by Professor Malcolm McDonald
There are ten questions Directors are now asking their senior marketing colleague. The answers, set out here, will ensure that marketers gain the respect in the boardroom that they deserve.
Question 1. Do we know and understand our key markets?
- We define our markets in terms of needs satisfied, not the products we sell. Remember IBM (“we are in the mainframe market “ ) ? and Kodak (we are in the film market) ?
- We map our markets, showing product/service flows, volumes/values in total, our shares and draw critical conclusions for our company.
- We know what the key decision points are. In particular, we understand the 20/80 rule, as this is where segmentation is done.
Question 2. Do we address real segments in our markets?
- We do proper needs based segmentation, not that a priori nonsense such as socioeconomics (not all As behave the same), demographics (not all 18-24 year old men behave the same, geodemographics (not everyone in the same street behaves the same) etc.
- We also understand the needs of members of each segment
Question 3. Do we know what our sources of differentiation are in each of the principal market segments in our key target markets?
- We regularly check on the buying motives of segments and compare how well our company performs compared with main competitors
- We act on the resulting strengths and weaknesses. We check that our strengths create value for us and the customer and that they are difficult to copy. We work hard at tackling our weaknesses that are meaningful to the customer
- We regularly monitor the opportunities and threats by segment and work hard to take advantage of the opportunities and to ameliorate the threats.
Question 4. Do we all agree where we should target our limited resources?
- We prioritise the segments in each market, having classified them all according to relative potential for growth in our profits in each over the next three years and according to our company’s relative competitive position in each.
Question 5. Are our objectives for revenue growth and market share realistic?
- For attractive markets (attractive means there is potential growth in sales and profits in the next three years), our objectives are to improve Net Present Value (NPV), whilst investing in growing/retaining our competitive position
- For attractive markets in which we have few strengths, having chosen the better ones, our objectives are to improve our competitive position by investing in them . For those markets not selected for investment, our objectives are to maximise net free cash flows
- For unattractive markets in which we have few strengths, our objectives are to maximise net free cash flows
- For unattractive markets where we have strengths, our objectives are to minimise costs consistent with retaining our competitive position and to maximise net free cash flows
Question 6. Are our strategies for product development, pricing, customer service, channel management and promotion consistent with our objectives?
- Our strategies match the objectives referred to above. For example, the majority of the available budget goes into attractive markets where we have strengths followed by unattractive markets where we have strengths, followed by attractive markets where we have few strengths – in that order
Question 7. Have we dispassionately assessed the risks associated with our strategic marketing plan?
- We assess the risks associated with our MARKET forecasts by using the long established tools of marketing, such as product life cycle analysis. We assess the risks associated with our plans for new products and markets by using tools such as the Ansoff matrix
- We assess the risks associated with our declared STRATEGIES by testing whether we are addressing proper needs-based segments with specific offers and whether we are leveraging our strengths, minimising our weaknesses, taking advantage of opportunities and ameliorating threats.
- We assess the risks associated with our declared BUDGETS by checking our forecast margins against historical margins and by checking that we are not setting unrealistic objectives such as rapid growth in static or declining markets.
Question 8. Have we calculated whether our strategic marketing plan creates or destroys shareholder value?
- We work with our senior accountants having taken account of the risk adjusted net free cash flows from all of products for markets. We then calculate whether these cash flows are greater than the cost of capital. If they are, we are creating shareholder value and can quantify this.
Question 9. Have we agreed the metrics for measuring market effectiveness?
- We know the levels of promotional expenditure necessary to maintain our current level of sales ( maintenance )
- We subject any promotional expenditure over and above maintenance expenditure (investment/growth expenditure) to net present value calculations.
- We know the difference between lead indicators (actions that cause sales etc.) and lag indicators (outputs, such as sales growth)
- As a result of this, we know what needs reporting, why, when, how often and to whom it should be reported.
Question 10. Are we happy with our marketing planning processes?
- Our plans demonstrate:
1 A deep understanding of our markets
2 A clear understanding of needs based segments
3 A clear prioritisation of our objectives and strategies
4 Quantified proof that they create shareholder value
5 They are clear, creative and interesting
6 They enable us to allocate our scarce resources differentially
In conclusion, let me say that, whilst all these questions are not relevant to all markets, unless marketers can answer the relevant ones, they should either get their marketing education up to par, or question whether they are in the right job.About the Author
Emeritus Professor Malcolm H.B. McDonald MA(Oxon) MSc PhD DLitt DSc
Until 2003, Malcolm was Professor of Marketing and Deputy Director of Cranfield University School of Management, with special responsibility for E-Business. He is a graduate in English Language and Literature from Oxford University, in Business Studies from Bradford University Management Centre, and has a PhD from Cranfield University. He also has a Doctorate from Bradford University and from the Plekhanov University of Economics in Moscow. He has extensive industrial experience, including a number of years as Marketing and Sales Director of Canada Dry. Until the end of 2012, he spent seven years as Chairman of Brand Finance plc.
He spends much of his time working with the operating boards of the world’s biggest multinational companies, such as IBM, Xerox, BP and the like, in most countries in the world, including Japan, USA, Europe, South America, ASEAN and Australasia.
He has written forty six books, including the best seller "Marketing Plans; how to prepare them; how to use them", which has sold over half a million copies worldwide. Hundreds of his papers have been published.
Apart from market segmentation, his current interests centre around the measurement of the financial impact of marketing expenditure and global best practice key account management. He is an Emeritus Professor at Cranfield and a Visiting Professor at Henley, Warwick, Aston and Bradford Business Schools.