Chapter 3 - strategic marketing planning

strategic planning

A managerial decision process that matches an organization's resources and capabilities to its market opportunities for long-term growth and survival.

Step 3: Set Organizational or SBU Objectives

After they construct a mission statement, top management translates it into organizational or SBU objectives. These goals are a direct outgrowth of the mission statement and broadly identify what the firm hopes to accomplish within the general time frame of the firm's long-range business plan. If the firm is big enough to have separate SBUs, each unit will have its own objectives relevant to its operations. To be effective, objectives need to be specific, measurable (so firms can tell whether they've met them), attainable, and sustainable over time. Attainability is especially important—firms that establish "pie-in-the-sky" objectives they can't realistically obtain can create frustration for their employees (who work hard but get no satisfaction of accomplishment) and other stakeholders in the firm, such as vendors and shareholders who are affected when the firm doesn't meet its objectives. That a firm's objectives are sustainable over time is also critical—usually there's little advantage to investing in attaining an objective for only a very short term. This often happens when a firm underestimates the likelihood that a competitor will come to market with a better offering. Without some assurance that an objective is sustainable over time, the financial return on an investment likely will not be positive. Objectives may relate to revenue and sales, profitability, the firm's standing in the market, return on investment, productivity, product development, customer satisfaction, social responsibility, and many other attributes. To ensure measurability, marketers increasingly try to state objectives in numerical terms. For example, a firm might have as an objective a 10 percent increase in profitability over the next fiscal year. It could reach this objective by increasing productivity, by reducing costs, or by selling off an unprofitable division. Or it might meet this 10 percent objective by developing new products, investing in new technologies, or entering a new market. Samsung Electronics recently identified as part of its vision for 2020 two ambitious goals that include reaching $400 billion in annual revenue and achieving a position as one of the top five brands in the world. Samsung's plan to more than double its annual revenue by 2020 may seem ambitious (especially given the recent debacle with its flaming Galaxy phones), but the firm has identified an aggressive roadmap for enhancing its position within its current industries and markets as well as entering into new opportunities.4

Step 5: Develop growth strategies

Although the BCG matrix can help managers decide which SBUs they should invest in for growth, it doesn't tell them much about how to make that growth happen. Should the growth of an SBU come from finding new customers, from developing new variations of the product, or from some other growth strategy? Part of strategic planning at the SBU level entails evaluating growth strategies. Marketers use the product-market growth matrix, shown in Figure 3.4, to analyze different growth strategies. The vertical axis in the matrix represents opportunities for growth either in existing markets or in new markets. The horizontal axis considers whether the firm would be better off putting its resources into existing products or whether it should acquire new products. The matrix provides four fundamental marketing strategies: market penetration, market development, product development, and diversification: Market penetration strategies seek to increase sales of existing products to existing markets, such as current users, nonusers, and users of competing brands within a market. Venerable McDonald's has been losing market share to other options for most of the last decade. Everyone in the QSR (quick-service restaurant) industry, from Taco Bell to Subway, has taken a proverbial bite out of McDonald's business. But recently, new top management at the golden arches has energized substantial growth by going back to the basics—and same-store customer traffic is back up for the first time in years. Industry analysts credit a revitalized market penetration strategy that is keeping loyal customers even more loyal with a better value menu, fewer peripheral items on the menu, and great promotions, like "McPick 2" and any size soft drink for $1.9 Market development strategies introduce existing products to new markets. This strategy can mean expanding into a new geographic area, or it may mean reaching new customer segments within an existing geographic market. Cuba is a major potential market for all sorts of U.S. products and services, and it sits just 90 miles from Miami. While growth into the market has not been as fast as hoped due to politics, U.S. airlines are running regular service into Havana from several key Florida cities for the first time in nearly 60 years. These routes have high potential for growth if tensions ease and commerce becomes more normalized over the next several years.10 Product development strategies create growth by selling new products in existing markets. Product development may mean extending the firm's product line by developing new variations of the item, or it may mean altering or improving the product to provide enhanced performance. With continued declines in its core soft drink business as more consumers avoid sugar, Coca-Cola is engaged in a highly publicized product development strategy with new entries across the beverage spectrum. For example, Diet Coke has launched several sexy new flavors—namely Ginger Lime, Feisty Cherry, Zesty Blood Orange, and Twisted Mango—that come in sleek 12-ounce cans and are sold as on-the-go singles and eight-packs. Coke knows that there's likely no turning back from market tastes toward real sugar, so its approach to developing products across other beverage categories is a smart one.11 Diversification strategies emphasize both new products and new markets to achieve growth. Earlier you read about Amazon's first foray into supermarket brick-and-mortar with its acquisition of Whole Foods. This move was a calculated diversification strategy for the distribution giant, and as a result, the company now can offer new products in new markets. Amazon's leadership believes this strategy will take them to a new segment of customers that is looking for convenient access to a wider selection of healthy and organic food items than they can find at the local grocer.12 To review what we've learned so far, strategic planning includes developing the mission statement, assessing the internal and external environment (resulting in a SWOT analysis), setting objectives, establishing the business portfolio, and developing growth strategies. In the next section, we'll look at marketers' functional plans as we examine the process of market planning.

Step 4: Establish the Business Portfolio

For companies with several different SBUs, strategic planning includes making decisions about how to best allocate resources across these businesses to ensure growth for the total organization. Each SBU has its own focus within the firm's overall strategic plan, and each has its own target market and strategies to reach its objectives. Just like an independent business, each SBU is a separate profit center within the larger corporation—that is, each SBU within the firm is responsible for its own costs, revenues, and profits. These items can be accounted for separately for each SBU. Just as we call the collection of different stocks an investor owns a portfolio, the range of different businesses that a large firm operates is its business portfolio. These different businesses usually represent different product lines, each of which operates with its own budget and management. Having a diversified business portfolio reduces the firm's dependence on one product line or one group of customers. For example, if the economy sours and consumers don't travel as much, making a bad year for Disney theme park attendance and cruises, Disney's managers hope that the sales will be made up by stay-at-homers who watch Disney's TV networks or stream Disney shows and who purchase Mickey Mouse collectibles from the Disney website. Portfolio analysis is a tool management uses to assess the potential of a firm's business portfolio. It helps management decide which of its current SBUs should receive more—or less—of the firm's resources and which of its SBUs are most consistent with the firm's overall mission. There are a host of portfolio models available. To illustrate how one works, let's examine the especially popular model the Boston Consulting Group (BCG) developed: the BCG growth-market share matrix. The BCG model focuses on determining the potential of a firm's existing SBUs to generate cash that the firm can then use to invest in other businesses. The BCG matrix in Figure 3.3 shows that the vertical axis represents the attractiveness of the market: the market growth rate. Even though the figure shows "high" and "low" as measurements, marketers might ask whether the total market for the SBU's products is growing at a rate of 10, 50, 100, or 200 percent annually. The horizontal axis in Figure 3.3 shows the SBU's current strength in the market through its relative market share. Here, marketers would look at the ratio of SBU's share to that of the rival in the third-ranked market position. Combining the two axes creates four quadrants representing four different types of SBUs. Each quadrant of the BCG grid uses a symbol to describe business units that fall within a certain range for market growth rate and market share. Let's take a closer look at each cell in the grid: Stars are SBUs with products that have a dominant market share in high-growth markets. Because the SBU has a dominant share of the market, stars generate large revenues, but they also require large amounts of funding to keep up with production and promotion demands. Hence, stars need investment capital from other parts of the business because they don't generate it themselves. Of course, any profits generated directly by stars presumably would be reinvested right back in the star. For example, in recent years, Disney has viewed its studios as a star and has been able to generate significant revenues from its acquisition of Lucasfilm and the intellectual property within the Star Wars universe. Star Wars Episode VIII: The Last Jedi took in over $1.3 billion on a budget of $200 million—not a bad return on investment for "the Mouse." It is the sixth-highest-ever grossing film in North America and the second-highest across the whole Star Wars franchise!5 Cash cows have a dominant market share in a low-growth-potential market. Because there's not much opportunity for new companies, competitors don't often enter the market. At the same time, the SBU is well established and enjoys a high market share that the firm can sustain with minimal funding. Firms usually milk cash cows of their profits to fund the growth of other SBUs. Of course, if the firm's objective is to increase revenues, having too many cash cows with little or no growth potential can become a liability. For Disney, its theme parks unit fits into the cash cow category in that global sales have been basically steady for an extended period of time. This cash cow status could spring over to star status once the new Star Wars: Galaxy's Edge theme parks open at both their Orlando and Anaheim facilities in 2019.6 Question marks—sometimes called problem children—are SBUs with low market shares in fast-growth markets. When a business unit is a question mark, the key issue is whether through investment and new strategy it can be transformed into a star. For example, the firm could pump more money into marketing the product and hope that relative market share will improve. But the problem with question marks is that—despite investment—many times they make a beeline straight into the annals of market failures. Hence, the firm must carefully evaluate the likelihood that investment in a question mark will pay off—otherwise, it may find itself "throwing good money after bad" if it gains nothing but a negative cash flow and disappointment. For Disney, as with many retailers, its brick-and-mortar operation falls into the question-mark category because its performance has softened over recent years. Like most retail operators today, the online version of the Disney Store provides a better growth trajectory than the four-walls version. Dogs command a small share of a slow-growth market. They are businesses that offer specialized products in limited markets that are not likely to grow quickly. When possible, large firms may sell off their dogs to smaller firms that may be able to nurture them—or they may take the SBU's products off the market. Disney, being a savvy strategic planner, apparently identified its Miramax film studio as a long-term dog (to Pluto and Goofy: no pun intended) because they sold it off after a 17-year involvement with that studio.7 Believe it or not, ESPN has recently shown signs of significant underperformance on profits due to pressures throughout the cable television industry. So far, Disney is hanging on to ESPN, but many are speculating about a potential divestment.8 Like Disney, Vovéo could use the BCG matrix to evaluate its product lines to make important decisions about where to invest for future growth. It would look across Vovéo's various offerings to assess the market growth rate and relative market share, determine the degree to which each is a cash generator or a cash user, and decide whether to invest further in these or other business opportunities.

Action Plans

How does the implementation and control step actually get operationalized within a marketing plan? One convenient way is through the inclusion of a series of action plans that support the various marketing objectives and strategies within the plan. The best way to use action plans (which also are sometimes called marketing programs) is to include a separate action plan for each important element involved in implementing the marketing plan. Table 3.1 provides a template for an action plan. Table 3.1Action Plan Template Title of action plan Give the action plan a relevant name. Purpose of action plan What do you hope to accomplish by the action plan—that is, what specific marketing objective and strategy within the marketing plan does it support? Description of action plan Be succinct—but still thorough—when you explain the action plan. What are the steps involved? This is the core of the action plan. It describes what must be done in order to accomplish the intended purpose of the action plan. Responsibility for the action plan What person(s) or organizational unit(s) are responsible for carrying out the action plan? What external parties are needed to make it happen? Most importantly, who specifically has final "ownership" of the action plan—that is, who within the organization is accountable for it? Timeline for the action plan Provide a specific timetable of events leading to the completion of the plan. If different people are responsible for different elements of the timeline, provide that information. Budget for the action plan How much will implementation of the action plan cost? This may be direct costs only or may also include indirect costs, depending on the situation. The sum of all the individual action plan budget items will ultimately be aggregated by category to create the overall budget for the marketing plan. Measurement and control of the action plan Indicate the appropriate metrics, how and when they will be measured, and who will measure them. Metrics Moment Is ROMI always appropriate or sufficient to judge marketing's effectiveness and efficiency? Below are six common objections to relying exclusively on ROMI to measure marketing success: In a company's accounting statements, marketing expenditures tend to appear as a cost, not an investment. This practice perpetuates the "marketing-is-an-expense" mentality in the firm. ROMI requires the profit to be divided by expenditure, yet all other bottom-line performance measures (like the ones you learned in your finance course) consider profit or cash flow after deducting expenditures. Calculating ROMI requires knowing what would have happened if the marketing expenditure in question had never taken place. Few marketers have those figures. ROMI has become a fashionable term for marketing productivity in general, yet much evidence exists that firms interpret how to calculate ROMI quite differently. When executives discuss ROMI with different calculations of it in mind, only confusion can result. ROMI, by nature, ignores the effect of marketing assets of the firm (e.g., its brands) and tends to lead managers toward a more short-term decision perspective. That is, it typically considers only short-term incremental profits and expenditures without looking at longer-term effects or any change in brand equity. And speaking of short-term versus long-term decisions, ROMI (like a number of other metrics focused on snapshot information—in this case, a particular marketing campaign) often can lead to actions by management to shore up short-term performance to the detriment of a firm's sustainability commitment. Ethics in marketing should not be an oxymoron—but often unethical behavior is driven by the demand for quick, short-term marketing results.21 Apply the Metrics Review the six objections to ROMI above and discuss them with your classmates. Select any two of the objections and develop a specific example of how they might lead to a bad decision in market planning. For example, let's consider the use of action plans in the context of supporting the objective we came up with for Vovéo earlier to increase client usage of a particular service by 20 percent in the first quarter of the year. To accomplish this, the marketing plan would likely include a variety of strategies related to how Vovéo will use the marketing mix elements to reach this objective. Important questions will include the following: What are the important needs and wants of this target market of clients? How will the service be positioned in relation to this market? What will be the branding strategies? What will be the pricing strategy for this market? How will the service be promoted to them? What is the best approach to distribute the service to to the market? Any one of these important strategic issues may require several action plans to implement. Action plans also help managers when they need to assign responsibilities, timelines, budgets, and measurement and control processes for market planning. In Table 3.1, notice that these four elements are the final items that an action plan documents. Sometimes when we view a marketing plan in total, it can seem daunting and nearly impossible to actually implement. Like most big projects, implementation of a marketing plan is best done one step at a time, paying attention to maximizing the quality of executing that step. In practice, what happens is that marketers combine the input from these last four elements of each action plan to form the overall implementation and control portion of the marketing plan. Let's examine each element a bit further. Assign Responsibility A marketing plan can't be implemented without people. And not everybody who will be involved in implementing a marketing plan is a marketer. The truth is, marketing plans touch most areas of an organization. Upper management and the human resources department will need to deploy the necessary employees to accomplish the plan's objectives. You learned in Chapter 1 that marketing isn't the responsibility only of a marketing department. Nowhere is that idea more apparent than in marketing plan implementation. Sales, production, quality control, shipping, customer service, finance, information technology—the list goes on—all will likely have a part in making the plan successful. Create a Timeline Notice that each action plan requires a timeline to accomplish its various tasks. A timeline is essential to include in the overall marketing plan. Most marketing plans portray the timing of tasks in flowchart form so that it is easy to visualize when the pieces of the plan will come together. Marketers often use Gantt charts or PERT charts, popular in operations management, to portray a plan's timeline. These are the same types of tools that a general contractor might use to map out the different elements of building a house from the ground up. Ultimately, managers develop budgets and the financial management of the marketing plan around the timeline so they know when cash outlays are required. Set a Budget Each element of the action plan links to a budget item, assuming there are costs involved in carrying out the plan. Forecasting the needed expenditures related to a marketing plan is difficult, but one way to improve accuracy in the budgeting process overall is to ensure estimates for expenditures for the individual action plans that are as accurate as possible. At the overall marketing plan level, managers create a master budget and track it throughout the market planning process. They report variances from the budget to the parties responsible for each budget item. For example, a firm's vice president of sales might receive a weekly or monthly report that shows each sales area's performance against its budget allocation. The vice president would note patterns of budget overage and contact affected sales managers to determine what, if any, action they need to take to get the budget back on track. The same approach would be repeated across all the different functional areas of the firm on which the budget has an impact. In such a manner, the budget itself becomes a critical element of control. Decide on Measurements and Controls Previously, we described the concept of control as a formal process of monitoring progress to measure actual performance, compare the performance to the established marketing objectives or strategies, and make adjustments to the objectives or strategies on the basis of this analysis. The metric(s) a marketer uses to monitor and control individual action plans ultimately forms the overall control process for the marketing plan. Metrics can serve as leading indicators or lagging indicators of marketing outcomes. Leading indicators provide insight into the performance of current efforts in a way that allows a marketer to adjust relevant marketing activities (hopefully) resulting in performance improvements against the current action plan. Lagging indicators reflect the performance of an action plan based on outcomes realized. Lagging indicators provide a basis for review and analysis of the action plan with implications for improvement that are focused beyond the scope of the current action plan itself. That is, they provide post hoc insights for next actions. It is an unfortunate fact that many marketers do not consistently do a good job of measurement and control, which, of course, compromises their market planning. And remember that selection of good metrics needs to take into account short-term objectives balanced against the firm's focus on long-term sustainability.

Step 3: develop marketing strategies: target markets and the marketing mix

In the next stage of the market planning process, marketing managers develop their actual marketing strategies—that is, they make decisions about what activities they must accomplish to achieve the marketing objectives. Usually this means they decide which markets to target and actually develop the marketing mix strategies—product, price, promotion, and place (supply chain)—to support how they want to position the product in the market. At this stage, marketers must figure out how they want consumers to think of their product compared with competing products. As we mentioned in Chapter 1, the target market is the market segment(s) a firm selects because it believes its offerings are most likely to win those customers. The firm assesses the potential demand—the number of consumers it believes are willing and able to pay for its products—and decides if it is able to create a sustainable competitive advantage in the marketplace among target consumers. Marketing mix decisions identify how marketing will accomplish its objectives in the firm's target markets by using product, price, promotion, and place. To make the point, we'll stick with airlines to provide examples of each of these marketing mix strategy components: Because the product is the most fundamental part of the marketing mix—firms simply can't make a profit without something to sell—carefully developed product strategies are essential to achieve marketing objectives. Product strategies include decisions such as product design, packaging, branding, support services (e.g., maintenance); if there will be variations of the product; and what product features will provide the unique benefits targeted customers want. For example, Alaska Airlines became the first carrier to fly a version of the Boeing 737 aircraft that offers a type of overhead bin that can hold 48 percent more luggage than a standard pivot bin.13 If you've ever packed a carry-on bag with the express purpose of not having to deal with the cost and hassle of checking a bag, only to find when you get to the gate that the bins are full and you have to check the bag anyway, you might be tempted by Alaska's bigger bins and book them over other carriers.14 A pricing strategy determines how much a firm charges for a product. Of course, that price has to be one that customers are willing to pay. If not, all the other marketing efforts are futile. In addition to setting prices for the final consumer, pricing strategies usually establish prices the company will charge to wholesalers and retailers. A firm may base its pricing strategies on costs, demand, or the prices of competing products. In recent years, most airlines have been charging extra fees (checked baggage anyone?) for services and perks they used to include in the ticket price, a practice known as debundling, in an effort to increase their revenues. While most U.S. airlines "nickel and dime" passengers to distraction, Southwest Airlines has a very simple system that doesn't charge for checked luggage or carry-ons; nor do they charge for the standard snack fare of peanuts and pretzels. Southwest's pricing strategy has helped it be a consistent leader both in profitability and in customer satisfaction.15 A promotional strategy is how marketers communicate a product's value proposition to the target market. Marketers use promotion strategies to develop the product's message and the mix of advertising, sales promotion, public relations and publicity, direct marketing, and personal selling that will deliver the message. Many firms use all these elements to communicate their message to consumers. At the luxury end of the airline spectrum, it's hard to top Singapore Airlines, which knocked previous champ Etihad off its longstanding pedestal as best airline for first-class cabin. The new Singapore offering has been promoted widely as "Ultra-Lux Suites" in competition with Etihad's "First Apartment" product. Each pampered passenger gets his or her own suite, complete with a Poltrona Frau leather armchair that is 21 inches wide and reclines up to 135 degrees. Except for takeoff and landing, it will be able to swivel and adjust into various seated and lounging positions. What's more, if you've got the cash, your suite will have entirely separate, stowable beds that will measure up at 27 inches wide by 76 inches long and will be dressed with a cotton Lalique duvet and two pillows. Competition at the super high end of international air travel is fierce because the profit potential is very high, so carriers pull out all stops to target messaging and imagery about their offering to this discerning segment of customers.16 Distribution strategies outline how, when, and where the firm will make the product available to targeted customers (the place component). When they develop a distribution strategy, marketers must decide whether to sell the product directly to the final customer or to sell through retailers and wholesalers. And the choice of which retailers should be involved depends on the product, pricing, and promotion decisions. Back in the "old days," airlines used to sell tickets in person at city ticket offices, by phone directly to customers, or through independent travel agents. Obviously, customers now largely purchase tickets online, often through third-party travel websites. And there are benefits to this strategy, especially for consumers. For example, travelers can see at a glance the best airline fares and flight schedules; get bundle discounts for booking multiple travel services, such as flights, hotels, and car rentals; and get access to promotional specials through website features like Expedia's "Today's Amazing Flight Deals." This page is especially attractive for leisure travelers with flexibility on date of travel, as it typically lists a wide array of bargains spanning the U.S. and beyond, all anchored on the flyer's home departure city.17

3.2 strategic planning: frame the picture

Many large firms realize it's risky to put all their eggs in one basket and rely on only one product, so they have become multiproduct companies with self-contained divisions organized around product lines or brands. In firms with multiple SBUs (as illustrated previously by Disney), the first step in strategic planning is for top management to establish a mission for the entire corporation. Top managers then evaluate the internal and external environments of the business and set corporate-level objectives that guide decision making within each individual SBU. In small firms that are not large enough to have separate SBUs, strategic planning simply takes place at the overall firm level. Whether or not a firm has SBUs, the process of strategic planning is basically the same. Let's look at the planning steps in a bit more detail Step 1: Define the Mission Ideally, top management's first step in the strategic planning stage is to answer questions such as the following: What business are we in? What customers should we serve? How should we develop the firm's capabilities and focus its efforts? In many firms, the answers to questions such as these become the lead items in the organization's strategic plan. The answers become part of a mission statement—a formal document that describes the organization's overall purpose and what it intends to achieve in terms of its customers, products, and resources. For example, PepsiCo's mission statement reads: "Our mission is to be the world's premier consumer products company focused on convenient foods and beverages. We seek to produce financial rewards to investors as we provide opportunities for growth and enrichment to our employees, our business partners and the communities in which we operate."2 The ideal mission statement is not too broad, too narrow, or too shortsighted. A mission that is too broad will not provide adequate focus for the organization. It doesn't do much good to claim, "We are in the business of making high-quality products" or "Our business is keeping customers happy," because it is hard to find a firm that doesn't make these claims. It's also important to remember that the need for a clear mission statement applies to virtually any type of organization. You may be interested to know that for most firms, the mission statement is anything but a secret from the marketplace. That is, smart firms make their mission statements very visible to customers and other stakeholders as a way to trumpet the good work they do. Given the generally horrific experiences most of us have with airlines today, who could argue that Southwest's very well-publicized mission doesn't have star quality: "The mission of Southwest Airlines is dedication to the highest quality of Customer Service delivered with a sense of warmth, friendliness, individual pride, and Company Spirit."3 In Chapter 9, you will learn quite a lot about branding—for now, suffice it to say that brands, in order to be perceived by customers as authentic, must embody their organization's mission.

Step 2: set marketing objectives

Once marketing managers have a thorough understanding of the marketing environment, the next step is to develop specific marketing objectives. How do marketing objectives differ from corporate objectives? Generally, marketing objectives are more specific to the firm's marketing mix-related elements. Think of the connection between business objectives and marketing objectives this way: Business objectives guide the entire firm's operations, whereas marketing objectives state what the marketing function must accomplish if the firm is ultimately to achieve these overall business objectives. So for Vovéo, setting marketing objectives means deciding what the firm wants to accomplish in terms of a product line's marketing mix-related elements: product development, pricing strategies, or specific marketing communication approaches.

Step 4: Implement and control the marketing plan

Once the marketing plan is developed, it's time to get to work and make it succeed. In practice, marketers spend much of their time managing the various elements involved in implementing the marketing plan. Once Vovéo understands the marketing environment, determines the most appropriate objectives and strategies, and gets its ideas organized and on paper in the formal plan, the rubber really hits the road. Like all firms, how Vovéo actually implements its plan is what will make or break it in the marketplace. During the implementation phase, marketers must have some means to determine to what degree they actually meet their stated marketing objectives. Often called control, this formal process of monitoring progress entails three steps: Measure actual performance. Compare this performance to the established marketing objectives or strategies. Make adjustments to the objectives or strategies on the basis of this analysis. This issue of making adjustments brings up one of the most important aspects of successful market planning: Marketing plans aren't written in stone, and marketers must be flexible enough to make such changes when changes are warranted. For effective control, Vovéo has to establish appropriate metrics related to each of its marketing objectives and then track those metrics to know how successful the marketing strategy is and determine whether it needs to change the strategy along the way. For example, what happens if Vovéo sets an objective for the first quarter of a year to increase its client usage for a particular service by 20 percent but after the first-quarter sales are only up 5 percent? The control process means that market planners would have to look carefully at why the company isn't meeting its objectives. Is it due to internal factors, external factors, or a combination of both? Depending on the cause, Vovéo would then have to adjust the marketing plan's strategies (such as to implement alterations in the components of the service, modify the price, change the way the product is delivered, or increase or alter promotion). Alternatively, Vovéo could decide to adjust the marketing objective so that it is more realistic and attainable. This scenario illustrates the important point we made earlier in our discussion of strategic planning: Objectives must be specific and measurable but also attainable (and sustainable over time) in the sense that if an objective is not realistic, it can become demotivating for everyone involved in the marketing plan. For Vovéo and all firms, effective control requires appropriate marketing metrics, which, as we discussed in Chapter 1, are measurements that marketers use to identify the effectiveness of different strategies or tactics. Two common ways that metrics can be categorized include: (1) activity metrics, which are focused on measuring and tracking specific activities taken within a firm that are part of different marketing processes; and (2) outcome metrics, which are focused on measuring and tracking specific events identified as key business outcomes that result from marketing processes. An example of an activity metric is the number of calls that a salesperson makes to customers over a month, whereas a related outcome metric is the number of orders gained from sales calls made during that month. Metrics are so important in marketing today that you will find extensive treatment of the topic (along with marketing analytics and "Big Data") in Chapter 5. For now, it is important to understand that marketers must balance attention to marketing control and the measurement of marketing performance against sustainability and corporate social responsibility (CSR) objectives, which you read about in Chapter 2. Recall that sustainability has to do with firms doing well by doing good—that is, paying attention to important issues such as ethics, the environment, and social responsibility as well as the bottom line. In market planning, we certainly don't want to drive firms toward strategies that compromise sustainability by focusing only on controlling relatively short-term aspects of performance. Today's CEOs are keen to quantify just how an investment in marketing has an impact on the firm's success, financially and otherwise, over the long haul. You've heard of the financial term return on investment (ROI)—in a marketing context we refer to return on marketing investment (ROMI). In fact, it's critical to consider marketing as an investment rather than an expense; this distinction drives firms to use marketing more strategically to enhance the business. For many firms today, ROMI is the metric du jour to analyze how the marketing function contributes to the bottom line. So, what exactly is ROMI? It is the revenue or profit margin (both are widely used) generated by investment in a specific marketing campaign or program divided by the cost of that program (expenditure) at a given risk level (the risk level is determined by management's analysis of the particular program). Again, the key word is investment—that is, in the planning process, thinking of marketing as an investment rather than an expense keeps managers focused on using marketing dollars to achieve specific objectives.18 Here's a quick and simple example of the ROMI concept. Let's say that a relatively routine marketing campaign costs $30,000 and generates $150,000 in new revenue. Thus, the ROMI for the program is 5.0 (the ROI is five times the investment). If the firm has a total marketing budget of $250,000 and an objective for new revenue of $1,000,000, then the ROMI hurdle rate could be considered 4.0 ($1,000,000/$250,000), meaning that each program should strive to meet or exceed that ROMI benchmark of $4.00 in revenue for every $1.00 in marketing expenditure. Because the marketing campaign exceeds the ROMI hurdle rate, it would be deemed acceptable to proceed with that investment.19 For an organization to use ROMI properly it must (1) identify the most appropriate and consistent measure to apply, (2) combine review of ROMI with other critical marketing metrics (one example is marketing payback—how quickly marketing costs are recovered), and (3) fully consider the potential long-term impact of the actions ROMI drives (i.e., is the impact sustainable for the organization over the long term?).20 Fortunately for the marketer, there are many other potential marketing metrics beyond ROMI that measure specific aspects of marketing performance. In Chapter 5, you will encounter other useful metrics that marketers can use to gauge the success level of their plans, strategies, and tactics.

operational plans

Plans that focus on the day-to-day execution of the marketing plan. Operational plans include detailed directions for the specific activities to be carried out, who will be responsible for them, and time lines for accomplishing the tasks.

Operational Planning: Day-to-Day Execution of Marketing Plans

Recall that planning happens at three levels: strategic, functional (such as market planning), and operational. In the previous section, we discussed market planning—the process by which marketers perform a situation analysis, set marketing objectives, and develop, implement, and control marketing strategies. But talk is cheap: The best plan ever written is useless if it's not properly carried out. That's what operational plans are for. They put the pedal to the metal by focusing on the day-to-day execution of the marketing plan. The task of operational planning usually falls to first-line managers, such as sales managers, marketing communication managers, digital marketing managers, brand managers, and market research managers. Operational plans generally cover a shorter period of time than either strategic plans or marketing plans—perhaps only one or two months—and they include detailed directions for the specific activities to be carried out, who will be responsible for them, and timelines for accomplishing the tasks. In reality, the action plan template we provide in Table 3.1 is most likely applied at the operational level. Significantly, many of the important marketing metrics managers use to gauge the success of plans actually get used at the operational planning level. For example, sales managers in many firms are charged with the responsibility of tracking a wide range of metrics related to the firm-customer relationship, such as number of new customers, sales calls per month, customer turnover, and customer loyalty. The data are collected at the operational level and then sent to upper management for use in planning at the functional level and above. In Chapter 5, you will learn how a customer relationship management (CRM) system helps to facilitate this process.

cash cows

SBUs with a dominant market share in a low-growth-potential market

dogs

SBUs with a small share of a slow-growth market. They are businesses that offer specialized products in limited markets that are not likely to grow quickly

question marks

SBUs with low market shares in fast-growth markets

stars

SBUs with products that have a dominant market share in high-growth markets

Agile marketing and the planning process

So far in this chapter, you've had a thorough indoctrination to planning at three levels—strategic, functional, and operational. Sometimes, though, reading about planning—especially market planning—can make it seem like the process is neat, orderly, and predictable. We assure you, in today's fast-paced competitive marketplace, for many products, market planning is far from neat, orderly, and predictable! In fact, in markets such as high tech, in startups, and in hyper competitive environments, taking the slow boat to developing a marketing plan may mean that the market opportunity passes you by before the ink dries on the paper. In business environments where speed of planning and execution is especially sensitive for competitive success, agility becomes a watchword for marketers. Agility is about being nimble, being able to move quickly and easily in response to rapid changes and new challenges. This new strategic perspective is called agile marketing, which refers to using data and analytics to continuously source promising opportunities or solutions to problems in real time, deploying tests quickly, evaluating the results, and rapidly iterating (doing it over and over). At scale, a high-functioning agile marketing organization can run hundreds of marketing campaigns simultaneously and generate multiple new ideas every week.22 The notion of agile marketing is adopted largely from a software development context. In that field, agility is usually based on a methodology called Scrum, which had the original goal to embrace the uncertainty and creativity that already governed software development. Perhaps oversimplifying a bit, in a software development context, Scrum advocates that whenever you start a project, you should regularly check in, see whether what you're doing is heading in the right direction, and verify that it's actually what people want.23 Scrum provides a framework that aims to create a culture of transparency, inspection, and adaptation while making it easier for team members to produce consistently great products. This approach lays out steps to achieve these objectives: Sprint planning Daily Scrum (also known as daily standup) Sprint review Sprint retrospective Note that in agile marketing, the word sprint is used in place of plan or planning to overtly call out the need for speed in planning and execution of marketing strategies. How can marketers apply this approach? Basically an organization creates an elite team, kind of like a special forces operation in the military. They are removed from their daily assignments, and instead they meet in a "war room" to plot their quick strike. These groups should be small enough that everyone can communicate with one another easily. Jeff Bezos of Amazon specified they should be "two-pizza teams"—that is, teams no bigger than can be fed by two pizzas. A "Scrum master" leads the team, setting priorities and managing "sprints" (one- to-two-week cycles of work). The group's mission (should they choose to accept it!) is to execute a series of quick-turnaround experiments designed to create real bottom-line impact. For example, a retailer might want to test a lot of different approaches to optimizing conversion on its website (such as the percentage of people who visit the site and actually buy something).24 At this point, going much further into explanations of the Scrum process will take us down a scary black hole to techie land. For your purposes as a marketing student, we bring up the concept of agile marketing just to be sure that you understand that market planning isn't always quite as methodical as the process may seem when you read about it. And in hypercompetitive markets in which success depends on speed of marketing strategy development and execution, you may well find yourself in the middle of Scrum as your business aims to stay nimble.

market planning

The functional planning marketers do. Market planning typically includes both a broad three- to five-year marketing plan to support the firm's strategic plan and a detailed annual plan for the coming year.

Step 2: Evaluate the internal and external environment

The second step in strategic planning is to assess the firm's internal and external environments. We refer to this process as a situation analysis, but it's also sometimes called environmental analysis, or a business review. The analysis includes a discussion of the firm's internal environment, which can identify a firm's strengths and weaknesses, as well as the external environment in which the firm does business so the firm can identify opportunities and threats. By internal environment we mean all the controllable elements inside a firm that influence how well the firm operates. Internal strengths may lie in the firm's technologies. What is the firm able to do well that other firms would find difficult to duplicate? What patents does it hold? A firm's physical facilities can be an important strength or weakness, as can its level of financial stability, its relationships with suppliers, its corporate reputation, its ability to produce consistently high-quality products, and its ownership of strong brands in the marketplace. Internal elements include a firm's structure, organizational culture, and all sorts of assets—financial and otherwise. Internal strengths and weaknesses often reside in the firm's employees—the firm's human and intellectual capital. What skills do the employees have? What kind of training have they had? Are they loyal to the firm? Do they feel a sense of ownership? Has the firm been able to attract top researchers and good decision makers? The external environment consists of elements outside the firm that may affect it either positively or negatively. For Vovéo and many other firms, the external environment for today's businesses is global, so marketers engaged in planning must consider elements such as the economy, competition, technology, law, ethics, and sociocultural trends. Unlike elements of the internal environment that management can control to a large degree, the firm can't directly control these external factors, so management must respond to them through its planning process. In Chapter 2, you read about the various elements of the external environment in which marketing takes place, within the context of today's global enterprise. You gained an appreciation of why it is important for you to be aware that opportunities and threats can come from any part of the external environment. On the one hand, trends or currently unserved customer needs may provide opportunities for growth. On the other hand, if changing customer needs or buying patterns mean customers are turning away from a firm's products, it's a signal of possible danger or threats down the road. Even successful firms have to change to keep up with external environmental pressures. Vovéo's business, like that of most marketing-related suppliers, is greatly impacted by the marketing budgets of its clients, which in turn are driven by economic conditions and ultimately consumer demand. What is the outcome of an analysis of a firm's internal and external environments? Marketers often synthesize their findings from a situation analysis into a format called a SWOT analysis. This document summarizes the ideas from the situation analysis. It provides a clear focus on the meaningful strengths (S) and weaknesses (W) in the firm's internal environment and on the opportunities (O) and threats (T) coming from outside the firm (the external environment). A SWOT analysis enables a firm to develop strategies that make use of what the firm does best in seizing opportunities for growth while at the same time avoiding external threats that might hurt the firm's sales and profits.

3.1 business planning: compose the big picture

There's an old saying in business that "planning is everything"—well, almost. Planning allows a firm like Vovéo Marketing Group to define its distinctive identity and purpose. Careful planning enables a firm to speak in a clear voice in the marketplace so that customers understand what the firm is and what it has to offer that competitors don't—especially as it decides how to create value for customers, clients, partners, and society at large. In this chapter, you will experience the power of effective business planning—and especially market planning—and lay the groundwork for your own capability to do successful planning. We think this process is really important. That's why we're starting with a discussion about what planners do and the questions they need to ask to be sure they keep their companies and products on course. In many ways, developing great business planning is like taking an awesome digital photo with your smartphone (maybe a selfie?)—hence the title of this section. The metaphor works because success in photography is built on capturing the right information in the lens of your camera, positioning the image correctly, and snapping the picture you'll need to set things in motion. A business plan is a lot like that. The knowledge you gain from going through a formal planning process is worth its weight in gold. Without market planning as an ongoing activity in a business, there's no real way to know where you want the firm to go, how it will get there, or even if it is on the right or wrong track right now. There's nothing like a clear road map when you're lost in the wilderness. And speaking of road maps, we even include a handy guide as a supplement at the end of this chapter that shows you step-by-step how to build a marketing plan and where to find the information throughout the book to be able to do it. This road map will be highly useful as you make your way through the book, keeping the big-picture viewpoint of marketing in mind no matter which chapter you're reading. What exactly is business planning? Put simply, it's an ongoing process of decision making that guides the firm in both the short term and the long term. Planning identifies and builds on a firm's strengths, and it helps managers at all levels make informed decisions in a changing business environment. Planning means that an organization develops objectives before it takes action. In large firms like IBM, Ford, PepsiCo, or Amazon, which operate in many markets, planning is a complex process involving many people from different areas of the company's operations. At a small business like Mac's Diner in your hometown, however, planning is quite different in scope. Yet regardless of firm size or industry, great planning can only increase the chances of success. In the sections that follow, we'll look at the different steps in an organization's planning. First, we'll see how managers develop a business plan to specify the decisions that guide the entire organization or its business units. Then we'll examine the entire strategic planning process and the stages in that process that lead to the development and implementation of a marketing plan—a process and resulting document that describes the marketing environment, outlines the marketing objectives and strategies, and identifies how the company will implement and control the strategies embedded in the plan. To keep the journey through the process smooth, we'll take it a step at a time through three distinct levels of planning. The Three Levels of Business Planning We all know in general what planning is—we plan a vacation or a great Saturday night party. Some of us even plan how we're going to study and get our assignments completed without stressing out at the last minute. When businesses plan, the process is more complex. As Figure 3.1 shows, planning occurs at three levels: strategic, functional, and operational. The top level is big-picture stuff, like a picture of a sweeping landscape. In contrast, the bottom level specifies the "nuts-and-bolts" actions the firm will need to take to get there, more like a close-up photo. First-Level Planning Strategic planning is the managerial decision process that matches the firm's resources (such as its financial assets and workforce) and capabilities (the things it is able to do well because of its expertise and experience) to its market opportunities for long-term growth. In a strategic plan, top management—usually the chief executive officer (CEO), president, and other top executives—define the firm's purpose and specify what the firm hopes to achieve over the next five years or so. For example, Vovéo's strategic plan may set an objective to increase total revenues by 20 percent in the next five years. And in recent years, Amazon publicly has had a goal to achieve more physical touchpoints with customers (partly for product pickup) and also to increase their grocery business. Voila! Suddenly they acquired Whole Foods, which kills the proverbial two birds with one stone.1 Large firms, such as the Walt Disney Company, have a number of self-contained divisions called strategic business units (SBUs)—individual units that represent different areas of business within a firm that are unique enough to each have their own mission, business objectives, resources, managers, and competitors. Disney's SBUs include the following four: media networks (like Disney Channel, ABC, and ESPN); parks, experiences, and consumer products (like Walt Disney World, Disney Cruise Line, and the Disney Store); studio entertainment (like Walt Disney Studios, Pixar Animation Studios, and Marvel Studios); and direct-to-consumer and international business (a high-growth-potential business unit that includes their streaming services). Strategic planning occurs both at the overall corporate level (Disney headquarters in Burbank, California, plans for the whole corporation globally) and at the SBU level. We'll discuss these two levels later in the chapter. Second-Level Planning The next level of planning is functional planning. This level gets its name because it involves the various functional areas of the firm, such as marketing, finance, and human resources. Vice presidents or functional directors usually do this. We refer to the functional planning that marketers do as market planning. The person in charge of such planning may have the title of director of marketing, vice president of marketing, chief marketing officer, or something similar. Such marketers might set an objective to gain 40 percent of a particular market by successfully introducing three new products during the coming year. This objective is part of a marketing plan. Market planning typically includes both a broad three- to five-year marketing plan to support the firm's strategic plan and a detailed annual plan for the coming year. Each of Disney's SBUs has multiple marketing plans for its various product offerings, led by each SBU's head of marketing and supported by the SBU's marketing team. Third-Level Planning Still farther down the planning ladder are the managers who are responsible for planning at a third level called operational planning. In marketing, these include people such as sales managers, marketing communication managers, brand managers, and market research managers. This level of planning focuses on the day-to-day execution of the functional plans and includes detailed annual, semiannual, or quarterly plans. Operational plans might show exactly how many units of a product a salesperson needs to sell per month or how many TV commercials the firm will place on certain networks during a season. At the operational planning level, a Disney manager may develop plans for a social media marketing campaign to promote a new movie pre-release via Instagram. Of course, marketing managers don't just sit in their offices dreaming up plans without any concern for the rest of the organization. Put more directly—market planning doesn't take place in a vaccum! Even though we've described each layer separately, all business planning is an integrated activity. This means that at an organization like Vovéo, strategic, functional, and operational plans must work together for the benefit of the whole, always within the context of the organization's mission and objectives. So planners at all levels must consider good principles of accounting, the value of the company to its stockholders, and the requirements for staffing and human resource management—that is, they must keep the big picture in mind even as they plan for their little corner of the organization's world. In the next sections, we'll further explore planning at each of the three levels that we've just introduced.

Make your life easier - use the market planning template

Ultimately, the planning process we've described in this section is documented in a formal, written marketing plan. You'll find a template for building a marketing plan in the Supplement at the end of this chapter. The template will come in handy as you make your way through the book, as each chapter will give you information you can use to "fill in the blanks" of a marketing plan. You will note that the template is cross-referenced with the questions you must answer in each section of the plan. It also provides you with a general road map of the topics covered in each chapter that need to flow into building the marketing plan. By the time you're done, we hope that all these pieces will come together and you'll understand how real marketers make real choices. As we noted previously, a marketing plan should provide the best possible guide for the firm to successfully market its products. In large firms, top management often requires such a written plan because putting the ideas on paper encourages marketing managers to formulate concrete objectives and strategies. In small entrepreneurial firms, a well-thought-out marketing plan is often the key to attracting investors who will help turn the firm's dreams into reality.

3.3 market planning: develop and execute marketing strategy

Until now, we have focused on fairly broad strategic plans. This big-picture perspective, however, does not provide details about how to reach the objectives we set. Strategic plans "talk the talk" but put the pressure on lower-level functional-area managers, such as the marketing manager, production manager, and finance manager, to "walk the walk" by developing the functional plans—the nuts and bolts—to achieve organizational and SBU objectives. Because you're taking a marketing course and this is a marketing text (but you knew that!), our focus at the functional planning level is naturally on developing marketing plans, which is the next step in planning as we showed back in Figure 3.1. The Four Ps of the marketing mix we discussed in Chapter 1 remind us that successful firms must have viable products at prices consumers are willing to pay, a way to promote the products to the right consumers, and the ability to get the products to the place where consumers want to buy them. Making this happen requires a tremendous amount of planning by the marketer. The steps in this market planning process are quite similar to the steps at the strategic planning level. An important distinction between strategic planning and market planning, however, is that marketing professionals focus much of their planning efforts on issues related to the marketing mix—the firm's product, its price, promotional approach, and distribution (place) methods. In the end, as you learned in Chapter 1, marketing focuses on creating, communicating, delivering, and exchanging offerings that have value, and market planning plays a central role in making these critical components of marketing successful. Let's use Figure 3.5 as a guide to look at the steps involved in the market planning process in a bit more detail. Step 1: Perform a Situation Analysis The first step to develop a marketing plan is to conduct an analysis of the marketing environment. In Chapter 2, you learned about four key external elements that impact marketers: the economic, technological, political and legal, and sociocultural environments. To analyze the environment, managers build on the company's SWOT analysis and search out information about the environment that specifically affects the marketing plan. For example, for Vovéo to develop an effective marketing communication program for any one of its service offerings, it's not enough to have just a general understanding of the target market. Vovéo needs to know specifically what media potential customers like to connect with, what messages about the product are most likely to make them buy, and how they prefer to communicate with the firm about new services and customer care issues. Vovéo also must know how competitors market to customers so that the company can plan effectively.

agile marketing

Using data and analytics to continuously source promising opportunities or solutions to problems in real time, deploying tests quickly, evaluating the results, and rapidly iterating (doing it over and over).

functional planning

a decision process that concentrates on developing detailed plans for strategies and tactics for the short term, supporting an organization's long-term strategic plan

operational planning

a decision process that focuses on developing detailed plans for day-to-day activities that carry out an organization's functional plans

marketing plan

a document that describes the marketing environment, outlines the marketing objectives and strategy, and identifies how the company will implement and control the strategies embedded in the plan

mission statement

a formal statement in an organization's strategic plan that describes the overall purpose of the organization and what it intends to achieve in terms of its customers, products, and resources

portfolio analysis

a management tool for evaluating a firm's business mix and assessing the potential of an organization's strategic business units

business plan

a plan that includes the decisions that guide the entire organization

scrum

a popular methodology for executing agile marketing

BCG growth-market share matrix

a portfolio analysis model developed by the boston consulting group that assesses the potential of successful products to generate cash that a firm can then use to invest in new products

control

a process that entails measuring actual performance, comparing this performance to the established marketing objectives, and then making adjustments to the strategies or objectives on the basis of this analysis

SWOT analysis

an analysis of an organization's strengths and weaknesses and the opportunities and threats in its external environment

situation analysis

an assessment of a firm's internal and external environments

business planning

an ongoing process of making decisions that guides the firm both in the short term and in the long term

market penetration strategies

growth strategies designed to increase sales of existing products to current customers, nonusers, and users of competitive brands in served markets

diversification strategies

growth strategies that emphasize both new products and new markets

product development strategies

growth strategies that focus on selling new products in existing markets

market development strategies

growth strategies that introduce existing products to new markets

action plans

individual support plans included in a marketing plan that provide the guidance for implementation and control of the various marketing strategies within the plan. Action plans are sometimes referred to as "marketing programs"

Strategic Business Unit (SBU)

individual units within the firm that operate like separate businesses, with each having its own mission, business objectives, resources, managers, and competitors

activity metrics

metrics focused on measuring and tracking specific activities taken within a firm that are part of different marketing processes

outcome metrics

metrics focused on measuring and tracking specific events identified as key business outcomes that result from marketing processes

lagging indicators

performance indicators that provide insight into the performance of an action plan based on outcomes realized

leading indicators

performance indicators that provide insight into the performance of current efforts in a way that allows a marketer to adjust relevant marketing activities (hopefully) resulting in performance improvements against the current action plan

return on marketing investment (ROMI)

quantifying just how an investment in marketing has an impact on the firm's success, financially and otherwise

agility

the ability to be nimble, or to move quickly and easily

internal environment

the controllable elements inside an organization, including its people, its facilities, and how it does things that influence the operations of the organization

business portfolio

the group of different products or brands owned by an organization and characterized by different income-generating and growth capabilities

external environment

the uncontrollable elements outside an organization that may affect its performance either positively or negatively