In the opening chapter of this textbook emphasis was placed on the need for enterprises to adopt the marketing concept and a marketing orientation. Where this is done there is also a need to develop marketing orientated strategy. It is not enough to install marketing management within an organisation with middle managers overseeing functions such as product/brand management, advertising, distribution and marketing research. Marketing should not be implemented only at the functional level. Rather, the business as a whole has to be directed by a strategy whose focus is the marketplace. In formulating such strategies, there has to be a careful matching of market opportunities with organisational resources; this is the task of strategic marketing planning. Thus the subject matter of this chapter is strategy and planning coupled with the controls that need to be in place if strategies and plans are to be prevented from going astray.
The objectives of this chapter are to enable the reader to:
Clearly differentiate between corporate planning, business policy and marketing planing
Describe the process of strategic marketing planning
Become familiar with the content of a marketing plan
Understand the different types of marketing control
Appreciate that the control process is essential for evaluating the marketing plan and for the optimisation of resources
Make use of some of the principal techniques used in identifying weaknesses in the performance of the marketing plan.
Following a brief clarification of the key terms in marketing planning and control, the process of strategic marketing planning is explored. The reader is then given an overview of the content of a marketing plan. The discussion subsequently moves on to the topics of monitoring and control. A detailed explanation is given of selected analytical techniques, including sales and profitability analysis. A brief consideration of the principal areas of marketing which can yield improvements in efficiency concludes the chapter.
Given that this is an introductory text, and as such is likely to be read by people with little or no previous knowledge of the subject matter, it would seem appropriate to begin this chapter with an explanation of terms whose meaning may not be immediately clear or are easily confused with one another. Those who are new to the subject are unlikely to have a clear understanding of terms like ‘corporate strategy’, ‘business policy’ or ‘market planning’ and the differences between them, where these exist.
An organisation's corporate strategy is reflected in the statement of its overall objectives and the means by which these are to be met. Corporate strategy is usually stated in such a way as to convey the reason for its existence, i.e. its mission and the business it is in or wishes to be in. Whilst corporate strategy and marketing strategy are not one and the same. Baker1 argues that:
“…the firm's selection of a marketing strategy will influence and affect everything which it does - to this extent then marketing strategy and corporate strategy are inextricably interlinked.”
Whilst this textbook continually stresses the central importance of marketing and indeed promotes the idea that every aspect of an enterprise ought to be market driven, effective marketing is a necessary but not sufficient condition for business success. In market driven organisations marketing will be allowed to influence other functional areas like R & D, production, finance and personnel these will each have individual, if concerted, strategies and collectively fall into the realm of corporate strategy.
Policies are bodies of rules established to guide managers in their decision making. In essence, a policy prescribes the boundaries of the alternative courses of action which the organisation leaves open to him/her within a defined set of circumstances. Thus, for example, a manager whose soft fruit is losing sales in export markets because competitors are offering extended credit to importers may be constrained in his/her actions by company policy with respect to credit. That policy may be paraphrased as, “We will never be placed at a disadvantage by offering terms and conditions of sale that customers perceive to be inferior to those offered by competitors.” In other words, the manager will know that he/she has to at least match or if possible better the terms and conditions offered by competitors. How the manager does this is a matter for him/her to decide. (The manager will not necessarily follow suit and offer similar terms to those of competitors but may look instead for ways of increasing the value of doing business with his/her organisation in other ways such as greater flexibility in minimum consignment sizes, faster delivery or improved protective packaging but the option of competing on the basis of credit terms is open to). Alternatively company policy might be embodied in a statement like, “Never to buy custom through direct financial incentives.” Here the company may be taking the view that sacrificing part of the marketing margin to gain market share does not help it reach its stated goals and is incompatible with its corporate strategy. In this case, the manager knows immediately that company policy prohibits the use of financial incentives and he/she must seek to regain lost sales in some other way.
Basically planning involves setting objectives, designing and implementing a programme to achieve the organisation's objectives and having a monitoring and control mechanism to ascertain whether the planned programme is on track or has achieved its desired objectives. Greenley2 differentiates between corporate planning, strategic planning and operational planning. He says that corporate planning is the organisation's overall planning system and its two principal constituent parts are strategic and operational planning. Strategic planning begins with an assessment of an organisation's internal and external environments.
Figure 3.1 The characteristics of marketing and operational planning
Operational planning can be further divided into short and long term planning. Short term operational planning is also known as tactical planning. Tactics and strategy differ in several important respects. Tactics relate to the following of a plan to achieve short term objectives. Thus tactics equate to the marketing plan rather than marketing strategy. Strategic marketing would establish policies for each element of the marketing mix and would specify how resources are to be deployed. Tactics deal with marketing problems in the short term. Consider the position of a fish supplier who has the competitive advantage of owning refrigerated trucks. The supplier might adopt a marketing strategy in which the price is set high in order to: recover his/her investment in expensive technology; establish a price-quality relationship in the mind of the consumer; and ensure that the level of demand does not greatly exceed the amount he/she is able to supply. Since this is his/her strategy, there would be no departure from the maintenance of prices which are high relative to those of other suppliers. However, there may be tactical manoeuvering in order to overcome certain marketing problems. When the supplier, or the product, is new to the market there may be need to stimulate demand by offering discounts. This would probably be done through the use of special ‘money-off’ coupons, or vouchers, so that the discounts could be targeted at certain customer groups and also to underline the fact that discount prices will not be the normal practice with respect to the product and are for a limited time only. Similarly, when there is a glut of fish on the market or when the supplier wants to improve short term cash flow or release space in his/her storage facility to accommodate new product lines, the tactic of offering ‘20% extra free’ in a bag of white-bait or kapenta fish might be employed. Once again the supplier would be careful to communicate to the market that these extra value packs would be available in the short term only. Thus, whereas marketing strategy focuses upon achieving long term organisational goals, tactics focus upon achieving annual marketing objectives.
Before moving on, it should be said that corporate strategy, business policy and marketing planning have relevance to enterprises of all sizes. In smaller organisations these management activities are likely to be carried out in a less formal and less sophisticated way than in larger corporations but they need to be done, formally or informally, explicitly or implicitly. Even the small independent grain trader will have to give thought to such matters as his/her strategy for survival in a municipal market overcrowded with grain traders, will have to be consistent whilst remaining flexible - in his/her reactions to problems and opportunities and needs to be in a position to anticipate changes in the marketing environment so that he/she can identify and exploit emerging opportunities.
When businesses are small and owner operated there tends to be a high degree of entrepreneurial drive. Even after the organisation begins to grow, and salaried managers are employed, there may be no appreciable fall in the level of flair, energy and commitment to achieving success, if indeed there is any at all. However, in very large organisations managers can feel divorced from the events and decisions that are shaping the business. This is particularly the case where the enterprise is highly diversified. For example, a large enterprise could have interests in say grain trading, fertilizer procurement, the design and installation of silos, financial advisory services to farmers, the hire of transportation of bulk commodities, etc. A manager in fertilizer procurement could well feel that he/she has relatively little effect on overall performance since decisions such as budget allocations and sales and profit targets are dictated and determined by what happens in grain related activities. This is likely to suppress that manager's search for new and better ways of doing business because he/she believes to do so would have relatively little effect and would not be recognised, or rewarded, by senior management. The concept of a strategic business unit (SBU) was developed as a means of retaining the vitality of the entrepreneurial spirit by giving management a high degree of responsibility and autonomy in decision making. The SBU becomes a separate business entity, although still belonging to a larger commercial enterprise, having its own defined business strategy and a management with direct responsibility for its profits and sales performance.
SBUs can be based around individual brands but it is more common for a large corporation to break down its business according to either product categories (e.g. fertilizers, grain trading and farm buildings) or markets served (e.g. agriculture, distribution and construction and design). Aaker3 advises that:
“When strategies and competitors have a high degree of commonalty across businesses, it makes sense to combine those businesses into a single SBU. When they differ in meaningful ways, however, it will probably be more useful to use separate SBUs.”
The size of a business is also a consideration when deciding on how to structure the organisation. Even when an organisation's businesses have similar strategies and needs managers can feel impotent if it is a very large enterprise and it may be best to create two or more SBUs to maximise motivation and the application of initiative, and therefore corporate performance. To do so can change the way a manager thinks about his/her own mission. For instance, the manager of the transport department within a large grain trading organisation is likely to focus his/her attention upon controlling distribution costs and maximising the efficiency with which the transport function is operated. As the manager of an independent SBU the manager may begin to see his/her task more in terms of maximising the return on investment in transportation. This requires him/her to redefine the business his/her division is in (as opposed to thinking in terms of what business the grain trading division is in). New opportunities may become apparent such as the hiring out of underutilised vehicles, storage capacity and equipment; offering advisory services in logistics, stock control management, fumigation procedures etc.; and so on. The manager thus becomes less myopic in his/her view of the mission of the business.
The degree of autonomy and independence of an SBU varies enormously. Much depends upon whether the SBU has its own dedicated operations such as R & D, design, production, distribution and accounting. Often, the economics of business operations dictate that SBUs share some of these facilities but this will almost undoubtedly reduce the individual manager's sense of responsibility and control.
Strategic planning began as a response to the inadequacy of assuming that the future will look very much like the past. It is dangerous for a business to extrapolate in economies and markets that are developing and changing. In his classic article “Marketing Myopia”, Levitt4 gives several memorable examples of successful businesses that subsequently went into decline because their actions were based upon the implicit assumption that the status quo would be maintained. By way of example, Levitt cites the case of the dry cleaning industry which failed to see that in the future the main threat to their business would come not from continually improved chemical cleaners but from the development of stain resistant synthetic materials. In a similar vein the American railroad companies perceived one another to be competitors but did not anticipate how transporters over road, sea and air would develop their passenger and freight handling facilities to a degree that railroads became uncompetitive. Aaker4 explains that strategic planning encourages enterprises to abandon the notion that past extrapolations can be relied upon as a basis for future actions. Rather, they should assume that there will be discontinuities between the past and the future.
Strategic planning is also known as strategic market planning when its focus is upon the market environment within which the enterprise must operate. This reflects the fact that what an enterprise plans to do now, in order to prepare for future developments in the market, should be based upon a detailed understanding of that market and not on mechanistic projections of past and present patterns. Strategic market planning enables organisations to anticipate events rather than merely react to them. Aaker3 itemises the following benefits of strategic market planning:
It focuses management's attention on external events, especially those representing threats and/or opportunities. All too often companies tend to be inward looking when, in reality, customers and competitors are external to the firm and profits are made outside not inside the organisation.
It locks management into taking a long term perspective when the pressures are to adopt a short term focus with grave dangers of making strategic errors. The natural tendency is for managers to devote their time to dealing with the problems and opportunities of today, to the exclusion of consideration of the longer term. Strategic market management usually has a well defined time-cycle when managers have to submit short, medium and long term plans. Such cycles instill a discipline that forces managers to devote a minimum amount of time giving thought to future developments.
It changes the basis on which resource allocation decisions are made. Resource allocations are frequently dictated by financial professionals who understand accounting conventions and terminology and this is often employed to the disadvantage of managers less well informed on these matters. In other cases, resource allocations are made according to the ‘political’ strength of a group, department or individual manager rather than on commercial merit. Strategic planning seeks to match resources to opportunities (and/or threats).
It provides a strategic management control system. Monitoring and control are an integral part of strategic management. This enables management to deal with problems as these emerge rather than allowing problems to become crises. These aspects of strategic management are discussed later in this chapter.
It provides a vertical and horizontal communication and coordination system. Strategic market management is a vehicle for communicating problems and proposed strategies with precision due to its vocabulary and explicit expression of expectations of the future.
It helps enterprises operating in rapidly changing and unpredictable environments to cope.
Thus, strategic market management is proactive in that it prepares managers not merely to expect change but to anticipate it. Moreover it serves as an instrument for making management more externally orientated and less insular. Strategic market management also focuses management attention on the longer term and counters the natural tendency for management time to be totally absorbed by today's problems and opportunities.
As was said earlier, planning involves setting objectives, designing and implementing a programme to achieve the objectives and developing a system for monitoring and controlling the execution of the plan. This process involves analysis, planning, implementation and control. The process of marketing planning is illustrated in figure 3.2.
Figure 3.2 The marketing planning process
The activities described in figure 3.2 can be categorised as diagnosis, planning and action. These three activities, once started within an organisation, never stop. SWOT analysis constitutes the diagnosis stage, the objectives and strategies stages are the planning activities and the action plan and monitoring, evaluation and control stages are the action part of the plan.
Plans can be categorised according to time span and complexity. Strategic marketing plans which are intended to guide management through the environment in the long term are generally complex and have a 2–3 year time horizon. Annual marketing plans (i.e. operational marketing plans) which focus upon specific target marketing objectives of the marketing mix - product, price, promotion, place and people have a one year time horizon. Tactical plans (i.e. short term operational marketing plans) which are “reaction” plans to, say, changes in a competitor's price, have a one to three month duration and are intended to bring the organisation “in tune” or to “react” to a potential disadvantage.
Depending on the agricultural organisation type, plans may vary in terms of their sophistication. A small scale farmer may leave planning to others, for example, to an extension officer who is advising him/her with respect to what and when to plant, or he may react to pre-planning price announcements. His planning may be non-existent or very rudimentary. More sophisticated large scale farmers may have elaborate budgeting procedures, crop rotation patterns and crop production plans. Food processing organisations which deal with many suppliers, products and customers may have a whole range of tactical, annual and strategic plans. Government, which plans the economy, may enlist all types of planning devices.
A whole variety of plan types can be identified including:
|Corporate plans||An overall master plan for the organisation and its divisions setting out what business(es) it intends to be in over a given time horizon.|
|Divisional plans||Plans for each division of an organisation showing how it intends to carry out the corporate plan and make its contribution to it.|
|Product line plans||Plans for a series of products within a product range, for example plans to increase a range of canned fruits.|
|Product plans||Plans for individual products within a range. The decision may be to delete, expand or develop the product.|
|Brand plans||Plans for an individual brand, for example market repositioning, repackage or deletion of brand.|
|Product/market plans||Plans which spell out what the organisation plans do in each product/market it services.|
|Functional plans||Plans for advertising, selling and market research departments. It involves decisions on budgets, resources and functions.|
The following describes the contents of the marketing plan which includes the executive summary, corporate purpose, situation analysis (SWOT), objectives, strategies, action plan, monitoring evaluation and control and the marketing intelligence system.
The planning document should start with a short summary of the main goals and recommendations to be found in the main body of the plan. A summary permits management to quickly grasp the major directions of the plan.
There are two elements to the corporate purpose, one is to prepare the organisation's basic mission statement, the other specifies the basic management goals.
This answers the question what business is the enterprise in and what business should the enterprise be in? Periodically the basic mission of an organisation has to be reconsidered since the environment of enterprises is constantly changing. For example, in the wake of market liberalisation many marketing parastatals are being forced to revise their mission statements. Those that formerly had exclusive rights to market staple foods such as grains, and under market liberalisation have had this exclusive function taken away from them, are wrestling with the question of what their role should be now. They may have alternative roles which they could assume such as becoming the buyer and seller of last resort, or becoming an instrument of development whereby the parastatal acts as the marketing agent of small scale farmers and with their storage and transport resources close the competitive gap between smallholders and the large farms and plantations. Then again, the marketing parastatal may be commercialised, or even privatised, in order to increase the level of competition when new grain suppliers enter the market. Whatever role is chosen, it should be expressed within the organisation's mission statement.
Another reason for reviewing an organisation's mission from time to time is that larger enterprises can find themselves gravitating away from their core business. The process can be imperceptible. Investments can be made here and there, none of which amounts to a substantial drain on corporate resources but collectively they can sap those resources and divert the organisation from its core business and core customers. This was experienced by the multinational mining company Rio Tinto. The company's core business was the extraction of precious metals but over time it diversified its portfolio and became involved in many other types of business. Some of these were fairly closely related to mining but others had little or no connection. One sector in which Rio Tinto became involved was agricultural equipment and services. These agricultural businesses ranged from the construction and assembly of equipment to the operation of a forge and the provision of an irrigation systems design service. The management of mines and mining has little in common with the management of agricultural manufacturing businesses. The methods of operation are quite different, the resources required are on quite different scales, as are the returns on investment, and the strategies that are applied in one sector have no relevance to the other. Eventually, Rio Tinto did what many large organisations have done before it and returned to its core business by divesting itself of these other investments. By doing so, Rio Tinto released resources which it could then channel back into the core business.
It should not be concluded that only large organisations become confused over the question of what business they are in. Some businesses never consider the question of what business they are to operate in at the outset. Foba Engineering, based in Kaduna, Nigeria, is typical of many small companies in that it makes a range of unrelated products. For instance, Foba fabricates both grain milling equipment and trunking for street lighting. It could be said that Foba's business centres around maximising the throughout of its fabrication facilities and for as long as the firm can find jobbing work, but Foba finds it difficult to develop expertise in the production of any of the items it manufactures. More importantly, since it operates in diverse markets Foba has neither the facility to properly study the needs of each of those markets nor can they anticipate future developments since they do not have the resources to monitor trends in all of those markets. Moreover Foba, like so many enterprises, suffers from what is termed in the marketing literature as a ‘technological fix’. This occurs when an enterprise defines its business in terms of its current production technology rather than according to the needs which it seeks to serve. In Foba's case they are vulnerable to competition from businesses that manufacture milling equipment by casting, machine turning and even plastic moulding.
The strategic marketing audit
By constantly monitoring and reviewing the organisation's strengths, weaknesses, threats and opportunities (SWOT). This is an extremely important part of the Marketing Plan. The purpose of a situation analysis is to investigate the company's own strengths and weaknesses (internal analysis) and discover the threats and opportunities in the environment (external analysis) so it can avoid the threats and take advantage of the opportunities. Threats have to be analysed to see if they are “negative” or “neutral” threats. Threats may be insignificant.
The situation analysis helps identify the answer to four basic questions: where is the organisation now? How did it get there? What conditions is it heading into? What strategy should it adopt for the future?
Figure 3.3 SWOT analysis
Figure 3.3 reveals that strengths and weaknesses arise from within the organisation and therefore are in large measure controllable. Threats and opportunities, however, have their origins in the external environment and are, for the most part, outside the direct control of the organisation. Nonetheless, an organisation that is carefully monitoring changes in the external environment is in a position to anticipate events (i.e. to act before the event takes place).
Techniques such as portfolio analysis, which was discussed in chapter 2 and product life cycle, explained in chapter 4, can be used in concert with SWOT analysis to assess an organisation's current situation and establish a basis for developing a strategy for the future. Figure 3.4 suggests some of the questions that might be used in assessing strengths, weaknesses, opportunities and threats. The meanings of these elements of SWOT analysis are:
Figure 3.4 Indicators of strengths, weaknesses, opportunities and threats
Having discovered the issues with which it is faced, management must then make some decisions about objectives which will then guide the subsequent search for promotional strategies and action programmes. Objectives should be quantifiable, measurable, achievable, communicable and consistent. Objectives may be stated in economic or subjective terms. Greenley has carried out a comprehensive study of the range of objectives which organisations pursue, and drawing upon the work of such as Ansoff5, Hofer6, Pearce and Robinson7 and Thompson and Strickland8 has summarised these objectives and the way in which they tend to be measured. The results of Greenley's work is shown in figure 3.5.
Figure 3.5 Organisational objectives and their measurement
It will be noted that organisations pursue non-economic as well as economic goals. Those goals which do not relate to profitability, such as employee relations and those related to social responsibility, are social rather than economic objectives.
Economic objectives have to be translated into marketing goals. For example if a company wants to earn $1.8m, profit, that is, its target profit margin is over 10 percent on sales, then it must set a goal of $18m in turnover. Further if the company sets an average price of $26, then it must sell 692,300 units. If the company only has a 7 percent market share, then it would be expecting the total industry sales to top 23 million units. The company has to set certain targets for consumer awareness, distribution coverage and so on, if it expects to maintain or improve its 3 percent market share. Hence the overall marketing objectives might include the target of doubling consumer awareness of the brand being sold and raising the number of distribution outlets by about 10 percent over and above the other stated targets.
Objectives are usually set in a hierarchical way. Figure 3.6 provides an illustrative example of this hierarchy for a hypothetical fertilizer company. Each objective can be achieved in a number of ways and so the marketing manager is faced with making choices.
Strategic objective: A strategic objective is a choice and a statement of priority for the enterprise. Objectives are drawn up from an analysis of the strategic focus.
Figure 3.6 Hierarchy of objectives for Bora Bora fertilizers
There are many ways to achieve strategic objectives and, indeed, the focus may change over time. A grower of oranges may begin by needing to achieve volume if he/she is to be able to completely fill a container and ship economic loads. Later, the organisation's focus may switch to cost reduction as the market becomes more competitive and margins are being squeezed. The basic strategic options are outlines in figure 3.7.
Figure 3.7 Basic strategic options
Figure 3.7 suggests that there are two main ways of achieving improved performance, i.e. volume or productivity strategies. Basically the choice is to increase volume or reduce costs; ideally these should be pursued simultaneously. For example, if the objective is to increase sales revenue by 10 percent such an objective can be achieved by either increasing the average price on all units, or by increasing the overall sales volume and/or by selling more of the higher-priced units. Each of these strategies can be achieved by increasing market growth and/or market share. In developing the strategy, the basic marketing tools can be identified: target markets, position in the market, product line, price, sales force, etc.
Market segments are based on product or customer characteristics. Typical product characteristics are different sizes, prices and colours whereas customer characteristics may be age, sex, income, social class, geographical location or personality. The choice of a target market and the marketing of a product can lead to a number of product/market coverage strategies, as illustrated in figure 3.7.
Examples of each are:
|Product/market concentration||Growers in Ivory Coast specialising in banana production which is then exclusively sold into French wholesale markets.|
|Product specialisation||In China vegetable traders do not handle other products, not even fruit. The reverse is also true: Chinese fruit traders do not handle vegetables.|
|Market specialisation||Lesotho's production of canned white asparagus sold at premium prices into specialist food stores whose customers are in the higher income categories, in high income countries such as Belgium and Germany.|
|Selective specialisation||Colombian flower producers grow long stemmed carnations for the North American market and short stemmed carnations for the European market.|
|Full market coverage||John Deere manufactures a full line of agricultural equipment and seeks to market it, either directly or through agents, in every country in the world that has an agricultural industry.|
Figure 3.8 Market coverage strategies
The core strategy is a statement of what an organisation is offering to create a preference for its products and services in the marketplace. Through a careful examination of the customer and his/her needs and wants, the organisation can determine what is required to create a differential advantage.
The marketing mix
The marketing mix is a concept first introduced by McCarthy10 and comprises the product, price, place (distribution) and promotion decisions and is often called the “4 P's”. The mix is the right combination of marketing activities to ensure customer satisfaction. Each element of the marketing mix has a chapter of this textbook devoted to its exposition and therefore they are discussed only briefly here.
Product: The product offering can be manipulated to create different market effects at three levels: the core product, the tangible product and the augmented product. At its core, a product is not a physical entity but the benefits that it offers customers. Those benefits may be physical or psychological in nature. The consumption of imported foods, in a developing country, sometimes has as much to do with the status of being seen to buy sophisticated, and perhaps expensive, products as it has with any superior physical qualities compared to domestic equivalents. The tangible product refers to its features, quality, styling, packaging, branding and labelling. A third level is that of the augmented product, that is, additional service elements which are attached to the product. Examples include after-sales service, extended guarantees, credit facilities, technical advice and product trials.
Price: Prices should be set in relation to specific pricing objectives. Pricing decisions include payments, terms, discounts, contract and pricing structures. Non-price competition may come through packaging, labelling and advertising. Prices have to reflect the costs of production and marketing and target profit margins. A variety of approaches may be taken to pricing including cost based, demand based, competitor based and market based.
Promotion: Promotion includes advertising, public relations, selling, exhibitions, brochures, data sheets and free gifts. Possibly the most important decision about promotion is the message to be communicated. The message(s) has to differentiate the products and/or its supplier. To this end, an organisation will seek to convey a unique selling proposition (USP), that is, to find some aspect of the product, service or organisation which others cannot, or simply do not, promote to customers and which is perceived to be important or attractive to those consumers.
Advertising is a form of communication which a sponsor pays to have transmitted via mass media such as television, radio, cinema screens, newspapers, magazines and/or direct mail. It is intended to both inform and persuade. Whereas, promotion tends to be short term in its effects, advertising tends to take time to have any effect, but then its effects, when they come, can be lasting. Whilst no one has firmly established exactly how advertising works, it is generally thought to conform to the sales- expenditure pattern depicted in figure 3.9.
Figure 3.9 A theoretical advertising response curve
This S-shaped curve suggests that over a range of low level expenditures there is little response in terms of increased sales. This is perhaps because the intensity of advertising that such expenditures would buy is below a threshold where most of the target audience would become aware of the product or service. Once that threshold is crossed there is a dramatic response to increasing levels of advertising expenditure. Eventually though, the target market is saturated and whilst advertising expenditures continue to increase the market response plateaus. Put another way, the enterprise reaches a point where for every dollar spent on advertising the sales returns are below $1.00, i.e. the law of diminishing returns applies. The challenge to strategic planners is to work out the range of advertising expenditures that will prove the above threshold A but below threshold B.
Place: Produce distribution elements include physical distribution like storage handling, transportation and warehousing, both on and off farm, and functional distribution e.g. wholesaling and retailing. The decision as to which distribution channel the organisation should seek to use falls into the realm of strategic marketing but actions within the chosen channels are operational in nature. Growers, processors and manufacturers have to market their products to, and not through, channel members. To the extent that channel members see themselves as anyone's agent, they are more likely to see themselves as agents of their customers rather than agents of product suppliers.
Implementing a marketing programme involves deciding on long, medium and short term activities for all marketing functions. Decisions have to be made on budgets, staffing levels, how to communicate the elements of the plan, coordination of activities and motivating people to carry out the plan. All of this has to ensure marketing efficiency. Whilst too much planning can stifle flexibility and creativity, no planning is a recipe for disaster. It leads to ill conceived product and marketing strategies, enhancing the possibility of waste and inefficiency in a vital industry: the production and marketing of food.
It is the task of management to ensure that the marketing plan is carefully monitored, evaluated and controlled. Indeed authors such as Mockler11 see no distinction between planning and control but view them instead as steps within the same cycle. Typical controls involve setting standards of performance, evaluating actual performance against standards and, if the deviations are intolerable, taking corrective action. Marketing planning can be seen as a cycle, which begins with clear objectives that set out what the marketer intends to achieve, and ending with a feedback mechanism in order that the objectives can be evaluated, a course of corrective action can be taken (if there are deviations from plans) and the organisation can monitor its usage of resources.
Figure 3.10 The planning execution and control cycle
Clearly any system of monitoring and control has to be implemented in accordance with organisational structure. That is, if there are SBUs, divisions or other business units that have a degree of autonomy and responsibility for the development of strategy and plans, then these must have their own systems of monitoring and control in place.12
Marketing control involves setting a desired standard, measuring deviations from the standard and taking the appropriate action. In many cases the standard is expressed in terms of budgets and any substantial deviation from budget is investigated. Both positive as well as negative deviations can be a cause for concern. If sales are far in excess of planned levels then this can over-stretch the enterprise's production, storage and distribution resources, for example. At the same time, the investigation of all deviations from budgeted levels would prove an unbearable load on managers. Instead, since not all deviations are significant, parameters are set for “allowable” deviations and only those exceeding these parameters are investigated. There are four types of marketing control: the annual plan control, profitability control, efficiency control and strategic control. Table 3.1 shows the level of management which has responsibility for each of the types of control.13
The different types of controls can be seen as a complementary and interlocking set of activities, as depicted in figure 3.10.
Figure 3.11 The different levels of marketing controls
Table 3.1 Types of marketing control
|Type of Control||Prime Responsibility||Purpose of Control||Approaches|
|Annual plan control||Top management|
|To examine whether the results are being achieved||Sales analysis|
Market-share analysis Sales-to-expense ratios
Financial analysis Attitude tracking
|Profitability control||Marketing controller||To examine where the company is making and losing money||Profitability by product territory|
Customer group trade
Channel order size
|Efficiency control||Line and staff management|
|To evaluate and improve the spending efficiency and impact of marketing expenditures||Efficiency of sales force|
Advertising sales promotion distribution
|Strategic control||Top management|
|To examine whether the company is pursuing its best opportunities with respect to markets, products, and channels||Marketing effectiveness rating instrument|
The purpose of the annual plan control is to ensure that the company achieves the sales, profits and other goals established by the marketing plan. It is, therefore, an operational control plan. This type of control applies to all levels of the organisation and the process.
Figure 3.12 The annual plan control process
Several measures may be taken in assessing performance in relation to the marketing plan, including sales analysis, market share analysis, marketing expenses to sales ratios, attitude tracking, profitability and efficiency. Each of these will be briefly discussed.
Actual sales can be compared to sales targets and budgets and an analysis of any variance between the two would be carefully examined. Sales analysis centres interest upon the relative contribution of different factors to a gap in sales performance. Say, for example, that the managing director of the National Canning Company is told by the marketing manager that sales are up half a million units on the target and that revenues are five percent above budget, this would be cause for celebration. Or would it? Before answering this question the managing director would wished to look at these figures a little more analytically. The operating results might look those presented in table 3.2.
Table 3.2 Operating results for a canned product
|Sales (units)||5,000,000||5,500,000||+ 5000,000|
|Price per unit ($)||3.50||3.40||- 0.10|
|Total revenues ($)||17,500,000||18,700,000||+ 1,200,000|
|Total market (units)||10,000,000||12,000,000||+ 2,000,000|
|Share of market||50%||46%||- 4%|
|Variable costs @ $ 2.5 per unit||12,500,000||13,750,000||+ 1,250,000|
|Profit contribution ($)||5,000,000||4,950,00||- 50,000|
It can readily be seen that, although sales have exceeded expectations, the planned price was not achieved and so the product made a lower contribution than expected. In this case the price mechanism would need investigating as would the estimates of market share. Whilst the Canning Company recorded an increase in sales of ten percent, the market as a whole was twenty percent above target. Seen in this light, there is more cause for concern than for celebration.
This approach to sales analysis can be extended to specific products, market segments and/or sales areas, etc. to evaluate the profit contributions of each and to identify those that were poor performers. From there consideration can be given to the underlying reason for that performance.
Market share analysis
Market share analysis shows how well the organisation is doing vis-a-vis competitors. The first step is to determine market share, either by absolute measures (overall market share) or relative to main competition (relative share), or to leading competitor (relative to market leader share). The second step is to analyse market share movements in terms of the following:
|Total market share||=||Customer||×||Customer||×||Customer||×||Price|
CP = Percentage of all customers who buy from the company.
CL = Purchases of this company by its customers expressed as a percentage of their total purchase from all suppliers of the same product.
CS = Size of the average customer purchases from the company expressed as a percentage of the size of the average customer purchase from an average company.
PS = Average price charged by this company expressed as a percentage of the average price charged by all companies.
Example: If the CP = 3% and CL = 2% and CS = 2% and PS = 2%, then overall market share = 3×2×2×2 = 24%.
Market expense to sales ratio
The marketing expense to sales ratio is used to ascertain whether the organisation is spending too much or too little on marketing in order to achieve its sales goals. The marketing expense to sales ratio can be made up of a number of components such as sales force size to sales, advertising to sales, sales promotion to sales, marketing research to sales and sales administration to sales. The monitoring procedure involves determining an acceptable level (or standard) and by using a variety of charting devices (control chart or expense to sales deviation chart) look at actual to budgeted expenditure.
An illustrative example may help to clarify the procedure. Suppose that management has decided that the organisation should spend around 0.01 percent of sales revenue on advertising. This equates to 1¢ in every $1.00. Over a period of time, the following pattern of advertising expenditures to sales revenues is observed.
Figure 3.13 Marketing expense control chart
Before any decision or even interpretation, is made on the basis of these figures, management has to be clear on whether the baseline ratio was derived from some systematic evaluation of cause-and-effect or simply reflects what the organisation felt that it could afford. In the case of the latter, this chart is of doubtful value. If, on the other hand, the ratio has been arrived at after careful analysis, then when both the upper or lower boundaries are breached there is cause for concern. At the very least, management has to raise questions over the reasons why this has happened.
Customer attitude tracking
Whilst most of the control techniques described so far have been quantitative in nature, customer attitude tracking studies give qualitative information. The main customer attitude tracking measures are complaint or suggestion schemes, customer panels or customer surveys. These can be very useful in revealing what customers feel about the organisation, its products, services and behaviour towards society as a whole.
Besides annual plan control, organisations need to measure the profitability of their various products, territories, customer groups, trade channels and order sizes. This information will help management determine whether any products or marketing activity should expanded, reduced or eliminated. There are two major techniques: marketing profitability analysis and Lorenz curves.
Marketing profitability analysis
This consists of starting from the target profit plan and then applying the control measure - marketing profitability analysis. Assume the manager of a line of baked products is setting his/her annual plan. Further assume that it is believed that:
In theory the manager should devise a plan intended to optimise the sales response function. A sales response function forecasts the likely sales volume during a specified period associated with different levels of one or more marketing mix elements. Typically he/she should assess the sales which would be generated by ever increasing amounts of marketing expenditure until the point of diminishing returns is reached.
Figure 3.14 The sales response function
With reference to figure 3.13 marketing expenditure of $100,000 and $200,000 will generate sales units of 2,000 and 10,000 respectively (points A and B). However the optimum marketing expenditure is $300,000 resulting in sales units of 14,000 (point C). Any expenditure beyond this point will generate diminishing returns. In practice, estimating the optimum marketing expenditure is very difficult because of the interrelated effect of the marketing mix variables.
Returning to the example of the product manager for the baked products line, a plan set under his/her assumptions might look like that in table 3.3:
Table 3.3 Target profit plan
|1.||Forecast of total market (cases)||5,000,000|
|2.||Forecast of market share||25%|
|3.||Forecast of sales volume (cases) (1×2)||1,250,000|
|4.||Price to distributor per case||$ 20|
|5.||Estimate of sales revenue (3×4)||$25,000,000|
|6.||Estimate of variable costs per case [Ingredients ($6) + cans ($2) + labour ($2) + physical distribution ($2)]||$12|
|7.||Estimate of contribution margin to cover fixed costs, profits and marketing [(4–6)×3]||$10,000,000|
|8.||Estimate of fixed costs (Fixed charge $1 per case x 1,250,000 cases)||$ 1,250,000|
|9.||Estimate of contribution margin to cover profits and marketing (7–8)||$ 8,750,000|
|10.||Estimate of target profit||$ 3,000,000|
|11.||Amount available for marketing (9–10)||$ 5,750,000|
|12.||Split of marketing budget:|
|• Advertising||$ 2,000,000|
|• Sales promotion||$ 1,000,000|
|• Selling||$ 2,500,000|
|• Marketing research||$250,000|
In this example the firm is estimated to make $ 3 million profit after deduction of all expenditures. However, as indicated earlier, this analysis assumes a static position and a constant sales response rate. In practice, it may be necessary to perform sensitivity analysis on a number of combinations of the marketing mix elements. In the analysis in the table 3.3 a set of mix combinations could yield the following results shown in table 3.4). It should be noted that these results are before subtraction of variable and fixed costs and selling and marketing research costs.
Table 3.4 Marketing mix combinations and results
|Marketing Mix No.||Price||Advertising||Promotion||Sales||Profits|
In this case marketing mix number 5 would yield the best profit because:
Profit = Total revenue - Total cost
Profit = (Price × quantity) - Total variable cost - Fixed cost - Marketing cost.
Applying this to marketing mix No. 5:
Profit = ($25 × 3,000,000) - ($12 × 3,000,000) - (12 × 3,000,000) - ($ 1 × 3,000,000) - (4,000,000 + 4,000,000 + 2,500,000)
Of course, this calculation would only be as accurate as the estimates of the responsiveness of the market to changes in price, advertising and promotion.
Marketing profitability analysis can also be applied to historical data to determine whether a territory, product or channel should be added to, altered, reduced or eliminated. This involves identifying or assigning the functional expenses to marketing activities and preparing a profit and loss statement for each marketing entity. For example, suppose that Quesi Ltd. sold its tree cutters through different outlets: its agricultural equipment suppliers, garden supply and retail stores. Further assume that management wanted to assess the profitability of each of the outlets and take any necessary corrective action. The methodology would be as follows:
The first step would be to analyse the profit and loss statement:
Table 3.5 A profit and loss statement for Quesi equipment
|Cost of goods sold||78,000|
The next step would be to apportion functional expenses to each major cost category of the business as illustrated in table 3.6.
Table 3.6 Apportioning functional expenses
|Total||Selling||Advertising||Packing and delivery||Billing and collecting|
Next the manger would assign the functional expenses to the various marketing entities in order to develop a profit and loss account for each one. This is illustrated in the table which follows.
Table 3.7 Assigning functional expenses to marketing entities
|Selling||Advertising||Packing and delivery||Billing and collecting|
|Channel type||No. of sales calls in period||No. of advertisements||No. of orders placed in period||No. of orders placed in period|
|Functional expense/No. of units||$11,000/550||$6200/200||$9600/160||$4800 /60|
Table 3.8 Profit and loss statement for each marketing entity
|Agents ($)||Garden supply ($)||Department stores ($)||All retail outlets ($)|
|Cost of goods sold||39,000||13,000||26,000||78,000|
|Packing & Del. ($60/order)||6,000||2,520||1,080||9,600|
In this case selling through the garden supply stores is causing a loss and therefore management may decide to cut the level of service to this type of outlet, increase sales, cut down on expenses or alter the marketing mix.
The 80/20 principle enjoys wide acceptance and applicability in marketing. Typically, this principle manifests itself in statements like, “Eighty percent of an organisation's profits arise from only twenty percent of the products within the product range”. Or:-
20% of stock items account for 80% of inventory costs, or
20% of customers provide 80% of sales volumes, revenues and/or profits, or
20% of the distribution outlets served provide 80% of consumer sales
Table 3.9 Analysing the contribution of products to sales volumes
|Product||Unit Sales (000's tonnes)||Cumulative Sales (000's tonnes)||Cumulative Percent Of All Sales|
Where the 80/20 principle is seen to apply, marketing management focuses its control on the “twenty percent”. Thus, for instance, only relatively senior personnel are authorised to place purchase orders for those stock items which fall into the “20% category” since control over the amount invested in these items has a significant effect upon the cash flow and profitability of the organisation. In the same way, marketing management is likely to concentrate resources on the customer groups and/or middlemen who generate the greater proportion of the organisation's turnover and/or profits.
Lorenz curves are a mathematical-graphical method of analysing the degree of concentration of sales, revenues, profits and/or costs of a business. The hypothetical data in table 3.9 show that just two products, maize and wheat, account for the great majority of the organisation's sales volume. More precisely, 20 percent of the items in the product range (i.e. 2 out of 10) account for 80 percent of total unit sales. Given the importance of these commodities the organisation will pay particular attention to procuring and promoting wheat and maize. If sales of these products decline, even to a small extent, then this would have a substantial effect on the organisation's trading position.
The degree of concentration in the organisation's business becomes even more apparent when the table of data is displayed graphically as a Lorenz curve as in figure 3.15. Of course, it rarely happens that the concentration of sales conforms precisely to the 80/20 ratio but it is surprising just how widely applicable the pattern of concentration is to business phenomena. Businesses find that a small proportion of stock items accounts for the greater part of the value of their inventory; that most of their profit arises from a relative small number of products within the total product range and that a minority of customers/distributors generates the majority of sales and/or profits.
The Lorenz curve allows the categorisation of the products marketed according to their respective contributions to sales. In this example there appear to be three categories which have been labelled A, B and C. Category A items - which are only 30 percent of the product range - have to be managed very carefully since they add up to 75 percent of sales volume and, therefore, the performance of these items is critical to the organisation. Category B products add a further 20 percent to total sales volume and although having less impact on the overall performance of the enterprise, nonetheless should be regularly monitored. If categories A and B are combined then it is found that 50 percent of the product range is responsible for 95 percent of volume sales. Given, however, that category B products (i.e. 50 percent of the product range) collectively yield only 5 percent of unit sales and their performance in any season will have only a modest effect upon the organisation's overall sales results these do not merit too much of management's time and effort.
Figure 3.15 A Lorenz curve
An obvious response is to delete products in category C from the company portfolio on the grounds that these items contribute relatively little to the company's sales volumes. The pattern of sales volume concentration might also have implications for the structure of marketing management within the enterprise. Each of the products in category A might justify the assignment of an individual product or brand manager whereas items in categories B and C could be managed collectively as a product range and possibly by less senior personnel. Other marketing decisions which could be influenced by the degree of sales volume concentration revealed by the Lorenz curve include:
How the promotional budget should be allocated
Where sales personnel should focus their time
Determination of inventory and reorder levels for products
Identification of priorities for the cutting and/or control of marketing costs.
When basing decisions on the analysis which a Lorenz curve provides, there are a number of caveats. For instance, when contemplating the deletion of products from the product line, the decision to take this action should only be made after consideration has been given to the reasons for the apparently poor performance of the products in category C. It may be possible to improve the sales of these items by giving them greater support or through more imaginative marketing. Even if this is not the case and the potential of these products is limited, their retention may be justified because they complement more profitable items and customers expect the manufacturer, producer or supplier to offer a complete product line.
It also has to be remembered that a Lorenz curve represents a ‘snapshot’ of the situation at a particular point in time. No account is taken of the future position of these products. That is, the top performing products of today may, in the longer term, fall into decline whilst other products achieving only moderate sales could be the ‘star performers’ of the future. The Lorenz curve may show a spurious concentration due to the capturing of data at a single point in time when, in reality, there are random fluctuations in period-to-period buying.
Several perspectives should be taken when conducting an analysis of this type. It may be the case that a certain product, or group of products, is assigned to a low category when the criterion is ‘sales volume’ but would fall into a higher category when the criterion used is perhaps ‘profit contribution’.
If the profitability analysis reveals that the company is earning poor profits in connection with certain products, territories or markets, the question is whether there are more efficient ways to manage the sales force, advertising, sales promotion and distribution in connection with these poor performing entities.
Sales force efficiency
Hartley15 provides the following key indicators of sales force efficiency in their territory:
Difficult as it is, the marketer should try and track the following:
Sales promotion efficiency
Track should be kept of each sales promotion campaign and its impact on sales:
This will enable the marketer to search for economies in distribution. Measures are mainly taken through statistical/operational research methods:
Monitoring and control enables marketing management to address two vital questions: are resources being used effectively and is there a better way of using them? In answering these questions much waste can be removed from marketing activities and functions.
An organisation's corporate strategy comprises a statement of its mission, its overall objectives and the means by which these are to be met. Business policies are bodies of rules established to guide managers in their decision making. They are, in a sense, a predetermined range of responses to defined situations. Market planning is a principal component of corporate planning. Corporate planning also involves planning the financial, personnel and production resources of an enterprise. Marketing planning involves setting objectives, designing and implementing a programme to achieve the organisation's objectives and having a monitoring and control mechanism to ascertain whether the planned programme is on track or has achieved its desired objectives. Marketing planning breaks down into strategic planning and operational planning. Strategic marketing planning began as a response to the inadequacy of assuming that the future will look very much like the past. It is dangerous for a business to extrapolate in economies and markets that are developing and changing. Strategic market planning enables organisations to anticipate events rather than merely react to them.
In very large and highly diversified organisations managers can feel divorced from the events and decisions that are shaping the business. The concept of a strategic business unit (SBU) was developed as a means of retaining the vitality of the entrepreneurial spirit by giving management a high degree of responsibility and autonomy in decision making. The SBU becomes a separate business entity, although still belonging to a larger commercial enterprise, having its own defined business strategy and a management with direct responsibility for its profits and sales performance. SBUs can be based around individual brands but it is more common for a large corporation to break down its business according to either product categories (e.g. fertilizers, grain trading and farm buildings) or markets served (e.g. agriculture, distribution and construction and design).
Plans can be categorised according to time span and complexity. Strategic marketing plans which are intended to guide management in the long term generally have a 2 – 3 year time horizon whereas operational marketing plans are revised annually and tactical plans usually extend over a one to three month period. The marketing plan will include an executive summary, a statement of corporate purpose, a situation analysis (SWOT), objectives, strategies, action plan, monitoring evaluation and control and the marketing intelligence system.
There are two main ways of achieving improved market performance, i.e. volume or productivity strategies. Basically the choice is to increase volume or reduce costs; ideally these should be pursued simultaneously. Increasing volumes can be achieved by increasing market growth and/or market share.
It is the task of management to ensure that the marketing plan is carefully monitored, evaluated and controlled. Typical controls involve setting standards of performance, evaluating actual performance against standards and, if the deviations are intolerable, taking corrective action. Marketing planning can be seen as a cycle, which begins with clear objectives that set out what the marketer intends to achieve, and ending with a feedback mechanism in order that the objectives can be evaluated, a course of corrective action can be taken (if there are deviations from plans) and the organisation can monitor its usage of resources. There are four types of marketing control: the annual plan control, profitability control, efficiency control and strategic control. Among the more popular techniques used in monitoring the actual marketing performance of an organisation are sales analysis, market share analysis, marketing expenses to sales ratios, attitude tracking, profitability and efficiency analysis and Lorenz curves. If the analysis reveals that the company is performing badly in connection with certain products, territories or markets, the question is whether there are more efficient ways to manage the sales force, advertising, sales promotion and distribution in connection with these poor performing entities.
|Brand plans||Lorenz curves||Product line plans||Strategic marketing plans|
|Business policy||Market share analysis||Product/market plans||Strategic business units|
|Corporate strategy||Marketing tactics||Product plans||SWOT|
|Divisional plans||Mission statement||Profitability analysis|
|Functional plans||Operational planning||Sales analysis|
From your knowledge of the content of this chapter, answer the questions below briefly.
Name as many different types of marketing plan as you can.
What is an SBU?
What is the essential distinction between ‘strengths and weaknesses’, on the one hand, and ‘opportunities and threats’, on the other?
Explain the term ‘generic strategies’.
Give a brief summary of the principal benefits of strategic market planning identified by Aaker.
Briefly outline the main market coverage strategies.
What are the 4 categories of organisational objectives summarised by Greenley?
What are the 2 types of marketing planning?
Which measures, suitable for assessing how well/badly an enterprise is performing in relation to its marketing plan, are explained in this chapter?
What is the 80/20 principle?
What does the advertising response curve tell us about the setting of advertising expenditures?
Outline the main headings likely to be found in a marketing plan.
1. Baker, M.J. (1985), Marketing Strategy And Management, Macmillan, p. 32.
2. Greenley, G.E. (1986), The Strategic And Operational Planning Of Marketing, McGraw-Hill, Maidenhead, Berkshire, UK, pp 15–18.
3. Aaker, D.A. (1988), Strategic Market Management, John Wiley & Sons, New York, pp. 10–11.
4. Levitt, T, (1960), “Marketing Myopia” Harvard Business Review, July-August 1960, pp. 45–56
5. Ansoff, H.I. (1984), Implanting Strategic Management, Prentice-Hall, Englewood Cliffs
6. Hofer, C.W. (1976), Typical Business Objectives, 9-378-726 Harvard Case Series.
7. Pearce, J.A. and Robinson, R.B. (1982), Formulation And Implementation Of Competitive Strategy, Irwin, Homewood.
8. Thompson, A.A. and Strickland, A.J. (1983), Strategy Formulation And Implementation, Business Publications, Plano.
9. Morgan, C.M. (1985), “Progress On The Plantation: The Growth Strategies Of Sime Darby”, In: Successful Agribusiness, Gower Publishing Company Limited, pp. 39–46.
10. McCarthy, E.J. (1960), Basic Marketing, Irwin, Homewood.
11. Mockler, R.J. (1967), “Developing The Science Of Management Control”, Financial Executive, December 1967, pp. 84–93.
12. Higgins, J.M. (1983), Organizational Policy And Strategic Management, Dryden Press, New York.
13. Carter, S. (1992), Agricultural Marketing Management: A Teaching Manual, Network and Centre for Agricultural Marketing Training in Eastern and Southern Africa, Harare, p. 309.
14. Johnson, D.A. (1985), “International Multifoods” Strategy In Venezuela”, In: Successful Agribusiness, Gower Publishing Company Limited, pp. 18–23.
15. Hartley, R.F. (1979), Sales Management, Houghton, Mifflin, Boston.
1. Aaker, D.A. (1988) Strategic Market Management, John Wiley & Sons, New York, pp. 10–11.
0. Aaker, D.A. (1988) Strategic Market Management, John Wiley & Sons, New York, pp. 8–9.