Marketing Plans: How to Prepare Them
5 June 2007 Malcolm McDonald
'Marketing plans: how to prepare them' is the 'bible' of many directors, managers and teachers around the world. Now in its sixth edition, Malcolm McDonald's book has sold over half a million copies since its launch in 1986.
Research at Cranfield over the past 30 years into what causes long-term success in world-class companies reveals some simple truths – they all produce marketing strategies that:
- Target needs-based segments
- Make a specific offer to each segment
- Leverage their strengths and minimise their weaknesses
- Target different offers from competitors
- Anticipate the future
These companies can be compared with those that:
- Target product categories
- Make similar offers to all segments
- Have little understanding of their strengths and weaknesses
- Go head-on against competitors
- Plan using historical data
But the heart of successful marketing has always been market segmentation, not that a priori nonsense written about in most books, such as socio-economics, demographics, geo-demographics and the like.
For example, Boy George and the Archbishop of Canterbury are both 'A's, but they don't behave the same. Nor do all 18-24-year-old women (demographic), nor does everyone in my street (geo-demographics). So correct needs-based market definition and segmentation remains central to long-term success.
But there are other crucial factors which account for the success of world class companies when it comes to marketing planning.
FORECASTING VS STRATEGIC MARKETING PLANNING
The first is that they don't confuse forecasting and budgeting with strategic marketing planning. 90% of USA and European firms think budgets are cumbersome and unreliable, providing neither predictability nor control. They are backward-looking and inflexible.
Instead of focusing managers' time on customers, the real source of income, budgets focus their attention on satisfying the boss – the budget becomes the purpose of their existence.
In companies like Enron, the pressure to make the numbers was so great that managers didn't just doctor a few numbers, they broke the law. People with targets and jobs dependent on meeting them will probably meet the targets, even if they have to destroy the enterprise to do it.
Banks, for example, are no longer there to help customers find the best solution, as managers are set tough targets for selling loans to double their low salaries, which encourages customer abuse and leaves many borrowers facing ruin.
The second factor for success is a deep-rooted belief by directors and senior managers in the importance of strategic planning.
They have processes for it, they ensure line managers have the appropriate skill sets, they do not allow too much detail to obscure the crucial strategic issues and most important of all, they participate themselves rather than handing it over to some remote-from-the-front-line planning department.
KNOW THE MARKET
Thirdly, they put strategic marketing planning where it is most likely to be effective – in the strategic business units that are closest to customers. In other words, they understand that corporate strategies should be driven by a deep understanding of markets and customer needs.
Corporate strategies include R&D, product development, operations, purchasing, IT, HR, finance, after-sales service and sales. Thus, IT, instead of messing about with irrelevant IS fads, organises itself around customer needs, so that CRM, for example, doesn't only get transactional costs down, but also helps create customer value.
Failures to build CRM systems around markets and customers has ensured that the annual European €12bn of expenditures on them over the last decade has largely failed, with the result that in the USA and the UK customer service has actually declined in every sector, as can be seen from figures 1 and 2 on the right.
The same, of course, applies to other functions such as R&D and product development, which design and build better solutions for customers rather than being technically driven. Thus, when new products are launched, they do not join the 90% of annual new product launches that fail.
SHAREHOLDER VALUE ADDED
Finally, but by no means least, world-class companies in capital markets know that success is measured in terms of shareholder value added, having taken account of the time value of money, the risks associated with future strategies and the cost of capital.
So, they measure this in a systematic way. Certainly, if I were CEO of any company and I asked my chief marketing officer what we had received for our £30m invested in marketing, were I told that we had achieved an increase in awareness, or an improvement in attitude, they would likely be sacked instantly.
No, world-class companies have marketing as a function represented in the boardroom. Not only that, but they truly understand that most of their value resides in intangible assets. Most companies have formally constituted audit committees doing financial due diligence on acquisitions, capital plant expenditure and the like, but for the major value of the company (ie intangibles), there is nothing.
Figures 3 and 4 on the right illustrate the crucial importance of intangibles in modern business.
World-class companies put their marketing strategies through a rigorous risk assessment process to ensure that the market will be as predicted, that the proposed strategies will deliver the necessary volumes, values and shares and that these values will deliver the requisite profit margins.
Finally, they work with their senior finance people to calculate that net free cash flows are greater that the cost of capital, thus creating added shareholder value.