The marketing planning process

Most managers accept that a formal system and process for marketing planning is beneficial. Accordingly they need a system that will help t...

Most managers accept that a formal system and process for marketing planning is beneficial. Accordingly they need a system that will help them to think in a structured way and also make explicit their intuitive economic models of the business. Unfortunately, very few companies have planning systems that possess these characteristics. Those that do tend to follow a similar pattern of steps.

Figure 2.2 illustrates the several stages that have to be gone through in order to arrive at a marketing plan. This illustrates the difference between the process of marketing planning and the actual plan itself, which is the output of the process.

Each of the process stages illustrated in Figure 2.2 will be discussed in more detail in this chapter. The dotted lines joining up stages 5–8 are meant to indicate the reality of the planning process, in that it is likely that each of these steps will have to be gone through more than once before final programmes can be written.

How formal should this process be?

Although research has shown these marketing planning steps to be universally applicable, the degree to which each of the separate steps in the diagram needs to be formalized depends to a large extent on the size and nature of the company. For example, an undiversified company generally uses less formalized procedures, since top management tends to have greater functional knowledge and expertise than subordinates, and because the lack of diversity of operations enables direct control to be exercised over most of the key determinants of success. Thus, situation reviews, the setting of marketing objectives and so on are not always made explicit in writing, although these steps have to be gone through.

In contrast, in a diversified company, it is usually not possible for top management to have greater functional knowledge and expertise than subordinate management; hence planning tends to be more formalized in order to provide a consistent discipline for those who have to make the decisions throughout the organization.

Either way, there is now a substantial body of evidence to show that formalized planning procedures generally result in greater profitability and stability in the long term and also help to reduce friction and operational difficulties within organizations.

Where marketing planning has failed, it has generally been because companies have placed too much emphasis on the procedures themselves and the resulting forecasts rather than on generating information useful to and consumable by management. Let us now look at the marketing planning process in more detail, starting with the mission statement.

Step 1 Mission statement

Figure 2.2 shows that a strategic marketing plan should begin with a mission or purpose statement. This is perhaps the most difficult aspect of marketing planning for managers to master, because it is largely philosophical and qualitative in nature. Many organizations find their different departments, and sometimes even different groups in the same department, pulling in different directions, often with disastrous results, simply because the organization hasn’t defined the boundaries of the business and the way it wishes to do business.

Here, we can see two levels of mission. One is a corporate mission statement; the other is a lower-level, or purpose, statement. But there is yet another level, as shown in the following summary:

● Type 1: ‘generic’ – usually found inside annual reports designed to conform with institutional norms, but limited practical use for operational (marketing) strategy;
● Type 2: the real thing – a meaningful statement, unique to the organization concerned, which ‘impacts’ on the behaviour of the executives at all levels;
● Type 3: a purposeful statement (or lower-level mission statement) appropriate at the strategic business unit, departmental or product group level of the organization.

We construct below that which we believe to be a generic-type mission statement, regrettably of a type all too common. It states rather obvious goals of all businesses, such as meeting customer needs, and rarely inspires employees. While institutionally we understand the pressures for conformity (DiMaggio and Powell, 1983; Scott, 1995), nonetheless, there is a need for a mission statement that inspires and directs.

The generic mission statement

Our organization’s primary mission is to protect and increase the value of its owners’ investments while efficiently and fairly serving the needs of its customers. [Name of organization] seeks to accomplish this in a manner that contributes to the development and growth of its employees, and to the goals of countries and communities in which it operates.

The following should appear in a mission or purpose statement, which should normally run to no more than one page:

● Role or contribution:
– profit (specify); or
– service; or
– opportunity sought.

● Business definition – define the business, preferably in terms of the benefits you provide or the needs you satisfy rather than in terms of what you make.

● Distinctive competences – these are the essential skills/capabilities resources that underpin whatever success has been achieved to date. Competence can consist of the possession of one particular item or the possession of a number of skills compared with competitors. If, however, you could equally well put a competitor’s name to these ‘distinctive’ competences, then they are not distinctive competences.

● Indications for the future:
– what the firm will do;
– what the firm might do;
– what the firm will never do.

Step 2 Setting corporate objectives

Corporate objectives usually contain at least the following elements:
● the desired level of profitability;

● business boundaries:
– what kind of products will be sold to what kinds of markets (marketing),
– what kinds of facilities will be developed (operations, R&D, information systems, distribution, etc),
– the size and character of the labour force (personnel),
– funding (finance);

● other corporate objectives, such as social responsibility, corporate image, stock market image, employer image, etc.

Such a corporate plan, containing projected profit and loss accounts and balance sheets, being the result of the process described above, is more likely to provide longterm stability for a company than plans based on a more intuitive process and containing forecasts that tend to be little more than extrapolations of previous trends.

Step 3 The marketing audit

Any plan will be only as good as the information on which it is based, and the marketing audit is the means by which information for planning is organized. There is no reason why marketing cannot be audited in the same way as accounts, in spite of its more innovative, subjective nature. A marketing audit is a systematic appraisal of all the external and internal factors that have affected a company’s commercial performance over a defined period.

Given the growing turbulence of the business environment and the shorter product life cycles that have resulted, no one would deny the need to stop at least once a year at a particular point in the planning cycle to try to form a reasoned view of how all the many external and internal factors have influenced performance.

Sometimes a company will conduct a marketing audit because it is in financial trouble. At times like these, management risks treating the wrong symptoms, most frequently by reorganizing the company. But such measures are unlikely to be effective if there are more fundamental problems that have not been identified. Of course, if the company survived for long enough, it might eventually solve its problems through a process of elimination. Essentially, though, the argument is that the problems have first to be properly defined. The audit is a means of helping to define them.

Two kinds of variable

Any company carrying out an audit will be faced with two kinds of variable. There is the kind over which the company has no direct control, for example economic and market factors. Secondly, there are those over which the company has complete control, the operational variables, which are usually the firm’s internal resources.

This division suggests that the best way to structure an audit is in two parts, external and internal. Table 2.1 shows areas that should be investigated under both headings. Each should be examined with a view to building up an information base relevant to the company’s performance.

Many people mistakenly believe that the marketing audit should be a final attempt to define a company’s marketing problems or, at best, something done by an independent body from time to time to ensure that a company is on the right track.

However, many highly successful companies, as well as using normal information and control procedures and marketing research throughout the year, start their planning cycle each year with a formal, audit-type process of everything that has had an important influence on marketing activities. Certainly, in many leading consumer goods companies, the annual self-audit approach is a tried-and-tested discipline. 

Where relevant, the marketing audit should contain life cycles for major products and for market segments, for which the future shape will be predicted using the audit information. Also, major products and markets should be plotted on some kind of matrix to show their current competitive position.

The next question is: what happens to the results of the audit? Some companies consume valuable resources carrying out audits that produce very little in the way of results. The audit is simply a database, and the task remains of turning it into intelligence, that is, information essential to decision making.

A market overview, which appears prominently in the actual strategic marketing plan, should spell out clearly:
● what the market is;
● how it works;
● what the key decision-making points are;
● what the segments are.

Market definition is fundamental to success and must be made in terms of need sets rather than in product/service terms. Thus, Gestetner failed by defining its markets as ‘duplicators’, and IBM almost failed by defining its market as ‘mainframes’. Accordingly, a pension is a product, not a market, as many other products can satisfy the same or similar needs – Kodak and Nokia being recent examples. Table 2.2 lists hypothetical markets in the financial services sector.

Figures 2.4 and 2.5 show the marketing books market in the UK. The first shows the market ‘mapped’ solely as marketing books. The second shows the market mapped in terms of the broader market definition of knowledge promulgation, from which it can be seen that new competitors and distribution channels come into play. Thinking and planning like this certainly had a dramatic effect on the marketing strategy of the major publisher involved.

Figure 2.6 is a generic market map, which shows how a market works from suppliers to users, and, like a balance sheet, it must ‘balance’, in the sense that, if 5 million radiators are made or imported, 5 million radiators must be distributed, 5 million radiators must be installed, and the decision about which radiators are to be installed must be made by someone. It is the purpose of the market map to spell all this out quantitatively.

It is at key decision points that market segmentation should take place. A segment is a group of customers or consumers that share the same (or approximately the same) needs. This step is crucial, for it is upon the key segments from the market map that SWOT analyses should be completed.

Step 4 SWOT analyses

The only remaining question is: what happens to the results of the audit? Some companies
consume valuable resources carrying out audits that bring very little by way of actionable results.

Indeed, there is always the danger that, at the audit stage, insufficient attention is paid to the need to concentrate on analysis that determines which trends and developments will actually affect the company. While the checklist demonstrates the completeness of logic and analysis, the people carrying out the audit should discipline themselves to omit from their audits all the information that is not central to the company’s marketing problems. Thus, inclusion of research reports, or over-detailed sales performance histories by product that lead to no logical actions whatever, only serve to rob the audit of focus and reduce its relevance.

Since the objective of the audit is to indicate what a company’s marketing objectives and strategies should be, it follows that it would be helpful if some format could be found for organizing the major findings. One useful way of doing this is in the form of a number of SWOT analyses.

"A SWOT is a summary of the audit under the headings of an organization’s strengths and weaknesses in relation to competitors as they relate to opportunities and threats in their environment"

A SWOT should be conducted for each segment that is considered to be important in the company’s future. These SWOT analyses should, if possible, contain just a few paragraphs of commentary focusing on key factors only. They should highlight internal differential strengths and weaknesses vis-à-vis competitors and key external opportunities and threats. A summary of reasons for good or bad performance should be included. They should be interesting to read, contain concise statements, include only relevant and important data, and give greater emphasis to creative analysis.

To summarize, carrying out a regular and thorough marketing audit in a structured manner will go a long way towards giving a company a knowledge of the business, trends in the market, and where value is added by competitors, as the basis for setting objectives and strategies.

Step 5 Assumptions

Let us now return to the preparation of the marketing plan. If we refer again to the marketing planning process, and have completed our marketing audit and SWOT analyses, assumptions now have to be written.

It is really a question of standardizing the planning environment. For example, it would be no good receiving plans from two product managers, one of whom believed the market was going to increase by 10 per cent, while the other believed the market was going to decline by 10 per cent. 

Assumptions should be few in number and, if a plan is possible irrespective of the assumptions made, then the assumptions are unnecessary.

Step 6 Marketing objectives and strategies

The next step in marketing planning is the writing of marketing objectives and strategies, the key to the whole process.

"An objective is what you want to achieve. A strategy is how you plan to achieve your objectives."

Thus, there can be objectives and strategies at all levels in marketing. For example, there can be advertising objectives and strategies, and pricing objectives and strategies. However, the important point to remember about marketing objectives is that they are about products, services, offers and markets only. Common sense will confirm that it is only by selling something to someone that the company’s financial goals can be achieved, and that advertising, pricing, service levels and so on are the means (or strategies) by which we might succeed in doing this. Thus, pricing objectives, sales promotion objectives, advertising objectives and the like should not be confused with marketing objectives.

Marketing objectives are derived from Ansoff’s famous matrix (Ansoff, 1957) and categorized as one, or more, of the following:
● existing products for existing markets;
● new products for existing markets;
● existing products for new markets;
● new products for new markets.

They should be capable of measurement; otherwise they are not objectives. Directional terms such as ‘maximize’, ‘minimize’, ‘penetrate’, ‘increase’, etc are acceptable only if quantitative measurement can be attached to them. Measurement should be in terms of some, or all, of the following: sales volume; sales value; market share; profit; and percentage penetration of outlets (for example, to have 30 per cent of all retail outlets stocking our product by year 3).

Marketing strategies are the means by which marketing objectives will be achieved and have traditionally been built around the four Ps, as follows:
● product: the general policies for product deletions, modifications, additions, design, branding, positioning, packaging, etc;
● price: the general pricing policies to be followed by product groups in market segments;
● place: the general policies for channels and customer service levels;
● promotion: the general policies for communicating with customers under the relevant headings, such as advertising, sales force, sales promotion, public relations, exhibitions, direct mail, etc.

The four Ps can be criticized as overly product-centric, whereas more of our modern economies are represented in services. Recognizing the need to modify the marketing mix, many services marketers have embraced Booms and Bitners’ extension to seven Ps (1981) with the following ‘new Ps’ of the marketing mix: people, process and physical evidence.

Step 7 Estimate expected results, and Step 8 Identify alternative plans and mixes

Having completed this major planning task, it is normal at this stage to employ judgement, analogous experience, field tests and so on to test out the feasibility of the objectives and strategies in terms of market share, costs, profits and so on. It is also normally at this stage that alternative plans and mixes are considered, if necessary.

Step 9 The budget

In a strategic marketing plan, these strategies would normally be costed out approximately and, if not practicable, alternative strategies would be proposed and costed out until a satisfactory solution could be reached. This would then become the budget. In most cases, there would be a budget for the full three years of the strategic marketing plan, but there would also be a very detailed budget for the first year of the plan, which would be included in the one-year operational plan.

It will be obvious from all of this that not only does the setting of budgets become much easier but the resulting budgets are more likely to be realistic and related to what the whole company wants to achieve rather than just one functional department.

The problem of designing a dynamic system for budget setting, rather than the ‘tablets of stone’ approach, which is more common, is a major challenge to the marketing and financial directors of all companies.

The most satisfactory approach would be for a marketing director to justify all marketing expenditure from a zero base each year against the tasks he or she wishes to accomplish. A little thought will confirm that this is exactly the approach recommended in this chapter. If these procedures are followed, a hierarchy of objectives is built up in such a way that every item of budgeted expenditure can be related directly back to the initial corporate financial objectives. For example, if sales promotion is a major means of achieving an objective in a particular market, when sales promotional items appear in the programme each one has a specific purpose that can be related back to a major objective.

Doing it this way ensures not only that every item of expenditure is fully accounted for as part of a rational, objective and task approach, but also that when changes have to be made during the period to which the plan relates these changes can be made in such a way that the least damage is caused to the company’s long-term objectives.

"The incremental marketing expense can be considered to be all costs that are incurred after the product leaves the factory, other than costs involved in physical distribution, the costs of which usually represent a discrete subset."

There is, of course, no textbook answer to problems relating to questions such as whether packaging should be a marketing or a production expense, and whether some distribution costs could be considered to be marketing costs. For example, insistence on high service levels results in high inventory carrying costs. Only common sense will reveal workable solutions to issues such as these.

Under price, however, any form of discounting that reduces the expected gross income, such as promotional discounts, quantity discounts, royalty rebates and so on, as well as sales commission and unpaid invoices, should be given the most careful attention as incremental marketing expenses.

The most obvious incremental marketing expenses will occur, however, under the heading of promotion, in the form of advertising, sales salaries and expenses, sales promotional expenditure, direct mail costs and so on. The important point about the measurable effects of marketing activity is that anticipated levels should be the result of the most careful analysis of what is required to take the company towards its goals, while the most careful attention should be paid to gathering all items of expenditure under appropriate headings. The healthiest way of treating these issues is a zero-based budgeting approach.

Step 10 First-year detailed implementation programme

In a one-year tactical plan, the general marketing strategies would be developed into specific sub-objectives, each supported by more detailed strategy and action statements. A company organized according to functions might have an advertising plan, a sales promotion plan, a pricing plan and so on. A product-based company might have a product plan, with objectives, strategies and tactics for price, place and promotion as necessary. A market- or geographically-based company might have a market plan, with objectives, strategies and tactics for the four Ps as necessary. Likewise, a company with a few major customers might have customer plans. Any combination of the above might be suitable, depending on circumstances.