example, become more profitable Objective a quantified goal for the business; for example, achieve a 10% growth in pre-tax profit level in the next financial year
Strategy the flexible long-term route the organisation needs to take in order to deliver the Target market or segment strategies for the vision and objectives targets identified in the business strategy: Tactics actions that implement the strategy; 1. Set specific objectives e.g. profitability for example, work with suppliers to increase raw 2. Establish the competitive stance e.g. cost material supply chain efficiency leadership 3. Develop a positioning or branding strategy 4. Develop a detailed product or service strategyDevelop the marketing mix to implement the strategy 6. Assess capability and resources required to achieve objectives 7. Install control mechanisms Table 3.1 Business and marketing strategies Corporate targets are the aggregate of marketing targets. So, detailed marketing objectives are essential in developing the link between the corporate strategic plan and specific, actionable marketing plans. Each overall objective above will be achieved by through success in each market or segment the company competes in. The overall sales objective for example will be the aggregate of sales in each individual market, sales area, and for each sales person.
Director Development Copyright Institute of Directors 2007 EMS reference notes 2007 Vn01FC Dec 06 Page 54
Director Development Copyright Institute of Directors 2007 EMS reference notes 2007 Vn01FC Dec 06 Page 55
The marketing strategy needs to vary according to the propensity of customers to accept innovation. Rogers (2003) estimated the proportions as follows in decreasing likelihood of adopting an innovation from its initial launch - 3% innovators, 13% early adopters, 34% early majority, 34% late majority and 16% laggards.
Sources of revenue
1. Retained business from current customers - customer retention The company identifies the most valuable current customers and provides the resources required to maintain their business. The Pareto Rule indicates that about 20% of customers are found to deliver 80% of the companys turnover and profits. Research shows that this is the most cost-effective source of business so it may warrant running a customer retention, loyalty or key account programme. 2. Incremental business from current customers customer development The company focuses on current customers who have unsatisfied needs or buy competitor products. The most common reason for them not increasing the level of business with a particular firm is their lack of knowledge of what it has to offer. Other reasons include changing circumstances and ineffective company communication or poor customer relationship management (CRM). This reveals the need for an ongoing relationship between buyer and seller that adds value for both parties. Companies are increasingly concerned with maintaining long term customer contact and viewing the customer as a strategic asset to be invested in to generate returns. The current customer base should be rigorously analysed but only those representing real opportunity should be targeted. Equally there will be circumstances (rapid market growth for example) when it makes sense to recruit new customers.
Director Development Copyright Institute of Directors 2007 EMS reference notes 2007 Vn01FC Dec 06 Page 56
Another analysis is to assess the average customer life of existing customers. If 20% of customers are lost each year, the retention factor is 80%. If a particular strategy increased the retention rate to 90%, it would result in a very positive effect on net profit and cash flow. The challenge is to identify the marketing and sales tactics. 3. New business from new customers - customer acquisition The company identifies those non-customer groups who might be persuaded to buy from the company, and establishes an appropriate communication strategy for each group. The sources might be: Market expansion resulting from increasing levels of affluence, changes in customer priorities, increases in usage rates - strategy focus will be improving supply and distribution coverage and the extension of awareness through promotion. Entering new markets - strategy focus will be awareness creation, distribution coverage and competitive pricing. Taking customers from competitors - strategy focus will be competitive pricing (cost leadership) and/or differentiation, probably through superb customer service.
These three sources are not equally important in every circumstance. Where, for example, a company already has a large share of the market, customer acquisition will be difficult and costly. Resources therefore, may be focused on the retention and development of current customers, or the search for new markets. In an area of rapid market growth, the opportunity for acquiring new customers will demand appropriate capability. Whichever approach is used success will depend upon the ability of the firm to offer and maintain a level of perceived value higher than any actual or potential competitor.
Sources of profit
The four sources of profit include the three above, plus customer divestment. 4. Customer divestment The customer may always be right, but may not necessarily be the right customer. These are customers whom the company can only satisfy at greater cost than the profit they generate. The clearing banks are struggling to maintain a branch based banking service throughout the country. There is an emotional engagement with the concept of the local bank but in practice fewer customers use their local branches. Many villages and housing estates have no banks or post offices because the customers are the so-called wrong customers.
Director Development Copyright Institute of Directors 2007 EMS reference notes 2007 Vn01FC Dec 06 Page 57
3.3 Strategy for exploiting the opportunities differentiation, positioning and branding
3.3.1 Competitive strategy
The company must choose a competitive stance that will overcome, or at least match, the competition. It must, for example, be able to compete on price in a price sensitive market, and on quality, however customers perceive it, where quality is the key customer concern. Porter (1985) describes three generic strategies for companies. (See Strategic Business Direction Section 3.) These should not be seen as mutually exclusive for a particular business because it is possible and sometimes necessary to pursue a combination of strategies to compete in different markets. The marketing issues Porter raises are summarised here.
Differentiation
Differentiation is the process by which the supplier creates a position in the perception of the target customer that their product is more highly valued than that of competitors. The purpose of differentiation is to increase either sales or margin, or both. To achieve differentiation the company must concentrate on being seen to be exclusive so as to gain customer loyalty to the brand or company and make the product less price sensitive. Higher margins provide revenue with which to defend the products position. However, each difference created in the perception of the customer has the potential to create costs as well as customer benefits and has to be managed carefully
Director Development Copyright Institute of Directors 2007 EMS reference notes 2007 Vn01FC Dec 06 Page 58
Differentiation applies to the companys total offer, and can come from a number of sources: Product or service Features in addition to basic function Performance Durability Reliability Style, including packaging. Image Symbols logo, letterhead Communications advertising. Point of purchase premises. or delivery, transport, Customer service Delivery availability, accessibility, speed Installation Before, during, after-sales Customer support consultancy advice, training,
Incentives to purchase, stock HR recruitment, training level. Price Lower price Better value.
Focus
With a focus strategy the company concentrates on meeting the needs of a narrow market rather than trying to appeal to a broad range of customers. This strategy can achieve the aims of one or both of the other two generic strategies, but only for a smaller and more clearly defined market sector. Focusing on a narrow market means a company can achieve a high share and create cost efficiencies that allow either lower prices or higher margins than the less focused competitors. This should provide a defensible position, though only for the narrow market in which it operates.
Director Development Copyright Institute of Directors 2007 EMS reference notes 2007 Vn01FC Dec 06 Page 59
There are three key factors in this definition: 1. A company needs to differentiate a product's position from that of competitors otherwise it will sell on price alone. 2. Position exists in the minds of customers - not in the minds of the supplier's, managers or marketers. 3. Position is about product image rather than the features of a product. Positioning is regarded as a natural extension of segmentation as it adds a direct comparison with competitors. For example, in the UK Volvo Cars positions itself as associated with family safety and reliability and, to a lesser extent, with prestige and high status. This enables Volvo to appeal to specific market segments and to command a premium price. Volvo Trucks, however, positions itself on quality and support by guaranteeing an engine replacement within 24 hours anywhere in Europe. The positioning process requires the supplier to: Identify the target market Determine specific customer wants, needs, benefits desired Analyse attributes and perceived images of present and potential competitors Compare the product's position and that of competitors on each dimension valued by customers (perceptual mapping) Identify a unique position that offers desired benefits to the target market that are not offered by competitors Design a marketing programme to communicate these benefits and persuade customers Continue to assess present and potential target markets, competitors, and marketing efforts.
The positioning statement then becomes the value proposition. A number of approaches to positioning by market status have been demonstrated: Be the first - the strategy most likely to succeed; Heinz, Kellogg, Coca-Cola were first and remained so.
Director Development Copyright Institute of Directors 2007 EMS reference notes 2007 Vn01FC Dec 06 Page 60
Strengthen your own position - promote a particular factor; Avis was number two to Hertz in the US car rental market and adopted the slogan Were number 2. We try harder. Search for an unoccupied position - find a gap; first direct did this with telephone banking. Depose or reposition your competition - a risky head-on assault on a competitor; the Wendy hamburger chain showed TV ads with a customer looking at a named competitors burger and asking Wheres the beef?
Other commonly used positioning strategies are based on product attributes, price and quality, use or application, product user, product class, competitors, benefits, problem solutions, or basic needs.
P e r c e p tu a l M a p p in g
H ig h Q u a lity
L o w P r ic e B
H ig h P r ic e ? C D N e w e n tr a n t L o w Q u a lity
Figure 3.1 Perceptual map A perceptual map illustrates the way customers view a brand against competitors brands relative to the main criteria they use to choose between products. Customers normally use a range of criteria but those shown are price and quality. This is a common combination. The products have been mapped onto the diagram with the area of the circle representing the volume of sales. B is the market leader with the largest share and a middle of the road position. A is a smaller volume product with a high quality, high price position. C is the economy supplier with lower quality and price. Ds position of low quality and high price is untenable in the long run. In the 1990s UK car market A could have been Mercedes, B Ford, C Skoda and D Jaguar. In 2003 both Skoda and Jaguar held their prices but shifted significantly upwards by raising quality. Both ran into perception difficulties and Skoda took this problem head-on by focusing its advertising on it. One TV campaign showed a trainee in a car plant carefully aligning and sticking Skoda badges on bonnets of small cars. When some luxury saloons came down the line he stopped work to let them pass. The production line was then stopped and the cars backed up to get their Skoda badges. For a marketing strategist there are three basic alternative positioning strategies: 1. Defend and strengthen strong attributes. 2. Seek unfilled positions (perhaps with different combinations of attributes). 3. Reposition, alter the emphasis of the offering in terms of the attributes or create new attributes.
Director Development Copyright Institute of Directors 2007 EMS reference notes 2007 Vn01FC Dec 06 Page 61
Positioning is not only significant in the external market; it also has great importance inside the organisation. The positioning strategy has to be understood and supported by those responsible for delivering customer value if it is to be effectively communicated to customers. It will form the basis upon which the marketing strategy is implemented and will largely determine promotional strategy, pricing, product/service quality, processes, people, and distribution.
3.3.3 Branding
Branding is a particular marketing strategy designed to increase the value of the offer in a way that will endure in the perception of the customer. A brand is an identifiable product or service presented in such a way that the buyer perceives relevant unique added value. The success of the brand results from its being able to sustain the perceived added values in the face of competition and over an extended period of time. This ability to sustain the position of the brand is often referred as the brand equity, or power in the market place. Brand equity can lead to a price premium, together with extra volume, and an increase in the amount a company is worth over book value. The brand should have an identity that appeals to the customer and a simple, distinctive and communicable name that suggests the product qualities and benefits. The value of brands is increasingly recognised and companies are making every effort to exploit this valuable asset. The success of internet trading has made brands even more valuable as they facilitate a reduced-risk purchase by the customer.
To achieve these advantages the company must commit itself to rigorous quality control and invest long-term in appropriate updating and repositioning as required. The potential risks lie in failing to achieve the consistent high quality performance required for longterm success, particularly in the context of the umbrella brand. One example is the domino effect if the reputation of the brand suffers and the damage spreads throughout the range. Management complacency may arise where the power of the brand is taken for granted and insufficient investment is made in maintenance and improvement. The successful brand is: an identifiable product, service, person or place augmented in such a way that the buyer or user perceives relevant unique added values which match their needs most closely. Furthermore, its success results from being able to sustain these added values in the face of competition.
de Chernatony (1996)
Director Development Copyright Institute of Directors 2007 EMS reference notes 2007 Vn01FC Dec 06 Page 62
By contrast Virgin has taken the umbrella branding route, created the company itself as the brand and has the following subsidiaries: Virgin Active, Virgin Atlantic, Virgin Atlantic Cargo, Virgin Balloon Flights, Virgin Blue, Virgin Books, Virgin Brides, Virgin Comics, Virgin Cosmetics, Virgin Credit Card, Virgin Digital UK, Virgin Drinks, Virgin Experience Days, Virgin Express, Virgin Galactic, Virgin Games, Virgin Holidays, Virgin Jewellery, Virgin Limited Edition, Virgin Limobike, Virgin Megastores (UK), Virgin Mobile, Virgin Money, Virgin Radio, Virgin Trains, Virgin Unite, Virgin Ware (UK), Virgin Wines, Virgin.com and Virgin.net.
www.virgin.com (2006)
There are also eight unbranded companies in the Virgin UK stable but these are charities or small specialist firms for which the brand has no value. In July 2006 NTL acquired Virgin Mobile and paid 926 million, a substantial amount of which was for the use of the brand over the next 25 years. The cable operator re-launched itself and Telewest as Virgin Media, a very good indication of the financial value a brand can represent. In 2003 Coca-Cola was widely regarded as a joint company-product brand but its top five brands were Coca-Cola, diet Coke, Fanta, Schweppes and Sprite. Of its 29 other products on sale in Europe, only five carried a Coke-related brand name: Alive, Aquana, Aquarius, Bonaqua, Burn, caffeine free Coca-Cola, caffeine free Coke light, caffeine free diet Coke, Canada Dry, Cherry Coke, Coca-Cola Light with Lemon, Cresta, diet Fanta, diet Coke with Lemon, diet Sprite, Dr Pepper and diet Dr Pepper, Fanta light, Five Alive, Frutonic, Hawaii, Kia-Ora, Kinley, Lilt and diet Lilt, Malvern, Minute Maid juices and juice drinks, Oasis, POWERade, Roses, Sprite light
www.coca-cola.com (2003)
In 2006 Coca-Cola listed on its website 372 different worldwide brands but only 13 were Coca-Cola drinks. In 2003 Coca-Cola was reported to be investigating the production of a milk beverage to add to its range. In 2005 it had become a supplier of flavoured milk drinks by making a distribution deal with Bravo! Foods that included the opportunity to take a minority shareholding in the producer. Dell traded on its brand for many years but changed its marketing strategy by entering the white box market to increase production efficiency. The brand value continued to grow, so the company changed its marketing strategy again in 2006:
Director Development Copyright Institute of Directors 2007 EMS reference notes 2007 Vn01FC Dec 06 Page 63
Dell boxes
Dell built its PC business by creating a brand of the surname of the owner, Michael Dell, that was synonymous with service, quality and the cost advantage of direct marketing, initially by mail and telephone order and subsequently via the internet. In 2002, it began to supply unbranded PCs to IT consultancies that worked with SMEs in an effort to capture part of the so-called 'white box' PC market previously dominated by IBM and HP. Dell's initial target was 1% of its turnover but worldwide 58% of all PCs sold in 2001 were white boxes. Dell's unbranded strategy is designed to enable the company to increase volume and, thus, production efficiency. In 2004 it became the leading US PC supplier and in 2006 abandoned the white box market as its brand equity had risen strongly and become a major sales element.
The potential level often comes when competition is fierce and brand leaders are forced to offer these extra benefits. Kitchen suppliers offer a design service. Food manufacturers offer a shelf space planning service to their retailers. Sometimes this can be used positively to win high market penetration. Mars offered retailers Mars-branded freezers to display their newly launched ice cream and secured a huge share of the market before competitors had time to react. Companies may progress through the levels over time as competition increases. A safer and more professional approach, however, is to predict a brands life cycle and plan the actions accordingly over a longer period. This becomes strategic brand planning.
Director Development Copyright Institute of Directors 2007 EMS reference notes 2007 Vn01FC Dec 06 Page 64
The brand can differentiate a product or service from other, similar ones. A well-supported brand will be able to communicate in its name a set of values that would otherwise take too long to explain to the potential buyer. In this sense brands are risk-reducers: customers will buy a well-known brand because they feel that their money is unlikely to be wasted on a sub-standard product. One example is IBM computers in the business-to-business market: other computers offer better facilities at a lower price, but the phrase nobody ever got fired for buying an IBM seems to have proved an effective promotional tool. IBM maintained brand leadership over many years but has sold its PC interests to Lenovo, a Chinese company. Brands can represent functional messages such as technically advanced, reliable or value for money which would otherwise be cumbersome to repeat. They can also provide a badge value, enhancing their image in the customers eyes, for example as: Fashion-conscious brand names on clothes Independent-thinking choice of newspaper Fun-loving particular drinks, perfumes
In markets where there is little difference between products, the brand can become a symbolic device, communicating strongly the emotional aspects of the products to establish consumer preferences. Clearly, this is a more effective tool in consumer markets than in industrial markets, where a higher proportion of the influences on decision-making are rational. Finally, the brand can be a legal device, protecting the company through effective trademark registration. All these brand functions are, however, only useful if the brand is seen as a central factor in the companys strategy. The successful company will carry out brand planning alongside marketing planning and brand building to ensure that their resources are used in the most cost-effective way to achieve well-defined objectives. To be effective, brand planning should receive input from all levels of the organisation. There should be clear and quantifiable objectives for each brand and actions defined to achieve those objectives. Clear responsibilities and timings must be added, so that results can be monitored.
Companies need to develop strong relationships with partners, customers and suppliers in order to gain trust, relevance and value within a category. An example of collaboration as a feature of a B2B brand is Sun Microsystems' establishment of Java as an essential element of internet technology. Sun has excellent relationships with developers. It offers training and programming advice, gives easy access to developments in the language and works very closely with all parties involved with its technology, including hardware engineers, chip designers, and software developers. The brand power of Java is so embedded in the web industry, that it is almost inconceivable that the programming language could ever be displaced as the de facto standard for Internet application development. Technical innovation is another feature of a B2B brand. In the late 1990s the airline industry saw a major shift away from the Boeing 747 derivatives towards the Airbus series designed and built by a European consortium. A critical factor for airlines is fuel efficiency which the Airbus delivers as a result of the innovative use of strong but lightweight materials. In 2006 a two year delay in delivery of the 600+ seater A380 caused enormous damage. Underlying all B2B brand qualities, and closely associated with them, must be consistency of the personal relationship and a strong partnership between supplier and purchaser. Researchers at Cornell University found that trust and effective communication were particularly important to foodservice purchasing agents. Turnover in supplier representatives was one of the most troublesome challenges facing purchasers.
Director Development Copyright Institute of Directors 2007 EMS reference notes 2007 Vn01FC Dec 06 Page 66
SALES
In t r o d u c t io n
G r o w th
M a t u r it y / S a tu ra tio n T IM E
D e c li n e
Figure 3.2 Product Life Cycle At its launch a brand has no personality of its own. An established company name or related brands may provide an umbrella, but the brand will still need to establish its own identity to achieve customer acceptance. The speed with which the company can achieve this acceptance will depend on a number of factors in an effective and well-planned marketing strategy. A new brand in a young market will need to focus on its practical or functional advantages over the competition. As the market matures and functional differences between brands become fewer, the brand will need to rely increasingly on its symbolic advantages to appeal to the non-rational side of the customers decision-making process. In modern and especially in high-tech markets, the product life cycle is very short and competitors are extremely quick to launch me-too products. Effective brand support is essential, as the cost of delays in launching products can be very high. The brand lifecycle may actually be significantly longer than the product lifecycle. So, advertising campaigns that may seem vastly expensive can often be justified by their role in establishing, strengthening or maintaining the brand. Being first with a successful brand can carry a high premium in profit potential. With effective marketing support, a brand that gains an early competitive advantage may be hard to displace. The company reaps the benefits of economies of scale, as well as the experience effect (where each doubling of output produces a finite saving in costs). In addition, it becomes easier to achieve and maintain brand leadership, as buyers see the brand name almost as a generic term for the product. Examples of this are common in the pharmaceuticals market, where GPs tend to prescribe branded drugs rather than the generic equivalents. Apple computers dominate the graphics business even though the same software is now available as a cheaper total offering on IBM-compatibles. On the other hand, there is a risk. Jeep, Hoover and, in France, Frigidaire or 'le frigo' are now generic terms and have lost their associations with the brand. The pioneer of a product can expect to gain a higher percentage return on investment than early followers, with the percentage return for late entrants being even lower. As the relative investment needed tends to decrease over the life of the product, this difference will probably be even greater in monetary value than in percentage terms.
Director Development Copyright Institute of Directors 2007 EMS reference notes 2007 Vn01FC Dec 06 Page 67
During the growth phase of a market, an established brand will need to reinforce its positioning with communications reaching both target and non-target groups. Distribution networks and sales channels can also be used to present the brand to its target audience and to discourage nontargets in such a way that the target is less likely to switch to incoming me-too brands. For example, a designer clothes range may be limited in distribution to a few carefully chosen designer shops, with both supplier and stockist agreeing to a degree of exclusivity. The supplier could agree not to offer the range to any other outlets within a certain geographical range; the shop could agree not to stock certain rival labels. As the market reaches its mature phase, the brand will be under considerable pressure from competitors. There are a number of options, including: extending the brand name to related products; ICI added wall coverings to its Dulux paint range reinforcing promotional messages to focus on one aspect of the brand; Black & Decker made DIY easier with high-powered tools and Gucci focused on the chic sophistication of their clothes.
Once the decline begins, it may be best to remove a brand if it is likely to damage the rest of the companys portfolio. It may die slowly if it can provide a worthwhile return on a low investment. On the other hand, it may be possible to recycle a brand, as achieved with Guinness being relaunched to appeal to a younger market. Such a re-launch is only possible if the core values of the brand have been maintained and the consumer response to the brand name has not been irretrievably damaged. Repositioning may be possible even if the brand is tarnished or old fashioned, but it is expensive. Lucozade, for example, was removed from its hospital pick-me-up context and re-launched as a sports and energy drink.
Director Development Copyright Institute of Directors 2007 EMS reference notes 2007 Vn01FC Dec 06 Page 68
Objective
Director Development Copyright Institute of Directors 2007 EMS reference notes 2007 Vn01FC Dec 06 Page 69
The approach also has uses for the longer term. The future for most organisations will be defined by the combination of products and markets they manage and how successfully they manage the changes therein. The fundamental matrix above can be used to 1. Attempt to forecast the product/market configurations most likely to occur. 2. The performance necessary from the organisation if it is to achieve its objectives. 3. The level and direction of investment needed to achieve the performance.
Director Development Copyright Institute of Directors 2007 EMS reference notes 2007 Vn01FC Dec 06 Page 70
4. Types of market to enter a. developed b. developing c. under developed. Country attractiveness is influenced by many factors, and they may vary in their level of importance, depending on the circumstances of the business. Ease of entry and ability to service customer requirements will be high on the list of priorities, and these will be influenced by considerations of geographical and cultural proximity (including language).
Licensing
A company can make a licence agreement with an organisation in another country to manufacture and supply its product or service. As the cost of licensing tends to be low, fees and commissions can be a significant addition to profitability. It is an attractive alternative to direct investment and/or overseas operations as a means of gaining market entry. It is particularly useful for developing a well known brand globally. Franchising, which has a similar effect, is widely used by companies such as McDonalds. There is a risk that the licensee may become a competitor, particularly where technology transfer has occurred and there is little brand recognition.
Joint ventures
A partnership between a domestic firm and a foreign firm or government may be used to spread the risk where a significant investment is required. Joint ventures are often politically necessary, and can also provide legitimacy for the local customer base and valuable knowledge and experience of the local market. The joint venture can be difficult to manage, control is often a problem and the partners do not always have the same goals and expectations from the relationship. Strategic alliances are the latest form of co-operation between companies. They are similar to joint ventures in that they seek to pool resources and know-how in pursuit of a mutually beneficial goal. They suffer from the same problems of control and management. They are different in the sense
Director Development Copyright Institute of Directors 2007 EMS reference notes 2007 Vn01FC Dec 06 Page 72
that they are normally entered into voluntarily and they are not restricted to one partner always being the representative of the local market. They are, therefore, truly global alliances.
Trading companies
A trading company provides a link between buyer and seller. They normally deal in commodities (e.g. grain, agricultural products etc.) and often operate a quality control mechanism on behalf of the buyer which assists the seller to produce the appropriate offering. They take title to the product and are responsible for all physical transfers. They may also provide a wide range of ancillary services, e.g. consultancy, market research, advertising, insurance, R&D, legal assistance, guaranteed price packages etc.
Direct ownership
The ultimate commitment to international operations is direct ownership brings major advantages; improved control, inward investment incentives, enhanced image in local market through investment, job creation, a better relationship with the local market and greater knowledge of business drivers. These features enhance the competitive advantage through more effective adaptation to local conditions. In whatever way the firm decides to become involved in an international operation the best tenets of marketing still apply in terms of the need to understand customers and the issues that determine their needs and behaviour.
Product / Service
The three fundamental alternatives available to the company are: Offer the same products/ services as there is no need to change Adapt products/ services to meet specific local conditions Invent new products/ services specifically for the new market. The last category may take two directions technologically forward or backward. It may sometimes be necessary to use earlier forms of technology or earlier versions of the product/service, or to combine old and new technologies (e.g. clockwork radio).
Promotion
The organisation will almost always need to adapt the communication programme in some way to take account of different cultures and languages. Even where language is not a barrier, culture may be, perhaps only in relatively minor ways. The use of the various alternative promotional techniques must be carefully planned, particularly the combination of personal and non-personal formats, in order to meet local expectations. They must also take into account the communications infrastructure. The availability of media and other services cannot be taken for granted in some parts of the world, and in others there are differences of approach.
Director Development Copyright Institute of Directors 2007 EMS reference notes 2007 Vn01FC Dec 06 Page 73
Price
Price is a particularly sensitive area for the international operator due to fluctuating currency values and interest rates. Generally the company must take account of local market rates, the risk factors, the perceived value of the brand, the response of competitors and the cost implications of selling in the particular market when setting the price. They should also be aware of the quality and expectations of the distribution method or channel they have selected and of the influence it might have over the final price charged. In addition, it is vital to consider the policies of the national governments on price controls and levels of taxation.
Distribution
The distribution element has two major facets: 1. Channels between nations, which are concerned with managing intermediaries, logistics, finance and risk. 2. Channels within nations, which are concerned with managing the process by which the goods are distributed from point of entry to the customer. Distribution infrastructure varies considerably in terms of the level and complexity of the process. It is, however, a key element in determining the customer satisfaction and obtaining payment. Control or influence over distribution is often thought of as a critical success factor in international operations. It is important to be aware of the impact of political instability on distribution infrastructure and to make appropriate provision to avoid loss, through insurance etc.
Director Development Copyright Institute of Directors 2007 EMS reference notes 2007 Vn01FC Dec 06 Page 74
Director Development Copyright Institute of Directors 2007 EMS reference notes 2007 Vn01FC Dec 06 Page 75
Learning Objectives
Section 4 - Marketing Tactics
This section provides you with the knowledge to be able to: Compare and contrast service and product marketing and specify the role of the seven mix elements Specify the essential ingredients of a customer focused organisation Show how Information Technology changes how marketing strategy can be created implemented Use an objective and systematic approach to monitoring and controlling the marketing effort.
Director Development Copyright Institute of Directors 2007 EMS reference notes 2007 Vn01FC Dec 06 Page 76
The function of the product mix is to satisfy the needs of targeted customers and segments at a profit. The objectives are to maintain the effectiveness of the current mix and extend it by developing new products to satisfy customer needs in the future. The justification for adding or deleting products from the mix depends on changes in: The profit contribution of a product or line to the overall profit target The extent to which the organisation can vary its strategy to maximise the opportunities offered by different segments. Anticipated changes in customer requirements. Sensitivity to time related variables such as seasonality. The level of marketing support available for the product The interdependency of sales between products in the mix The impact of competitors on product decisions and of product decisions on competitors The performance of a modified or improved product. Continuous emphasis on creativity, innovation and new product development depend on the effective management of six fundamental steps: 1. Idea generation using a variety of in-house and external sources and techniques
Director Development Copyright Institute of Directors 2007 EMS reference notes 2007 Vn01FC Dec 06 Page 77
2. Screening to eliminate the unlikely ideas 3. Business analysis to estimate the likely future costs, revenues, profits and cash flows 4. Concept testing among the likely target customers 5. Product development of the physical product or tangible service 6. Product testing to discover the level of acceptability of the product to the target customer and test marketing of reactions to the anticipated marketing programme. Developments to products vary from minor modifications to major changes - from new improved versions to extensive technological breakthroughs. A systematic and continuous approach to NPD helps to ensure a constant supply of new offerings. This protects the organisation from pressure on margins, reinforces consistent differentiation and contributes to a viable competitive position.
2. Pricing policies
Pricing policies reflect the joint requirement to provide competitive value for customers and an appropriate return for the shareholder. This may involve broader decisions about investment in cost management and/or the withdrawal from markets where the balance between customer value and shareholder value cannot be maintained. The companys revenue from a product is a function of price times volume. Its profit is the result of revenue minus the costs associated with producing and marketing the product. The overall pricing strategy must be consistent with both the generation of revenue and the recovery of the costs involved. When an organisation offers several products in a variety of markets their pricing strategy will vary according to the conditions prevailing in each market. Each product/market combination will have a different configuration of price and cost and will make a different contribution to the profitability of the organisation. The organisation has to manage the mix of contributions to achieve its overall strategic objective. To reflect the notion of value, price has been defined as: The monetary summation of the conditions that give value to a product or service
W M Lazer (1983)
"The conditions that give value" are different for the seller (profit, survival, cost coverage etc.) and the buyer (value for money, satisfaction, uniqueness etc.). As they vary also for different customers and consumers of the organisations offering, the company must pay close attention to the customer in the price setting process. Price is not defined entirely in financial terms. The whole price is the financial, physical and psychological effort that the customer must expend to obtain the product. Potential customers who have the money may fail to buy because they do not feel they have the physical or psychological access they need. The pricing process has to acknowledge this factor. Although it may not be the primary purchase driver, the price has to be right. The process of setting it has to take into account The companys objectives in setting a specific price The basic cost structure Overall level of demand in the market
Director Development Copyright Institute of Directors 2007 EMS reference notes 2007 Vn01FC Dec 06 Page 78
Competitive environment (number, position and respective power) The average market price The relationship between price and benefits The opportunity for differentiation The perceived use value of the product to the customer Role and power of channels of distribution The marketing activities.
Alternative pricing policies include: Promotional pricing - a medium term move starting with a low price to attract business and the longer-term aim to raise the price once a significant market share has been established Penetration pricing - the reduction of prices by a sizeable amount for a pre-agreed period in support of promotional activity Target return pricing - target return price = unit cost + desired return x investment capital unit sales return Break-even pricing - breakeven volume = fixed cost price variable cost Perceived value pricing the reflection of the real value to the customer with price premiums linked to tangible benefits Sealed bid or competitive pricing the response to a detailed specification so the price incorporates the notion of expected value and real value Market skimming pricing the premium commanded by a high price for a new product when it is first in the market and there is no immediate competition.
3. Place
Place is concerned with the means by which customers gain access to the product or service offered by the seller. Place, delivery or distribution systems aim to achieve an appropriate level of customer service at an acceptable cost. The ability to offer availability, fast service, just-in-time delivery and materials handling is often the determinant in the purchase decision. The marketing channel The supplier may deliver the product directly but it is more common to use independent distributors, collectively called the marketing channel. The board must decide whether to undertake or outsource the distribution processes that may include: transportation traffic management storage materials handling, order processing bulk breaking and reassembly
Director Development Copyright Institute of Directors 2007 EMS reference notes 2007 Vn01FC Dec 06 Page 79
inventory management packaging & labelling pricing promotion production scheduling information management overall channel management. Because distribution is expensive, efficiency is an important competitive element. Efficient channel management depends on a detailed understanding of the means by which all members of the channel create value for their customers, a willingness to improve systems and collaborate with channel partners, and a continuous search for innovation. Channel power such as that exercised by supermarket buyers must also be managed.
4. Promotion
Promotion, or marketing communications, can be used to create and maintain a corporate image, or promote a particular product, or create an internal climate for success. The funding for communication and promotion of the product has to be sufficient to support the strategic promotional campaigns to achieve the necessary levels of awareness, interest and action over the long term. Pull promotional activity, such as price cutting, is directed at the final customer and aims to increase demand and pull the product through the distribution channel. Push promotions are aimed at the intermediary to persuade middlemen to carry and push the product to the final or next customer in the supply chain. Traditional communications media have different qualities. Some, for example broadcast media advertising, can only send messages one way even though they may be complex and creatively rich. Others, for example direct mail and POS, offer simple response systems. Modern IT systems enable more sophisticated responses. Only face-to-face personal selling offers the complete, twoway, interactive, real time, communications package. Most promotional activities use a combination of advertising, sales promotion, personal selling and public relations. Their effectiveness is extremely difficult to measure. A distinction is still drawn between above the line promotion that involves the purchase of space or time in the media and below the line does not, although it may involve expenditure on incentives and/or attention seeking devices. Worldwide web IT and the internet have produced a radical shift in the traditional assumptions about promotion and communication. The board has to review its use of established communication media to determine how to create and use a presence on the web. So-called 24/7 worldwide access enables the company to promote itself to potential customers and enable them to buy directly. The company can target small and detailed segments of customers and send them messages precisely tailored to their interests and check that the message arrived. Web enabled marketing channels are re-shaping the way businesses communicate and trade with their customers:
Director Development Copyright Institute of Directors 2007 EMS reference notes 2007 Vn01FC Dec 06 Page 80
Viral marketing (where customers do the work and pass on the message on the organisations behalf to their contacts) becomes dramatically more effective via the internet Blogs create a new route for honest and authentic opinions of products, services and situations On-line trading has created entire new enterprises as well as new income streams for established firms Cost per click changes the way that advertisers can use a more results oriented arrangement to pay for customer exposure. In addition, digital media channels enable sharper targeting. Direct response marketing mechanisms work in parallel with direct delivery of products. Their auto responders suggest other possible purchases to customers based on automated analyses of their profiles. No one is certain what the ultimate evolution of marketing will be as a result of the use of information and communications technology. People are generally confident that it will involve fundamental business re-modelling and not just traditional marketing processes being made quicker. The board in every company needs up-to-date knowledge and skills in judging which of these might be appropriate for their business.
Other elements
These four elements combine to satisfy customer needs for physical products and for services. The board needs to ensure that three further elements essential to a marketing strategy, especially for services, are in place. Directors may find a fourth on the horizon.
5. People
People strategies enable the staff to make significant contributions to the success of the organisations marketing strategy. The company creates value for its customers through excellent customer service, efficiency, innovation and so on, and people are sometimes the only tangible element of the service transaction, and more often than not a critical factor in the creation of quality.
6. Processes
There are processes that support and enable the implementation of the marketing strategy. Effective and efficient process management is vital for both products and services, it is important to note however that process failure in the pure service context may mean failure of the service itself, particularly where the outcome is time sensitive. A service cannot be stored.
7. Physical evidence
The physical evidence supports both the internal and external positioning strategy. This evidence is the literature, premises, uniforms etc. that are associated with the offering of the company in all its forms.
8. Personalisation
Personalisation, individualisation or mass-customisation have been variously proposed as the eighth element in the marketing mix. Some companies are basing their relationships with customers on customising or tailoring goods and services to the individual needs and wants of
Director Development Copyright Institute of Directors 2007 EMS reference notes 2007 Vn01FC Dec 06 Page 81
each consumer. One-size-fits-all is no longer the offer. Every Dell PC is made from standard components to a customers specification. The motor and clothing industries are taking the same route.
Implications
The mix has both strategic and tactical implications, in the longer term the organisation is attempting to create advantageous positions in its various markets taking into account the need to generate returns for stakeholders, the impact of broad-scale elements as well as the strategic intentions of competitors. In the short term the elements will be used to respond to detailed movements in the market such as changing customer needs, competitor activities etc. and to gain tactical advantage. For example: Mix Element Product/service Price Promotion Distribution People Processes Physical evidence Tactical Issues Detailed modifications Minor adjustments Positioning/branding Channel management Day to day management Process management Attention to detail, e.g. cleanliness Strategic Issues New product development Shareholder value Brand building Logistics and channel strategy Recruitment and training Systems development Design and control of overall physical appearance
Table 4.1 Marketing mix tactical and strategic issues The allocation of resources to the mix elements should be determined by the contribution that each element is expected to make to the achievement of marketing objectives. In practical terms, this is difficult to calculate. Decision makers must analyse the requirements of customers, their propensity to respond to different mix elements, and the activity of competitors. The examples below illustrate the point. 1. Customers expressing a dominant preference for availability and convenience are likely to respond favourably to improved distribution and access. Investment in this area is likely to reap greater returns than if it were used for promotion for example. 2. Customers concerned for quality will respond favourably to investment in good quality products and services rather than discounts. (quality must be defined in terms that the customer can understand, this may not be the same definition as that used by the maker.) 3. Other customers may express a preference for price competitiveness and therefore investment in cost management, efficiency etc. is likely to pay dividends in the market. 4. Customers concerned primarily with image may respond investment in to sophisticated and well managed promotional activity. These examples are not intended to be definitive. Nor would they be necessarily mutually exclusive in the case of a single product or service, customers may, and often do, want a combination of all the qualities mentioned above. Even though they may prioritise them differently there are minimum performance standards, common to the market, below which the seller cannot fall. Each element of the mix can be judged in terms of its performance against its own objectives (for example advertising may have an output in terms of the creation of awareness and a budget to
Director Development Copyright Institute of Directors 2007 EMS reference notes 2007 Vn01FC Dec 06 Page 82
achieve this). The objectives for each element should have been set in terms of the role of that element in achieving the overall plan. It is important that the contribution of the elements, acting in concert, is assessed. Control should be exercised in terms of the balance of investment between the different mix elements.
Directors need to develop their knowledge of how the combined power of computing and electronic communication can contribute to their business. The features they should consider include: Serving customers - adopting new tools to help better understand customers and new ways to work with customers. Creating new value - using research information to create added or new value at premium prices. Co-operating with new partners contracting out the security of the transaction function to infomediaries or gaining rapid access to new markets through complementary partners. Delivering on commitments - ensuring back office systems and delivery networks integrate well with the new e-sales front office. Charging - taking advantage of transparent charging in e-sales to link prices directly to the value offered. New competition - building into the business model a response to lower costs of market entry allowing competitors with a powerful existing brand to target a slice of the action. Culture - integrating traditional channels with e-business options, and developing the correct mix of people skills in the organisation to deliver these new options. Cost - increasing efficiency in all internal procedures.
Director Development Copyright Institute of Directors 2007 EMS reference notes 2007 Vn01FC Dec 06 Page 83
E-marketing
Every business needs now to compile an e-plan for marketing, which would include: Competitive advantage - gaining a real understanding of what rivals are doing and applying this knowledge to devise the e-advantage. Channels - using communication channels such as web sites, interactive digital TV, bulletin boards, e-mailshots, e-newsletters, banner advertising, together with service delivery conduits through the web. Product - applying technology to accelerate new product development and improvement. Profitability - developing management information on the profitability of individual customers and products. Brand protection - making new alliances aimed at accelerating access to the market to enhance brand value.
One feature of the internet is that all the facilities available to businesses are also available in a variety of ways to consumers. As a result the knowledge they bring to any possible purchase and the demands they make on any supplier are increasing. This impacts on the design and functions of corporate websites. Web sites can fulfil a number of marketing related functions for an organisation including: Electronic promotion - a tool containing information for current and prospective customers, shareholders, employees, investors and other stakeholders. The information needs to be presented so that it is attractive and useful to potential users and so that the site users can easily navigate to the information they want. E-commerce - taking orders and/or distributing products. Many software and market research companies provide means for users to place orders and download applications and publications from their web sites. Customer information - gathering information explicitly through surveys or implicitly through an analysis of web statistics to understand how customers interact with the web site.
Director Development Copyright Institute of Directors 2007 EMS reference notes 2007 Vn01FC Dec 06 Page 84
Customer service dealing with technical problems, frequently asked questions (FAQs), order tracking etc. Commercial exchange buying-supplying exchanges set up by industries like the car manufacturers to ensure they get the best possible prices from their suppliers. It is also a potentially powerful means (as demonstrated by Dell) of by-passing certain elements of the supply chain and dealing directly with customers. Where the intermediary cannot add value to the activities of the manufacturer for example their survival must be in question. Extranet access providing secure information to business partners and passing leads to channel partners or distributors.
Before making significant investments it is important to establish realistic expectations of the value a web site can bring and define the purpose and objectives for the site.
Director Development Copyright Institute of Directors 2007 EMS reference notes 2007 Vn01FC Dec 06 Page 85
Tangibility: no physical Create effective physical evidence people, premises, manifestation therefore the service equipment, communications material, symbols, is difficult to evaluate before and after purchase Inseparability: offering experienced Manage people to ensure right first-time outcomes, clear during the transaction, production understanding of perceptions, attitudes, response and consumption are simultaneous tendencies of customers and contact staff. Constant monitoring and analysis of customer behaviour and satisfaction. Ensure that the processes associated with the creation and delivery of service are effective and efficient Heterogeneity: the nature of a service depends on who is providing it and when it is being provided, so it may be hard to control the standard. Significant qualitative elements, difficult to manage variability Careful people recruitment, effective training and supervision, measurement and reward systems geared to consistent performance within clear boundaries (variability is controlled and matched to customer requirements)
stored
Perishability: service cannot be Encourage off peak usage & customer participation, alternative methods at peak times Ownership: customer has access to Create a memorable experience to own and provide service but cannot own it physical evidence of the experience where possible e.g. a glossy theatre programme Table 4.2 Service issues and implications Directors of service organisations need to identify what has been described as the essential evidence, something fundamental to the service offer. Ideally, if they can identify all aspects relating to physical evidence that convey a positive and distinctive impression, they will have a better chance of securing business from that customer or groups of customers.
Director Development Copyright Institute of Directors 2007 EMS reference notes 2007 Vn01FC Dec 06 Page 86
3. Compare customer needs, behaviour and expectations In the two areas above, examine the discrepancies and opportunities for improvement in the process by which customer satisfaction is achieved now. The differences between service offered and service received can be characterised as the five service gaps (Parusaman 1985). The service actually expected by the customer and the organisation's perception of that expectation. (Actual expectation is for a warm friendly approach, perceived expectation is for an efficient approach). The organisation's perception of service quality and the service quality specification. (The organisation's perception of service is that it is warm and friendly but the specification makes no mention of these qualities). The specification of service quality and the service that is actually delivered. (The specification includes the dimensions of warmth and friendliness but the delivered service is coldly efficient). The service delivered and the service that was promised to the customer. (The service delivered is coldly efficient; the service promised was warm and friendly). The service actually expected and that actually perceived by the customer. (The service expected is warm and friendly, The service perceived by the customer is coldly efficient).
Director Development Copyright Institute of Directors 2007 EMS reference notes 2007 Vn01FC Dec 06 Page 87
4. Design new processes to eliminate the gaps. 5. Inform everyone of the needs and perceptions of customers This involves sharing the customer and process information with everyone in the organisation and giving them the opportunity to comment and make suggestions. Clear, concise communication of the intentions and activities of, and feedback from, customers is therefore essential. It must be sustained and consistent. 6. Design measurement and reward systems to reflect the satisfaction of customer needs People take notice of what the organisation takes the time and trouble to measure. They respond to that which leads to a reward (in whatever form reward comes). Mechanisms are needed to measure and reward customer satisfaction (output) and the behaviour that generates it (input). 7. Begin the process of benchmarking That is the identification of performance standards, which are measured through time and compared as tangible evidence of progress or otherwise. The comparisons should be both internal i.e. where the organisation monitors its own performance change and external performance vis-vis competitors. Much can be learned from the search for excellence. For example, where particular units perform well in comparison to others their methods should be analysed and, where appropriate, copied. This principle should also be applied to competitors. 8. Adjust the organisation to enable everyone to give of their best Commitment to personal performance should be sought, noted and followed up. This will almost always involve the reallocation of some responsibility and power to enable those charged with providing customer care for example to take the decisions they need to take in order to respond to customer needs quickly (structural adjustment). There may be a need to make some adjustment to the culture of the organisation to make it consistent with a customer centred outlook and enable the commitment to be realised in operational terms. It should be possible to use the information gathered above to demonstrate the necessity of a changed outlook in terms that have real meaning for those involved and which offer them tangible benefits. 9. Provide clear leadership from the top of the organisation This should be demonstrated in terms of a willingness to listen to ideas, take action to remove obstacles, however well entrenched, and to trust people to get on with the job, particularly where that involves making decisions which may exceed old authority levels in the interest of customer satisfaction. 10. Provide the appropriate training Training and development are necessary for everyone in the organisation. For example: All employees - communication skills Team leaders - leadership, communication, coaching, process management.
Exhortation and gimmickry are not enough. Although they have their place, they must be seen as evidence of real change not as a substitute for it. While the business culture cannot be imposed, it can be encouraged, supported and nurtured by the board. They need to assess the related core strengths and competences of every link against globally competitive standards and benchmarks. This may lead them to increase their focus on
Director Development Copyright Institute of Directors 2007 EMS reference notes 2007 Vn01FC Dec 06 Page 88
key, high added-value products and technologies, or alternatively the low-margin fast turnaround sector. In either case they must broaden the total service spectrum within which these are brought to market.
CRM implementations have had a notoriously low success rate. The main problems are not technical but human, organisational and cultural. Directors should give consideration to:
Director Development Copyright Institute of Directors 2007 EMS reference notes 2007 Vn01FC Dec 06 Page 89
people - the practical needs of users, their ways of working and gaining their active support in using the system business processes - the need to change ways of working to accurately reflect customer and business needs commitment - the need for board and management buy-in and tie-in to business strategy.
These things should be in place before the CRM technology goes live. CRM systems and software must be strategy led not the other way around. 2. Rolling out CRM before changing the organisation to match The organisation must be customer focused before the implementation of CRM technology. This means that systems and procedures, structure and culture, measurement and reward are already geared to customer management. The focus must be applied not only to customer facing areas but to all aspects of the business. CRM technology then enables the business to operate its customer focussed activities more effectively. 3. Assuming more CRM technology is better CRM is not necessarily technology intensive. The segmentation analysis may reveal different preferences for technology based relationship management within the customer base. Key clients may demand and expect a more personal touch to contact. Some very effective customer relationships are managed using very low tech solutions. 4. Stalking not wooing customers Overwhelming customers with contact is not good CRM. It is easy to give the impression that the customer merely exists for the company to sell things to and no opportunity will be lost to do so. This will have the opposite effect to that which is desired for some customers. Good results can be achieved with CRM technologies when carefully implemented in manageable chunks, but simply buying in more technology is wasteful at best and possibly damaging to an organisation.
Director Development Copyright Institute of Directors 2007 EMS reference notes 2007 Vn01FC Dec 06 Page 90
Care needs to be taken to meet the provisions of the Data Protection Act (1998) and requirements of European legislation. There has been a growth in outsourcing marketing services to call centres and fulfilment houses. The advantages are using the most efficient providers of direct marketing skills and moving the fixed cost of non-core competency to a variable cost on a 'pay as you use it' approach. Call centres handle all customer contacts and business transactions while fulfilment houses offer logistics, warehouse and shipping facilities.
This can be the result of a strategic decision to try to win a high share of the market within a short period, or it may simply be used as a guide in budget-setting. In judging their success, companies often analyse the marketing input required to achieve a particular sales or profit level, and compare their own results with those of their competitors, if they are accessible. Another approach is to set a percentage of turnover for the marketing budget and benchmark this, if possible, against relevant competitors In any case marketing is a cost that has to be allowed for in any forthcoming financial year, so the budgeting process for marketing has to conform to the normal company budgeting processes. These might be: Historic - the traditional method of determining what to ask for next year is still to look at the current and previous years and extrapolate, factoring in plus or minus an amount to deal with any major differences. Zero-based - this challenging approach requires managers to cost everything they intend to carry out and bid for the finance. Activity-based - this approach is rather a rule of thumb assumption of a percentage of income for identified contributory activities.
Director Development Copyright Institute of Directors 2007 EMS reference notes 2007 Vn01FC Dec 06 Page 92
Just as in the external context, the task of the marketing strategist within the organisation is to have sufficient information about their customers to identify the mix element that will be most likely to succeed in their case, and then allocate expenditure to achieve the best combination.
It is important that company structures are designed to support a strong marketing orientation throughout. The board must understand marketing principles and must be visible and vocal in their support of marketing strategy creation and implementation. Marketing should be fully understood at every level of the company. Training programmes should be implemented to ensure that this is the case. All functions and all levels should be involved in the marketing planning and implementation process. Departmental structures that encourage territorialism and poor communications should be avoided. Reward systems can be constructive or destructive, and constructive ones can support marketing orientation. Internal conflict can arise from badly thought-out structures. Separating sales and marketing into two departments can sometimes create conflict as their objectives are different. Some cost allocation structures can have a destructive effect and cause inter-department conflict between, for example, marketing and finance, or production and sales.
Kotler (1991) refers to marketing implementation skills as: Allocating skills used in budgeting resources including time, money and personnel. Monitoring skills used in evaluating results and exercising controls over the process. Organising skills used in creating both formal and informal organisation structures to make strategy implementation possible. Interacting skills used to motivate others both inside and outside the company, whose input is needed to make implementation happen.
Imaginative use of reward systems is the most visible aspect of a companys recognition of the achievements of its human resources. Others factors, such as training, add significant value.
Director Development Copyright Institute of Directors 2007 EMS reference notes 2007 Vn01FC Dec 06 Page 93
Contingency planning
Contingency planning is designed to prepare the company for situations where events differ from their predicted course. It attempts to answer the what if...? questions which are most likely to affect the company. A thorough marketing audit should highlight the key areas of uncertainty, and these will often have been addressed by identifying the most likely course of events, expressed as assumptions. Assumptions refer to factors that are largely out of the companys control. So, the contingency plan should identify the variations to the companys strategy that would become necessary if the true course of events did not match the assumptions. For example, if the strategy is based on the assumption that interest rates will rise by 2% over the planning period, contingency plans may be needed for a 3%, 1% or nil rise, and a 1% fall in rates. Other contingencies might be required to cope with a merger between two competitors, a cold winter or a change of government
Director Development Copyright Institute of Directors 2007 EMS reference notes 2007 Vn01FC Dec 06 Page 94
Director Development Copyright Institute of Directors 2007 EMS reference notes 2007 Vn01FC Dec 06 Page 95
Target market awareness, interest and desire. Target market perception of and attitude to the company and its offering Customer satisfaction, customer referrals, enquiries generated, leads generated, lost customers Contribution to group performance (for the strategic business unit) Credit performance - cash flow
2. Inputs The investment in marketing effort designed to achieve the outputs above and the basis of the marketing budget. The elements include: Sales acquisition Sales force effort Entertainment, advertising, sales promotion, discounts, PR, distribution investment, product development investment, CRM investment (systems, training etc.) Sales processing Order processing Billing Credit control
3. Efficiency of the process The relationship between inputs and outputs has the following dimensions: Sales - conversion of enquiries, leads and visits to sales; expenses to sales, average cost per sales call etc Advertising - cost per thousand impressions, cost per enquiry Promotion - display costs per sale, sales per special deal etc Distribution - cost per delivered item, service levels achieved Product management - investment in new products: new product sales Pricing - investment in price promotions: sales Credit control - cash flow.
Director Development Copyright Institute of Directors 2007 EMS reference notes 2007 Vn01FC Dec 06 Page 96
Establish priority points for action in the marketing strategy Identify and answer any likely stakeholder questions.
This is not a one-off activity that takes place at the end of the period in question simply to measure the outcomes. Just as strategies evolve in the light of continuous feedback, so evaluation needs to take place on a continuous basis alongside it. Emerging corporate strategy is approved by the board but implemented through functional management heads. An important aspect of evaluation is to ensure that the functional parts continue to match each other as the strategies change. The risk is that each function drifts away from the corporate path and becomes an autonomous group working to its own agenda.
Formative evaluation
The purpose of formative evaluation is to provide answers to the question, What can the directors and management learn from this? The formative evaluation process may include any of the following mechanisms, depending on the size, complexity and geographical distribution of the organisation: Regular meetings of directors or designers of the corporate strategy with representatives from marketing and other functions who are responsible for implementing the strategies. Regular electronic networking between meetings; an intranet or email may be used for these. A non-executive director as a helpful independent facilitator for this formative purpose.
Topics on the agenda should include a review of common and departmental strategic objectives, corporate-functional relationships and co-ordination, clarification of procedures, the need for any supporting projects, funding of the discrete elements of the corporate strategy.
Process evaluation
The purpose of process evaluation is to provide answers to the question, What changes should the directors and management make to the steps taken in formulating and implementing the marketing strategy? Process evaluation is partly formative in effect. However, its focus is on documenting and describing what was actually happening during the development, integration and implementation of the corporate and functional elements of the strategy. It can be very helpful in communicating best practice to others. In a group there may be other subsidiaries whose learning curves may be considerably flattened if they have access to detailed information on what was done, what problems arose and what solutions were adopted. A second use of process evaluation is seen during the interpretation of outcome evaluation results. For example, a marketing strategy may not have proved successful on outcome evaluation. However, the process evaluation may reveal that the negative outcome was a result of specific,
Director Development Copyright Institute of Directors 2007 EMS reference notes 2007 Vn01FC Dec 06 Page 97
unforeseen events that derailed the strategy. This may indicate that many elements of the strategy, if implemented in another situation, could be effective. A third use of process evaluation is to examine the initial context of the strategy and the decisionmaking process that led to its adoption. For example, the initial strategy may have been ill-defined in the early decision-making phase. This may have led to aims being set that were easy to achieve rather than others which were 'outside the box' and more difficult to achieve but which could have been more successful for the company.
Outcome evaluation
The purpose of outcome evaluation is to provide answers to the question, What changes should the directors and management make to the systems in place to evaluate the outcomes of marketing strategy? Outcome, or summative, evaluation looks at whether a strategy has achieved the outcomes it is seeking. It should assess the outcomes and include both positive and negative results. To assess success in the much longer term, a series of desired outcomes could be set that are the milestones for eventual success. These could be measured at the immediate, intermediate, shortterm and long-term stages. Much of the measurement of success in achieving targets is clearly quantitative. However, qualitative indicators are highly important. All this information can be very useful for all stakeholders, especially if it compares outcomes with other strategies that might have been adopted. It may help the organisation improve its corporate strategy planning and implementation.
Director Development Copyright Institute of Directors 2007 EMS reference notes 2007 Vn01FC Dec 06 Page 98
Director Development Copyright Institute of Directors 2007 EMS reference notes 2007 Vn01FC Dec 06 Page 99