Important note from the author vii
1 Understanding marketing planning 7
The need for a systematic approach 9
The difference between strategy and tactics 13
Question and answers 19
2 How marketing planning fits with corporate planning 25
Questions and answers 30
3 The strategic marketing planning process and the marketing plan 37
Marketing audit 38
SWOT analyses 42
Strategy formulation 44
Strategic marketing plan ‘ingredients’ and ‘recipe’ 46
Questions and answers 49
vi í Contents
4 Defining markets and segments prior to planning 55
Questions and answers 60
5 Understanding products and services prior to planning 67
Questions and answers 75
6 Setting marketing objectives and strategies 81
Marketing objectives 81
Marketing strategies 87
Questions and answers 90
7 Advertising and sales promotion strategies 97
Advertising strategies 98
Sales promotion strategies 103
Questions and answers 107
8 Sales strategies 113
Questions and answers 119
9 Price strategies 125
Questions and answers 130
10 Place (distribution and customer service) strategies 137
Questions and answers 143
11 Information and organization 149
Questions and answers 165
12 Making marketing planning work 171
Questions and answers 183
13 Next steps… 191
Important note from the author
This is a text for busy managers who don’t have time to wade through volu-
minous texts. Accordingly, its strengths are that it contains only the essentials
necessary for marketing planning. Its weaknesses are that it gives only brief
treatment to some of the really complex issues that get in the way of effective
marketing planning, such as corporate culture, politics, organizational struc-
tures, knowledge, skills and a host of other items. Nonetheless, the essentials
are here and those who want and need a quick and effective guide will find it
in this useful little book.
It covers the essentials of marketing planning and contains a number of test
questions at the end of each chapter. Whilst these are by no means essential to
the learning process, they do nonetheless provide a quick check on under-
standing. Of much more significance are the two ‘tests’ in Chapter 1. Please
ensure you complete these.
For those who need a totally professional approach to strategic and tactical
marketing planning, I refer you to my main text on this subject: Marketing
Plans: How to prepare them; how to use them (Butterworth-Heinemann, Oxford,
2007, 6th edition). Much of the thinking and some of the exercises and
diagrams have been borrowed from this widely used and respected global
viii í Important note from the author
Finally, this book would not have been possible without the editorial assis-
tance of Margrit Bass of Native Arrows (firstname.lastname@example.org). Her
perceptive insights and writing skills are second to none.
In the present business climate of increasingly competitive markets, there is a
growing realization that success in the future will come only from meticulous
planning and market preparation. In order to make a confident commitment to
the future, an organization’s marketing plans must be meaningful: they must
be relevant, realistic, and useable. To be of any benefit, marketing plans must
accurately portray the known corporate and market environments as well as
provide an educated guide through unknown terrain, given the inevitability of
There are three distinct yet interdependent stages involved in developing
strategic marketing capability in an organization:
• Establish a disciplined framework, or logic, for undertaking the marketing
planning process and producing strategies.
• Underpin this framework with a meaningful marketing intelligence
function (which may or may not reside within a specific department)
• Undertake the necessary steps inside the organization to convert the
written plans into actionable propositions. These steps will likely involve
change in organizational culture, structure and operations, which is best
driven by the leadership and commitment of the CEO.
A working marketing plan is achievable, providing you are equipped with a
sound understanding of the aims and principles of marketing planning, and
are prepared to make the right investment in terms of time, energy, resources
and commitment. This book sets out to impart such understanding through
concise explanation of the key concepts and instruction in undertaking the
requisite planning steps. Readers are invited to test their knowledge and
progress by completing the Question and Answer sections at the close of each
chapter, and the educational tests included in some chapters.
x í Preface
Levels of competence in
marketing are still very
After 50 years of marketing, developing a marketing
strategy that is sufficiently robust to guide the rest of
the organization about how it can build superior
value for its customers remains one of the most
elusive of all marketing skills.
Research into marketing planning carried out at
Cranfield during 25 years reveals a truly appalling
level of competence in this central function of
marketing. Indeed, things seem to be getting worse
rather than better, and over 10 years since the
famous Brady and Davis criticism of the whole
marketing domain, marketing people are still seen
as ‘expensive, slippery and unaccountable’.
Our research also shows an unacceptably low
level of competence in basic marketing skills. Many
so-called ‘practitioners’ have not even heard of most
of the diagnostic tools of the trade necessary for
producing a good, solid marketing plan, and the
percentage of qualified marketers (in the sense of
having passed the appropriate marketing examina-
tions) is at an all-time low. What, we wonder, would
happen to a would-be accountant, architect, banker,
or engineer who thought they could get a job
without passing appropriate standards? Even more
depressing, marketing practitioners have this awful
habit of blaming everyone else in the organization
for their own failure to have much impact on the
So, with such a blatant and devastatingly honest
and up-front commentary on the state of marketing,
what is this book about? Excellent marketing
planning is a core requirement for marketers and
this little book tackles this topic head on. It takes all
the mystery out of it and acts as a straightforward
‘this is how you do it’ guide to this most difficult but
essential of marketing processes.
First, however, let’s get a fix on how well your
company seems to be performing generally. The
following Introductory Test is not a trick question-
naire, but if you don’t score very well, it will
certainly confirm that you need help. If you score
brilliantly well, I recommend that you quickly move
on to the core section of this book, which begins with
2 í Malcolm McDonald on marketing planning
Marketing planning is a
core requirement for
Evaluation of organizational performance*
Place a tick after each statement in the column that most accurately describes
your organization’s situation.
Very True Don’t Untrue Very
true know untrue
1 (a) Our return on invested capital is
(b) There is good evidence it will stay that
way for the next five years.
(c) Detailed analysis indicates that it is
probably incapable of being materially
2 (a) Our market share is not declining.
(b) This is a fact, based on objective
(c) There is objective evidence that it will
stay that way.
3 (a) Our turnover is increasing.
(b) At a rate faster than inflation.
(c) But not at the expense of profitability.
4 I know for sure that our sales
organization is only allowed to push
less profitable lines at the expense of
more profitable ones if there are
rational reasons for doing so.
Introduction í 3
* This test is adapted from Marketing Plans: How to prepare them; how to use them, Malcolm McDonald, Butterworth-
Heinemann, Oxford, 6th edition, 2007.
Very True Don’t Untrue Very
true know untrue
5 (a) I understand why the company has
performed the way it has during the
past five years.
(b) I know (apart from hoping) where it is
heading during the next five years.
6 (a) I am wholly satisfied that we make
what the market wants, not what we
prefer to produce.
(b) Our operations, R&D, IT, HR, finance,
marketing and selling strategies are
developed for the profitability of the
company as a whole rather than for
the gratification of any personal
(c) I am satisfied that we do not use
short-term tactics which are injurious
to our long-term interests.
7 (a) I know that sales and profit forecasts
presented by operating management
(b) I know they are as exacting as they can
(c) If I or anyone insists that they are
raised, it is because a higher level is
attainable not just because a better-
looking budget is required.
8 (a) The detailed data generated internally
are analysed to provide timely
information about what is happening
in the key areas of the business.
4 í Malcolm McDonald on marketing planning
Very True Don’t Untrue Very
true know untrue
(b) Marketing research data which
operating management acquires is
synthesized into plain English, and is
actually needed and used in the key
9 (a) We do not sell unprofitably to any
(b) We analyse our figures to be sure of
(c) If we do, it is for rational reasons
known to us all.
10 Our marketing policies are based on
market-centred opportunities which
we have fully researched, not on vague
hopes of doing better.
Introduction í 5
Join up the ticks down the page and count how many are to the left of the don’t
know position, and how many are at the don’t know position or to the right of it.
Interpretation of Introductory Test
If you have 11 or more answers in the don’t know position or to the right of it,
then the chances are that your company isn’t very market-driven. It needs to
take a closer look at itself. But are you sure? If not, you’re going to have to work
really hard at marketing.
Scores between 12 and 20 to the left of the don’t know position indicate an
organization that appears to have a reasonable control of many of the signif-
icant ingredients of commercial success. Nonetheless, there is clearly still room
Scores above 20 to the left of the don’t know position indicate an organization
completely in command of the key success variables. Are you certain that this
is a true reflection of your organization’s situation? If you are, then the chances
are that its marketing skills are already highly developed and that you are
probably already doing a reasonably good marketing job.
6 í Malcolm McDonald on marketing planning
Widespread ignorance about marketing planning
and confusion about the difference between
strategic marketing planning, and sales forecasting
and budgeting, has caused many an organization to
strive short of its full potential or, indeed, to die
prematurely without the real root cause of death
ever being identified. Such agonizing outcomes can
be avoided to a great extent by fully understanding
what marketing planning is (and is not), and assimi-
lating this understanding in actual practice.
To acquire an understanding of marketing
planning, it is necessary first to gain an appreciation
of the role of marketing within the business context.
When Adam Smith said back in 1776 that consump-
tion is the sole end and purpose of production, he
was in fact describing what has been termed the
marketing concept. Central to the marketing concept
is the idea that marketing is a matching process
between a company’s capabilities and the wants and
needs of customers in order to achieve the objectives
of both parties. Marketing is thus about providing
goods and services for which there is a known
customer demand, rather than selling what the
company likes to produce.
The purpose of marketing planning and its prin-
cipal focus are the identification and creation of
competitive advantage. Marketing planning is the
planned application of marketing resources to
achieve marketing objectives. Given the increasing
turbulence and complexity of the marketplace, and
the rapid pace of technological change, the need for
a disciplined, systematic approach to the market has
never been so acute. The most marked difference in
marketing planning today, as compared to
yesteryear, is that all levels of management are
involved, with the resulting intelligence coming
from the market rather than from the heads of a
remote group of planners with little or no opera-
an emphasis on scanning the external environment,
identifying early the forces emanating from it, and
developing appropriate strategic responses. Strategic
marketing planning is a management process leading to
a marketing plan. It is a logical sequence and a series of
activities leading to the setting of marketing objectives
and formulation of plans for achieving them. (The
precise steps in this process and the contents of a
marketing plan are the subject of Chapter 3.) In small,
undiversified companies this process is usually
informal whereas in larger, more diversified organiza-
tions, the process is often systematized.
8 í Malcolm McDonald on marketing planning
The purpose of marketing
planning is the
identification and creation
of competitive advantage
THE NEED FOR A SYSTEMATIC
Although simple to grasp intellectually, strategic
marketing planning is notoriously the most difficult
of all marketing tasks. The reason why is that it
involves bringing together into one coherent, realistic
plan all the elements of marketing, and this ‘coales-
cence’ requires at least some degree of institution-
alized procedures as well as inevitable compromise
between conflicting objectives. For example, consider
the four typical business objectives of: maximizing
revenue; maximizing profits; maximizing return on
investment; and minimizing costs. Each has its
own special appeal to different managers within the
organization, depending on their particular function.
To achieve a kind of ‘optimum compromise’ de-
mands accurate and collaborative understanding of
how these variables interact, and steadfast ratio-
nality in decision-making.
Commercial success is, of course, influenced by
many factors apart from just planning procedures. A
myriad of contextual issues adds to the complexity
of the marketing planning process. These include:
company size; degree of internationalization; man-
agement style; degree of business environmental
turbulence and competitive hostility; marketing
growth rate; market share; technological develop-
ments; and so on. However, irrespective of the size
or complexity of the organization, some kind of
structured approach to situation analysis is neces-
sary in order that meaningful and realistic
marketing objectives can be set.
A frequent complaint is marketing’s preoccu-
pation with short-term thinking and an almost total
Understanding marketing planning í 9
lack of ‘strategic thinking’, or considering the
longer-term implications of external and internal
influences on the organization. Another complaint is
that marketing plans consist largely of numbers,
which bear little relationship to and offer little
insight into current market position, key opportu-
nities and threats, significant trends and issues, or
indeed, how to meet sales targets. Financial objec-
tives, while being essential measures of the desired
performance of a company, are of scant practical
help, since they say nothing about how the results are
to be achieved. The same applies to sales forecasts
and budgets, which are not marketing objectives and
strategies. Basing company plans on a combination
of forecasting and budgeting systems can only work
if the future is going to be the same as the present or
the past. As this is rarely the case, reliance on a fore-
casting and budgeting approach often leads to the
following common problems:
• lost opportunities for profit;
• meaningless numbers in long-term plans;
• unrealistic objectives;
• lack of actionable market information;
• interfunctional strife;
• management frustration;
• proliferation of products and markets;
• wasted promotional expenditure;
• confusion over pricing;
• growing vulnerability to changes in the business
• loss of control over the business.
These problems are symptomatic of a much deeper
problem emanating from a lack of marketing
10 í Malcolm McDonald on marketing planning
planning. Marketing planning is about marketing
objectives (what you want to achieve) and
marketing strategies (how you plan to achieve your
marketing objectives). There can be objectives and
strategies at all levels in marketing. For example,
there can be advertising objectives and strategies,
and pricing objectives and strategies. However, it is
important to remember that marketing objectives are
confined to products and markets only. And they
should be capable of measurement, otherwise they
are not objectives. Measurement should be in terms
of some or all of: sales volume, sales value, market
share, profit, or percentage penetration of outlets.
Marketing objectives are about one or more of the
• existing products in existing markets;
• new products for existing markets;
• existing products for new markets;
• new products for new markets.
Marketing strategies are the means by which
marketing objectives will be achieved and are
generally concerned with the four ‘P’s of the
marketing mix: product, price, place and promotion.
Understanding the real meaning and significance
of marketing objectives helps managers to know
what information they need to enable them to think
through the implications of choosing one or more
positions in the market. However, finding the right
words to describe the logic of marketing objectives
and strategies is infinitely more difficult than
writing down numbers on a piece of paper and
leaving the strategies implicit. A numbers-
orientated system will not encourage managers to
think in a structured way about strategically
Understanding marketing planning í 11
Marketing objectives are
confined to products and
Marketing strategies are
the means by which
marketing objectives will
relevant market segments, nor will it encourage the
collection, analysis and synthesis of actionable
market data. And in the absence of such activities
within the organization, it is unlikely that the
decision-makers will have much other than intuition
and ‘feel’ to go on in determining how best to
manage limited, valuable resources.
The challenge remains of how to get managers
throughout an organization to think beyond the
horizon of the current year’s operations. Managers
who are rewarded on the basis of current opera-
tional performance find it difficult to concern them-
selves about the corporate future. This is exacerbated
by behavioural issues, in the sense that it is safer and
more rewarding personally for managers to do what
they know best, which, in most cases, is to manage
their current range of products and customers in
order to make the current year’s budget.
Einstein wrote: ‘The formulation of a problem is far
more essential than its solution, which may be merely
a matter of mathematical or experimental skill. To
raise new questions, new possibilities, to regard old
problems from a new perspective, requires creative
imagination.’ Unfortunately, in situations of problems
old or new, such creativity is rare, especially when
most managers are totally absorbed in managing
today’s business.Accordingly, they need some system
that will help them think in a structured way about
problem formulation, which in turn, can lead them to
more effective problem resolution, and ideally to pre-
empting and preventing problems in future.
The benefits of a marketing plan are that it:
• achieves better coordination of activities;
• identifies expected developments;
12 í Malcolm McDonald on marketing planning
• increases organizational preparedness to change;
• minimizes non-rational responses to the unex-
• reduces conflicts about where the organization
should be going;
• improves communications;
• forces management to think ahead systemati-
• enhances the matching of available resources to
• provides a framework for the continuing review
• demands a systematic approach to strategy
formulation, which leads to a higher return on
There are four main stages in the marketing
planning process: analysis, objectives, strategy,
tactics. This process is formally expressed in two
marketing plans, the strategic marketing plan and
the tactical marketing plan.
THE DIFFERENCE BETWEEN STRATEGY
The crux of marketing planning lies in knowing the
difference between strategy and tactics. All organi-
zations need to have a longer-term (strategic)
marketing view as well as a short-term (tactical)
marketing operation. Much of the confusion
surrounding marketing planning derives predomi-
nantly from not understanding the real significance
of a strategic marketing plan as opposed to a
Understanding marketing planning í 13
Four main stages: analysis,
objectives, strategy, tactics
tactical, or operational marketing plan. A strategic
marketing plan is for a period that extends beyond
the next fiscal year, and usually covers three to five
years. It is the backdrop against which operational
decisions are taken, determining where the
company is, where it wants to go and how it can get
there. A tactical plan is for a shorter period,
normally for one year or less. While similar in
content, its level of detail is much greater as it
contains the scheduling and costing of the specific
actions necessary for the achievement of the first
year of the strategic plan.
Tactical marketing plans should never be
completed before strategic marketing plans. Most
managers prefer selling the products they find
easiest to sell to the customers that offer the least line
of resistance. However, those who prepare tactical
plans first and then extrapolate them merely
succeed in extrapolating their own shortcomings.
Such preoccupation with short-term plans is a
typical mistake of companies that confuse sales fore-
casting and budgeting with strategic marketing
The pragmatic, profit-related reasons for needing
to develop a strategic marketing plan, and for doing
so before deciding operational courses of action, are
illustrated by the ‘survival matrix’ shown in Figure
1.1. The horizontal axis represents strategy as a
continuum from ineffective to effective, while the
vertical axis represents tactics on a continuum from
inefficient to efficient. Those firms with an effective
strategy and efficient tactics continue to thrive,
while those with an effective strategy but inefficient
tactics merely survive. Those firms to the left of the
matrix are destined to die.
14 í Malcolm McDonald on marketing planning
Tactical marketing plans
should never be completed
before strategic marketing
To test your understanding of marketing planning,
the business benefits it offers and the business real-
ities it illuminates, complete Tests 1.1 and 1.2. (Test
1.2 utilizes Figure 1.2.)
Test 1.1: The benefits of marketing planning
What follows is a list of the benefits of marketing planning. With your
company in mind, score each benefit by means of the scale given below.
0 1 2 3 4 5 6 7 8 9 10
Never Sometimes Frequently Most of the time Always
Understanding marketing planning í 15
Die quickly Survive
Die slowly Thrive
10 20 30 40 50 60 70 80 90 100
Figure 1.1 Survival matrix
These tests are taken from Marketing Plans: How to prepare them; how to use them,
Malcolm McDonald, Butterworth-Heinemann, Oxford, 6th edition, 2007
1. Our approach to marketing planning ensures that we get a high
level of coordination of our various marketing activities. ( )
2. Our marketing planning process enables us to identify unexpected
developments in advance. ( )
3. Because of the way we approach marketing planning, there is an
increased readiness for the organization to change, in response to
the issues ‘flagged up’. ( )
4. When we are faced with the unexpected, our marketing planning
process minimizes the risk of non-rational responses. ( )
5. Having a marketing plan reduces the conflicts between managers
regarding ‘where the company should be going’. ( )
6. Our marketing plan improves communications about market-related
issues. ( )
7. Because of our marketing planning process, management is forced
to think ahead systematically. ( )
8. Having a marketing plan enables us to match our resources to
opportunities in an effective way. ( )
9. Our marketing plan provides us with a useful framework for a
continuing review of progress. ( )
10. Our marketing planning has led us to develop more profitable
marketing strategies. ( )
Scoring and interpretation for Test 1.1
The maximum score for the exercise is 100. If you scored:
81–100: Marketing planning is really paying off in your company.
61–80: You are not receiving the benefits you should be receiving.
41–60: You appear to be moving along the right lines, but there is still a long
way to go.
0–40: Either your marketing planning process is inadequate, or your
company is not really trying to make marketing planning work.
16 í Malcolm McDonald on marketing planning
Test 1.2: The survival matrix
It is important to remember that profitability and high market growth are
nearly always correlated. In other words, the higher the market growth, the
higher the profitability.
This phenomenon can sometimes obscure the fact that a company that
appears to be doing well can still be losing ground in comparison with its
competitors. While apparently thriving, it is in fact dying slowly. The crunch
comes when the erstwhile buoyant market growth slows down, and the other
companies demonstrate quite clearly their superior performance.
Before coming to the survival matrix, please respond to the following state-
ments by scoring them as follows:
1. We review our sales forecasts and budgets a minimum of once a
month. ( )
2. The training we provide for salespeople is very good. ( )
3. Our salespeople consistently meet or exceed their sales targets. ( )
4. Any sales promotional campaigns we run are carefully monitored. ( )
5. We have a good relationship with our advertising agency. ( )
6. Our sales staff are clear about the role they are expected to play. ( )
7. Our sales managers are very good motivators. ( )
8. Most of the company knows who our best customers are. ( )
9. The sales force has a good conversion rate in terms of number of
visits per order. ( )
10. Our marketing is reasonably stable, ie there is not a staff turnover
problem. ( )
Understanding marketing planning í 17
0 1 2 3 4 5 6 7 8 9 10
Never Sometimes Frequently Most of the time Always
Scoring and interpretation for Test 1.2
Often the most potent short-term tactic is the use of
the sales force. Following the example shown in
Figure 1.2, enter the sales force effectiveness score on
the vertical axis on the survival matrix (Figure 1.1)
and then draw a horizontal dotted line across the
matrix. Take the marketing benefits score from Test
1.1 and enter this on the horizontal axis of the
matrix. Draw a vertical dotted line up from this
point. Where the two dotted lines meet is where you
position your company on the survival matrix.
What are the implications for your company?
What actions might be required if improvements are
18 í Malcolm McDonald on marketing planning
Marketing strategy benefits
(score = 35)
10 20 30 40 50 60 70 80 90 100
Figure 1.2 Positioning on the survival matrix
QUESTIONS AND ANSWERS
1. In which century could it be said that the
marketing concept was first advocated in a
a) 17th century c) 19th century
b) 18th century d) 20th century
2. Marketing involves making both strategic and
tactical decisions. Identify which are which by
writing S (strategic) or T (tactical) in the brackets
after the following.
i) Decide to put emphasis on face-to-face
selling. ( )
ii) Set tougher sales targets. ( )
iii) Run a sales promotion. ( )
iv) Develop a new image for the company. ( )
v) Reposition the product in the market. ( )
vi) Change packaging colour. ( )
3. What does the marketing concept really mean?
a) That the organization treats its customers in a
b) That the organization sets out to dominate a
c) That the organization is driven by a desire to
satisfy customer needs.
d) That the organization sells its products more
Understanding marketing planning í 19
4. Which of the following is the most apt
description of the marketing process?
a) A democratic process in which consumers
have the right to select their preferred candi-
dates (suppliers). They ‘elect’ them by casting
their money votes to those who supply the
goods or services that best satisfy their needs.
b) Deciding what the customer wants,
arranging to make it, then distributing and
selling it at a profit.
c) The planning and execution of all business
activities so that the optimum influence is
exerted on the customer, resulting in an opti-
mization of prices and greater long-term
d) The organization and performance of those
business activities which facilitate the
exchange of goods and services between the
maker and the user.
5. Two competing banks in the same town offer
much the same range of financial products.
Research has revealed that 80 per cent of bank
customers in the town have a preference for tele-
phone or online banking. Even so, Bank A
decides to extend its opening hours.
How should Bank B respond? Should it:
a) Do nothing different?
b) Copy Bank A’s opening hours?
c) Open for even longer than Bank A?
d) Do market research on the effectiveness of its
current opening hours?
20 í Malcolm McDonald on marketing planning
6. Which of the following is NOT part of the
a) customer service d) price
b) research and development e) distribution
7. Which of the following is NOT an organizational
a) creativity d) environmental concern
b) technology e) compliance with ISO 9000
c) skilled labour (International Quality
f) research and development
8. Which of the following is NOT part of the
a) legislation f) technological
b) trading standards developments
c) market trends g) competition
d) market share h) fashion
e) economic trends
9. Marketing literature is liberally sprinkled with
the words ‘customers’ and ‘markets’. Which of
the following statements do you believe is most
a) ‘Customers’ and ‘markets’ mean the same
b) ‘Customers’ are real, ‘markets’ are what we
define them to be.
c) ‘Customers’ come and go, but ‘markets’
d) Look after ‘customers’ and ‘markets’ will
look after themselves.
Understanding marketing planning í 21
10. It is said that the marketing planning process has
to be appropriate for the organization. Which of
the following appears to be the best fit?
a) Small company with a limited range uses a
highly formal process.
b) Large company with several operating units
uses a highly centralized planning process.
c) Large company with complex range of
products uses a semi-formal process.
d) Small company with wide-range in a single
market uses a very informal planning
Question 1 Adam Smith, The Wealth of Nations,
Answer = b).
Question 2 Remember a strategic decision needs
time to bear fruit, a tactical decision can
make immediate impact.
Answer: i) = S, ii) = T, iii) = T, iv) = S, v)
= S, vi) = T.
Question 3 While a), b) and d) might sound
reasonable, c) is the true answer.
Answer = c).
Question 4 It is the only definition that reflects the
‘matching’ of supplier’s capabilities
with the satisfaction of the buyer’s
Answer = a).
22 í Malcolm McDonald on marketing planning
Question 5 To copy what competitors do, without
having good reason, is to invite costs to
escalate and get nothing back in return.
Answer = d).
Question 6 Although research and development
may contribute to new product devel-
opment eventually, it does not
constitute being part of the marketing
Answer = b).
Question 7 Having a concern for something
(conceptual) is not the same as being
good at something (actual).
Answer = d).
Question 8 Market share is a measure of how well
the company is meeting the needs of a
specific market segment. It is not an
Answer = d).
Question 9 Customers are certainly real but we can
define our markets by industry, geog-
raphy, customer types, etc. Markets are
not static and not all customers will fall
into the same segments.
Answer = b).
Question 10 a) = overkill, b) = too controlled,
c) = too informal.
Answer = d).
Understanding marketing planning í 23
It is not possible to plan
marketing activities in
isolation from other
Marketing planning is the means by which an orga-
nization monitors and controls the many internal
and external influences on its ability to achieve prof-
itable sales, and communicates throughout its ranks
the competitive stance it has chosen to achieve its
objectives. It is therefore not possible to plan an
organization’s marketing activities in isolation from
other business functions. Consequently, the
marketing planning process should be firmly based
on a corporate planning system.
A business starts at some time with resources and
wants to use those resources to achieve something.
This desired destination, or result, is a corporate
objective. Most often corporate objectives are
expressed in terms of profit, since profit is the
means of satisfying shareholders or owners, and
because it is one universally accepted criterion by
How marketing planning fits
with corporate planning
which efficiency can be evaluated, which will in turn
lead to efficient resource allocation, economic and
technical progressiveness and stability. The policies
an organization adopts to pursue its profit objec-
tives, such as to compete in a market, to manufacture
itself but to outsource distribution, to manage
within cash flow and so on, are corporate strategies.
In practice, companies tend to operate by way of
functional divisions, each with a separate identity,
so that what is a strategy in the corporate plan
becomes an objective within each department. For
example, marketing strategies within the corporate
plan become operating objectives within the
marketing department, and strategies at the general
level within the marketing department become
operating objectives at the next level down (eg,
advertising, sales promotion, personal selling). At
the further level down, there would be, say, adver-
tising objectives and advertising strategies, with the
subsequent programmes and budgets for achieving
the objectives. In this way, a hierarchy of objectives
and strategies is formed, which can be traced back to
the initial corporate objective.
The really important point, apart from clarifying
the difference between objectives and strategies, is
that the further down the hierarchical chain one
goes, the less likely it is that a stated objective will
make a cost-effective contribution to company
profits, unless it derives logically and directly from
an objective at a higher level. Thus meaningful
marketing objectives, concerning what is sold
(products/services) and to whom it is sold (its
markets), will relate directly to corporate objectives,
or the desired level of profit the organization seeks
26 í Malcolm McDonald on marketing planning
A hierarchy of objectives
Marketing planning and corporate planning í 27
Corporate planning: step 1
– corporate financial
Corporate planning: step 2
– management audit
Corporate planning: step 3
– objective and strategy
While marketing planning is based on markets,
customers and products/services, business planning
involves other corporate resources, which will have
a bearing on the identified markets. It is therefore
useful to understand how marketing planning
relates to the corporate planning process. There are
five steps in the corporate planning process, as
outlined in Figure 2.1.
Step 1 amounts to a statement of corporate
financial objectives for the long-range planning
period of the organization. These objectives are often
expressed in terms of turnover, profit before tax, and
return on investment. Usually this planning horizon
is five years, but the precise period should be deter-
mined by the nature of the markets in which the
organization operates. A useful guideline is that
there should be a market for the organization’s
products for long enough at least to amortize any
capital investment associated with those products. It
is advisable to keep the period down to three years,
since beyond this period any detail in the strategic
plan is likely to become pointless.
Step 2 is an audit, or systematic, critical and
unbiased review and appraisal of the environment
and the company’s operations. In practice, the best
way to carry out a management audit is to conduct a
separate audit of each major management function.
Thus the marketing audit (concerned with the
marketing environment and marketing operations)
is part of the larger management audit, in the same
way that the operations audit is.
Step 3, objective and strategy setting, is
undoubtedly the most important and difficult of the
corporate planning stages, since if this is not done
properly everything that follows is of little value.
This is the stage in the planning cycle when a
compromise had to be reached between what is
wanted by the several functional departments and
what is practicable given the constraints within
which any organization operates.
Step 4 involves producing detailed plans for one
year, containing the responsibilities, timing and
costs of carrying out the first year’s objectives, and
broad plans for the following years.
Step 5 is an incorporation of these detailed plans
into a corporate plan, which will contain long-range
corporate objectives, strategies, plans, profit and
loss accounts, and balance sheets. Amain purpose of
the corporate plan is to provide a long-term vision of
what the company is or is striving to become, taking
account of shareholder expectations, both resource
and consumption market trends, and the distinctive
competence of the organization as revealed by the
What this means in practice is that the corporate
plan will contain at least the following elements:
• Corporate objective, or the desired level of
• Corporate strategies, which denote business
– what kinds of products will be sold to what
kinds of markets (marketing)
– what kinds of facilities will be developed
(operations and distribution)
– the size and character of the labour force
– funding (finance).
Marketing planning and corporate planning í 29
Corporate planning: step 4
– step plans
Corporate planning: step 5
– corporate plans
• Other corporate objectives, such as social respon-
sibility, corporate/stock market/employer image,
The relevance of the corporate plan to the marketing
plan is immediately visible in that the first item to
appear in the marketing plan is often a page
outlining the corporate mission and objectives. It
should consist of brief statements about the organi-
zation’s role or contribution, business definition,
distinctive competences, and indications for the
future (ie, what the firm will do, might do, will never
do). The mission statement should be followed with
a section summarizing the organization’s financial
performance, and its financial projections for the
three-year planning period. This will provide the
person reading the marketing plan with an
overview of the financial implications of the plan,
including the organization’s financial goals
(revenue and profit targets) and how these will be
achieved. The mission statement and financial
summary represent the goal-setting phase of the
marketing planning process, ensuring that the
marketing plan is launched on a firm and realistic
QUESTIONS AND ANSWERS
1. Which of the following is NOT a corporate
a) To make 15 per cent return on capital
b) To be the most profitable company in our
30 í Malcolm McDonald on marketing planning
Linking the corporate plan
to the marketing plan
market sector as measured by return on net
c) To increase earnings per share by x per cent
d) To improve customer service levels by x per
cent per annum.
2. Which of the following is NOT a marketing
a) To sell N products to segment A.
b) To generate £Y from segment B.
c) To increase market share of product X in
d) To increase prices by 10 per cent.
3. The objective-setting process of a company
ought to be primarily based on:
a) Previous sales records.
b) Its markets.
c) Maximizing profits.
d) Its productive resources.
4. A mission statement is intended to:
a) Make all employees feel good about the
b) Describe in detail the core strengths of the
c) Highlight the role of the business, its
distinctive competence, future direction and
motivate the employees.
d) Be a ‘call to arms’, eg ‘we are going to wipe
out our competitors’.
Marketing planning and corporate planning í 31
6. In identifying what makes a key account
customer should you consider:
a) The people at each customer account and their
relationship with you.
b) A range of factors which would make a
customer attractive to your company.
c) The price you can get for your products.
d) The volume of sales you have with a customer.
5. Here are two sets of ‘snapshots’ taken of four
companies over a three-year period. Which one
looks to have the most successful future?
32 í Malcolm McDonald on marketing planning
A B C D
3 years ago
Sales revenue (£m) 250 150 200 180
Net profit (£m) 16 17 10 15
Return on assets % 12 18 8 12
Market growth % 18 22 12 15
Market share % 20 15 18 15
Sales revenue (£M) 450 140 220 300
Net profit (£M) 55 15 12 25
Return on assets % 26 20 14 18
Market growth % 17.5 15 19 18
Market share % 9 14 19 20
Marketing planning and corporate planning í 33
7. Several factors inhibit the marketing planning
process. Which of the following is not such a
a) An over-reliance on numbers and detail.
b) Confusion over marketing planning terms.
c) The separation of strategic and tactical plans.
d) The involvement of non-marketing managers.
8. Creativity is said to be a vital component of
marketing. In which type of organizational
setting is it most likely to flourish productively?
a) An organization which plans ahead realisti-
cally and sets very challenging targets.
b) An organization with a highly autocratic
c) A bureaucratic organization.
d) A ‘laissez-faire’ organization where staff
have considerable freedom to act.
9. Market research should be used to:
a) Confirm the action you have taken (eg build
new plant, investment, etc).
b) Enable critical business decisions to be made
c) Demonstrate to customers that you care
about their reaction to new products and
services offered by your company.
d) Examine market possibilities to identify trends
and market opportunities for your business.
10. Which of the following is more likely to result in
a) Making customers aware of your products
and their benefits.
b) Paying high salaries to product managers.
c) Developing first-class products (which will
d) Setting a high price (to maximize profits).
Question 1 Answer = d). This is a customer service
Question 2 Answer = d). This is a pricing objective.
Question 3 It is only by understanding its markets
that a company can be successful.
Answer = b).
Question 4 While there is some merit in answers a),
b) and d) – although with d) there may
be some question marks – c) is the main
reason to have a mission statement.
Answer = c).
Question 5 Company A has increased revenue and
profits but market is not growing and
share is declining rapidly. B and C have
not changed significantly. C is doing
slightly better. D has increased revenue
and profits and market growth and
market share are up.
Answer = d).
Question 6 Not only is this true for now, but it must
also be true (ie attractive) in the future.
Answer = b).
Question 7 Answer = d). It is often helpful if
colleagues get involved.
34 í Malcolm McDonald on marketing planning
Question 8 To some d) may look to be an attractive
answer, but constructive creativity
comes from the organizational brain-
power being focused on real issues, not
from everybody doing ‘their own
thing’. b) is dismissed because auto-
cratic CEOs rarely welcome the ideas of
others. In bureaucratic organizations
(c), the operational procedures (red
tape) tend to discourage any lateral
Answer = a).
Question 9 Answer = d).
Question 10 Answer = a).
Marketing planning and corporate planning í 35
Logical steps to marketing
As mentioned earlier, the strategic marketing
planning process is a series of logical steps that have
to be worked through in order to arrive at a
marketing plan. Strategic marketing planning by
means of a planning system is, per se, little more than
a structured way of identifying a range of options
for the company, of making them explicit in writing,
of formulating marketing objectives which are
consistent with the company’s overall objectives and
of scheduling and costing out the specific activities
most likely to bring about the achievement of the
objectives. It is the systemization of this process
which is distinctive and which lies at the heart of the
theory of strategic marketing planning.
Figure 3.1 outlines the constituent 10 steps, high-
lighting the difference between the process of
marketing planning and its output, the actual
The strategic marketing
planning process and the
written marketing plan. A more comprehensive
description of the ‘ingredients’ and ‘recipe’ for
producing a strategic marketing plan is provided at
the end of this chapter.
Experience has shown that a strategic marketing
plan should contain: a mission statement; financial
summary; market overview; SWOT analyses;
assumptions; marketing objectives and strategies
appropriately prioritized; and resource allocations
containing details of timings, responsibilities and
costs, with forecasts and budgets. To ensure that
these elements appear in the marketing plan, it is
necessary to complete each of the first nine planning
steps in succession before producing the detailed
one-year plan. However, the dotted lines in Figure
3.1 indicate the reality of the marketing planning
process, that is to say, it is likely that each of these
steps will have to be gone through more than once
before final marketing programmes can be written.
The initial, goal-setting phase of the marketing
planning process was considered in Chapter 2,
where it was emphasized that the clear definition of
agreed corporate objectives and organizational
mission is fundamental to the success of marketing
planning, and consequently, to the success of the
marketing plan. This chapter proceeds to describe
the importance and activity of the second phase, the
Clearly, any marketing plan will only be as good as
the information on which it is based, and the
marketing audit is the means by which information
38 í Malcolm McDonald on marketing planning
An iterative process
for planning is organized. A marketing audit is a
systematic, critical and unbiased review and
appraisal of all the external and internal factors that
have affected an organization’s commercial perfor-
mance over a defined period. It answers the question:
‘Where is the organization now?’ The marketing
audit is essentially a database of all market-related
issues for the company, which forms part of the
company-wide management audit. By providing an
understanding of how the organization relates to the
environment in which it operates, the marketing
audit enables management to select a position within
that environment based on known factors.
Often the need for a marketing audit does not
manifest itself until things start to go wrong for the
organization, such as declining sales, falling
margins, lost market share, under-utilized
The strategic marketing planning process í 39
2. Corporate objectives
3. Marketing audit
4. SWOT analyses
6. Marketing objectives and strategies
7. Estimate expected results
8. Identify alternative plans and mixes
10. 1st year detailed implementation programme
Resource allocation and monitoring
The Strategic Plan
(output of the planning process)
Marketing objectives and strategies
3-year forecast and budgets
Figure 3.1 The 10 steps of the strategic marketing planning process
production capacity, and so on. However, without
knowing the cause of these danger signs,
management can easily treat the wrong symptoms
and fail to address the root problems. For example,
the introduction of new products, restructuring of
the sales force, reduction of prices or cutting of costs
are unlikely to be effective measures if more funda-
mental problems have not been identified. Of
course, if the organization survived for long enough,
it might eventually solve its problems though a
process of elimination. Either way, the problems
have first to be properly defined, and the marketing
audit helps to define them by providing a structured
approach to the collection and analysis of data and
information on the complex business environment.
Any organization carrying out an audit will be
faced with two kinds of variable: those over which it
has no direct control and those over which it has
complete control. The former include economic and
market factors, while the latter usually concern the
organization’s resources, or operational variables.
This division suggests that the marketing audit
should be structured in two parts:
• External audit – the uncontrollable variables
(business and economic environment, the
market, the competition).
• Internal audit – the controllable variables (orga-
nization’s strengths and weaknesses, operations
and resources vis-à-vis the environment and
The key areas that should be investigated under
these two headings are outlined in Table 3.1.
As well as considering what the marketing audit
should cover, when the audit should be undertaken
40 í Malcolm McDonald on marketing planning
Marketing audit: external
audit and internal audit
and who should undertake it are also crucial to the
effectiveness of the resulting marketing plan. Many
people hold the mistaken belief that the marketing
audit should be a last-ditch attempt to define an
organization’s marketing problems, or at best some-
thing done by an independent body from time to
time to ensure that an organization is on the right
track. However, since marketing is such a complex
function, it seems illogical not to carry out a pretty
thorough situation analysis at least once a year at the
beginning of the planning cycle (described in
Chapter 12). Many highly successful companies, in
addition to using normal information and control
procedures and marketing research throughout the
year, also undertake an annual self-audit of every-
thing that has had an important influence on
marketing activities as a discipline integrated into
the management process.
This can be achieved, firstly, by institutionalizing
procedures in as much detail as possible so that all
managers involved in the audit, from the highest to
the lowest levels, conform to a disciplined approach;
and secondly, by providing thorough training in the
use of the procedures themselves.
The next task is to turn the results of the marketing
audit into actionable intelligence. It is essential at this
stage to concentrate on analysis that determines which
trends and developments will actually affect the orga-
nization, and to omit all the information that is not
central to the organization’s marketing problems.
Inclusion of over-detailed sales performance histories
42 í Malcolm McDonald on marketing planning
undertake annual self-
by product, for instance, which lead to no logical
actions whatever, only serve to rob the audit of focus
and reduce its relevance.
Since the purpose of the marketing audit is to
indicate what the organization’s marketing objec-
tives and strategies should be, it is helpful to adopt a
format for organizing the audit’s major findings. A
useful way of doing this is to complete a SWOT
(strengths, weaknesses, opportunities, threats)
analysis for each major product or market segment.
A SWOT is a summary listing of internal differential
strengths and weaknesses vis-à-vis competitors and
key external opportunities and threats. It should
include reasons for good or poor performance. By
identifying the critical success factors (CSFs) for the
organization, and important outside influences and
their implications, the key issues to be addressed
A SWOT should answer such questions as:
• What do customers need?
• How do they buy?
• What are our competitors doing?
• How well are we performing against customer
• What are the key opportunities and threats?
A SWOT should be brief, interesting and concise, if
possible, running to no more than two pages. It is
generated from internal debate and is not just one
person’s opinion. The SWOTs should enable the
reader, whether or not he or she was involved in
their preparation, to grasp instantly the main thrust
of the business, even to the point of being able to
write marketing objectives. It is important to
The strategic marketing planning process í 43
A SWOT is a summary of
strengths and weaknesses
vis-à-vis competitors and
key external opportunities
remember that only the SWOT analyses, not the
audit, will actually appear in the marketing plan.
A sample form for SWOT analysis, leading to
strategy formulation, is given in Figure 3.2. This
form should be completed for each of the organi-
zation’s market segments.
Having completed the marketing audit and SWOT
analyses, fundamental assumptions on future condi-
tions can be made relating to each product/market
segment under consideration. These assumptions
will also appear in the marketing plan. An example
of a written assumption might be: ‘With respect to
the company’s industrial climate, it is assumed that
industrial overcapacity will increase from 105 per
cent to 115 per cent as new industrial plants come
into operation, price competition will force price
levels down by 10 per cent across the board; a new
product will be introduced by our major competitor
before the end of the second quarter’.
Assumptions should be key and few in number. If
the plan can be implemented irrespective of the
assumption, then the assumption is unnecessary. As
a measure of their importance, these assumptions
will be used to guide the setting of marketing objec-
tives and strategies.
Strategy formulation will involve estimating
expected results, and considering alternative ways
forward and marketing mixes. When the strategies
44 í Malcolm McDonald on marketing planning
factors beyond your
have been agreed, the resources and activities
required to deliver the strategies need to be costed
out, resulting in the budget. Finally, a one-year
tactical plan (first year detailed implementation
programme) must be developed, turning the general
marketing strategies into specific sub-objectives,
each supported by more detailed strategy and action
statements. Depending on the circumstances, this
might comprise an advertising plan, a sales
promotion plan, a pricing plan, a product plan, and
so on, or any combination thereof.
STRATEGIC MARKETING PLAN
‘INGREDIENTS’ AND ‘RECIPE’
Figure 3.3 is a summary of what appears in a
strategic marketing plan (‘ingredients’), together
with a list of the principal marketing tools/tech-
niques/structures/frameworks that apply to each
step in the marketing planning process. Table 3.2
outlines the successive actions (‘recipe’) required to
produce a strategic marketing plan. These should be
borne in mind throughout the remainder of the
book, and may be usefully revisited for clarification
46 í Malcolm McDonald on marketing planning
The strategic marketing planning process í 47
Figure 3.3 ‘Ingredients’ of the strategic marketing plan and associated
The output of the marketing planning process
strategic marketing plan contents
(structures, frameworks, models)
Issues to be addressed
Measurement and review
Key market segments
Market segmentation studies
Product life cycle analysis
Diffusion of innovation
Key success factors matrix
Market segmentation studies
Directional policy matrix
Downside risk assessment
Directional policy matrix
Market segmentation studies
(4 x Ps)
Target customer groups
48 í Malcolm McDonald on marketing planning
1. Start with a mission or purpose statement.
2. Include a financial summary that illustrates
graphically revenue and profit for the full
3. Carry out a market overview:
– What is the market?
– Has the market declined or grown?
– How does it break down into segments?
– What are the trends in each?
4. Identify the key segments and do a SWOT
analysis for each one:
– Outline the major external influences and
their impact on each segment.
– List the key factors for success. There
should be less than five or six.
– Give an assessment of the company’s differ-
ential strengths and weaknesses compared
with those of its competitors’. (Score
yourself and your competitors out of 10 and
then multiply each score by a weighting
factor for each critical success factor, eg,
CSF1 = 60, CSF2 = 25, CSF3 = 10, CSF4 = 5.)
5. Make a brief statement about the key issues
that have to be addressed in the planning
6. Summarize the SWOTs using a portfolio
matrix in order to illustrate the important
relationships between the key points of your
7. List your assumptions.
8. Set objectives and strategies.
9. Summarize your resource requirements for
the planning period in the form of a budget.
Table 3.2 ‘Recipe’ for producing a strategic
QUESTIONS AND ANSWERS
1. The process of strategic marketing planning is
a) Identifying which customers get which
products in the long term.
b) Selling what the company can produce most
c) Forecasting future sales and budgeting to
d) Identifying to whom sales will be made in the
2. In carrying out a SWOT analysis you should:
a) First examine your weaknesses.
b) First examine your external environment to
identify your strengths.
c) First examine the external environment to see
what opportunities and threats exist.
d) Carry out a situation review to identify by
segment, relative strengths, weaknesses,
opportunities and threats.
3. A consultant identifies a lack of marketing
planning in a client company. What would be his
or her best strategy to move things forward?
a) Write the first marketing plan himself or
herself, as a model to be followed.
b) Enthuse the CEO about marketing planning.
c) Run training sessions for managers about
d) Set up a marketing information system.
The strategic marketing planning process í 49
4. In what context should markets/customers and
products/services be used?
a) To establish the company’s competitive
b) To aid forecasting.
c) To set marketing objectives and strategies.
d) To select the best marketing option.
5. How important are assumptions in the planning
process? Which of the following is most accurate?
a) Having assumptions is a lazy way of
avoiding finding out the facts. They weaken
b) It is OK to have assumptions, as long as they
are realistic and few in number.
c) Every assumption you make ought to be
noted so that you cannot be blamed if things
d) It is not necessary to note assumptions in the
plan because it will be obvious where they
have been made.
6. Here are four rationales for planning. Which is
most consistent with strategic marketing?
a) Plan to survive first, then take it from there.
b) Plan to be thriving in three years’ time.
c) Plan to meet the annual sales forecast.
d) Plan to respond quickly to sudden opportu-
7. Which of these outcomes is most likely in the
short term when a company introduces
a) It will immediately become successful.
b) The corporate culture will change.
50 í Malcolm McDonald on marketing planning
c) It will create a competitive advantage.
d) It will cause the business to reappraise its
8. The basic marketing planning process is drawn
below, but some of the steps are missing. Your
task is to fill in the blanks.
The strategic marketing planning process í 51
4. SWOT analyses
9. A marketing audit is:
a) A comprehensive description of the market-
b) A detailed analysis of the customer database.
c) An analysis of the company’s marketing
performance in the context of industrial
trends and changes in the marketing envi-
d) An analysis of company’s strengths and
weaknesses against the competition.
10. The SWOT analysis is intended to capture the
key issues from the marketing audit. Here are
some factors that might appear in such an audit.
Mark in the brackets whether you think they are
S (strength), W (weakness), O (opportunity), T
(threat) or NS (not significant enough to be
included in the SWOT). There are two factors for
i) Two key account managers are not
well trained ( )
ii) Our main competitor is extending its
product range. ( )
iii) We have a patent on the product
finishing process. ( )
iv) Our level of customer service is about
average for this industry. ( )
v) Our customer retention ratio is rising. ( )
vi) Our main competitor has had major
problems with suppliers and fallen
down on deliveries to customers. ( )
vii) Interest rates are likely to remain
stable. ( )
viii) Tariff barriers are to be reduced in
target export market. ( )
52 í Malcolm McDonald on marketing planning
ix) Our product range is ageing. ( )
x) Imported goods make an ever-
increasing proportion of total sales in
our market. ( )
Question 1 This is most likely to ensure the organi-
zation’s long-term health.
Answer = a).
Question 2 SWOTs are most useful when done by
Answer = d).
Question 3 Without the enthusiastic support of the
CEO marketing planning is doomed to
Answer = b).
Question 4 Marketing objectives are about what is
sold and to whom.
Answer = c).
Question 5 When we are trying to look into the
future we can only do so by making
some assumptions. However, they
ought to be significant and few in
number, otherwise the plan is being
built on quicksand.
Answer = b).
Question 6 Strategic planning looks at a longer
Answer = b).
The strategic marketing planning process í 53
Question 7 The introduction of marketing planning
invariably confronts managers with
new data and hence new choices. What
seemed good business yesterday does
not necessarily stay that way in the light
of a thorough marketing audit.
Answer = d).
Question 8 Answer: 2 = Corporate objectives, 3 =
Marketing audit, 5 = Assumptions, 6 =
Marketing objectives and strategies, 7 =
Estimate expected results, 8 = Alter-
native plans and mixes, 10 = Detailed
first year plan.
Question 9 a), b) and d) might figure as a part of
the marketing audit but are not by
themselves a market audit.
Answer = c).
Question 10 Answer: i) = W, ii) = T, iii) = S, iv) = NS,
v) = S, vi) = O, vii) = NS, viii) = O,
ix) = W, x) = T.
Before turning to the subject of strategy formulation,
it is worth taking a closer look at the main compo-
nents of the marketing audit, namely the customer
and market audit and the product audit, which we
do in Chapters 4 and 5.
54 í Malcolm McDonald on marketing planning
Choosing the right
One of the key aspects of marketing planning is
choosing the right customers to focus on. Few com-
panies can successfully be ‘all things to all people’,
and it is therefore necessary to define in precise and
actionable terms just who are the organization’s cus-
tomers, both now and in the future. Knowing where
sales and profits are coming from is key to under-
standing current market positions and assessing
potential market directions.
Most companies experience a phenomenon called
the Pareto effect, or the 80/20 rule, whereby some 20
per cent of customers account for 80 per cent of busi-
ness. However, this does not mean that the best
potential customers reside in the top fifth of the mar-
ket, and care must be taken to identify and address
each market segment appropriately in the context of
the market as a whole.
Defining markets and
segments prior to planning
Market segmentation enables a firm to target its
limited resources on the most promising opportuni-
ties by sorting customers into economically manage-
able and ‘prioritizable’ groups. Segmentation can be
based on a myriad of criteria regarding customer
characteristics and buying behaviour, thus covering
the critical issues of ‘who buys’, ‘what they buy’ and
‘why they buy’. The bases for market segmentation
are summarized as follows:
What is bought Price categories, outlets used,
physical characteristics of differ-
ent products. Analysis of product
and purchase characteristics clari-
fies market structure and market
Who buys Demographic/socio-economic/
geographic/cultural factors. Anal-
ysis of customer attributes aids
communication programme design.
Why Benefits, attitudes/beliefs, person-
ality/lifestyle.Analysis of customer
behaviour underpins marketing
A market segment should be a group of customers
with the same or similar requirements, which can be
satisfied by a distinct marketing mix. The univer-
sally accepted criteria concerning what constitutes a
viable market segment are:
• segments should be of an adequate size to pro-
vide the organization with the desired return for
• members of each segment should have a high
degree of similarity in their requirements, yet be
distinct from the rest of the market.
56 í Malcolm McDonald on marketing planning
A market segment is a
group of customers with
which can be satisfied by a
distinct marketing mix
• criteria for describing segments must be relevant
to the purchase situation;
• segments must be reachable.
Auseful way of tackling the complex issue of market
segmentation is to start by drawing a ‘market map’
as a precursor to a more detailed examination of
who buys what. A market map defines the distribu-
tion and value chain between the supplier and the
end user, or consumer, taking into account the vari-
ous buying mechanisms found in a market, includ-
ing the part played by ‘influencers’, or third parties
that advise on or otherwise sway the outcome of the
purchasing decision. Influencers should appear on
the market map, as shown in Figure 4.1, just as if
they were a transaction stage. By tracing the ‘routes’
of transactions in your market, it is possible to iden-
tify the most important routes, as well as the key
junctions where decisions are made and segmenta-
tion could occur.
Clearly, the typology of the customer or the seg-
ment should be related to the firm’s distinctive com-
petence and that of its competitors – as identified in
the marketing audit and SWOT analyses – if differ-
ential advantage is to be created. Remember, the
purpose of segmentation is to find the best ways to
Defining markets and segments prior to planning í 57
A ‘market map’ defines the
distribution and value
chain between the supplier
and the end user
Key junctions where
decisions are made is
should be considered
Figure 4.1 Market map with influencers
Suppliers Distributors Retailers Contractors Independent
match the organization’s capabilities with groups of
customers who share similar needs, and thereby
achieve some commercial gain. Marketers must also
be aware that customers (people who buy from you)
and consumers (users of your products or services)
may not always be one and the same. For instance, a
husband (customer/purchaser) buys perfume for
his wife (consumer). To be an attractive proposition,
the ‘package’ of benefits offered by the product/ser-
vice will need to reflect the characteristics of both
customer and consumer.
Customers buy products and services because they
seek the benefits derived from them, not their inher-
ent features. In this sense, products and services are
problem solvers. For example, customers buy aspirin
to solve the problem of headaches, and they buy drills
because they need holes. Not every product or service
benefit will have equal appeal to all customers, or
groups of customers. However, through customer
dialogue or market research it is possible to establish
which benefits customers perceive as important.
To be useful for segmentation, a benefit has to
appeal to a significant number of customers. Benefit
analysis, or the listing of features of major products
together with what they mean to the customer, is a
way of identifying which are the most important ben-
efits to which customers. To get from a feature to an
advantage, and then to a benefit, the phrases ‘which
means that?’ and ‘so what?’ can be helpful. For exam-
ple, ‘Our products are handmade by experts (feature),
which means that they are better quality than
machine-made ones’ (advantage) – so what? – ‘which
means that they last longer’ (the real benefit).
Obviously, the better your products/services pro-
vide benefits to customers which match their needs,
58 í Malcolm McDonald on marketing planning
Customers and consumers
Feature – advantage –
the more competitive your products/services are
going to be in the marketplace. Also, the more accu-
rately you can define your market segments, the
more accurately you can measure your market
share. Correct market definition is crucial for:
• share measurement;
• growth measurement;
• the specification of target customers;
• the recognition of relevant competitors;
• the formulation of marketing objectives and
Market share is the proportion of actual sales (either
volume or value) within a defined market, and is thus
a measure of satisfying customers.Afrequent mistake
that is made by people who do not understand what
market share really means is to assume that their
company has only a small share of some market,
whereas, if the company is commercially successful, it
probably has a much larger share of a smaller market.
Considering the direct relationship between mar-
ket share and profitability, it is important to arrive at
a meaningful balance between a broad market defi-
nition and a manageable market definition. Too nar-
row a definition could restrict the range of new
opportunities afforded through segmentation; too
broad a definition could make marketing planning
meaningless. A market is essentially the aggregation
of all the alternative goods or services that cus-
tomers regard as being capable of satisfying the
same customer need. The following definitions can
be useful in calculating market share:
• product class, eg, cigarettes, computers, fertiliz-
Defining markets and segments prior to planning í 59
A market is the
aggregation of all the
alternative goods or
services capable of
satisfying the same
• product sub-class, eg, filter, personal computers,
nitrogen, carpet tiles;
• product brand, eg, Silk Cut, Dell, Nitram, Heuga.
The organization’s ability to satisfy customers, espe-
cially major customers of strategic importance, or key
accounts, on a consistent and continual basis is crucial
to both customer acquisition and customer retention.
Within any given market segment there are critical
success factors (CSFs) for winning the business, such
as breadth of offering, speed of service, low prices,
reliable delivery, and so on. The secret of marketing
success is, of course, to change the offer in accordance
with changing needs, and not to offer exactly the
same product or service to everyone. It is therefore
essential for an organization to establish what these
CSFs are and how well the organization compares
with its closest competitors, when measured against
these factors. Without such insight, the road to
achieving sustainable competitive advantage will be
QUESTIONS AND ANSWERS
1. Below are a number of words. Your task is to fit
them into the correct places in the table below.
There are four sets of items to consider.
Hoover, beer, lipstick, Subaru, upright vacuum
cleaners, bitter, cosmetics, cars, Bass, vacuum
cleaners, 4-wheel-drive, Revlon.
60 í Malcolm McDonald on marketing planning
2. Which of the below ought not to figure in the cri-
teria for selecting a market segment? Segment is:
a) Based on company product range.
b) Sufficiently large to generate required revenue.
c) Distinctly different.
d) Reachable for communications.
3. Below is a blank marketing map. Using the fol-
lowing information, fill in the blank boxes, show
quantities when you can, and put arrows show-
A farmer grows strawberries. About 10 per cent
of his crop is sold to ‘pick your own’ enthusiasts
and a similar quantity is sold in the farm shop.
About 20 per cent of the crop is sold to a jam fac-
tory and the remainder goes to a wholesaler who
distributes to shops, bakers and restaurants.
4. Here are some occupations. Write next to each
Defining markets and segments prior to planning í 61
one if it falls into the socio-demographic class of
A, B, C1, C2, D or E.
i) packer in vi) office
factory ( ) supervisor ( )
ii) partner in vii) wood
law firm ( ) carver ( )
iii) sales viii) junior school
manager ( ) teacher ( )
iv) snow ix) dentist ( )
clearer ( ) x) Army general
v) plumber ( ) (retired) ( )
5. A differential benefit is:
a) Different from other benefits you offer.
b) Different from what you used to offer.
c) Different from what competitors offer.
d) Different from what the market expects.
6. A newly appointed marketing manager set out
to identify the CSF in a key market segment. He
identified four as shown below. However, one is
not really a CSF. Which one is not?
a) On-time delivery.
b) Level of customer service.
c) Level of company advertising.
d) Up-to-date design.
7. Three of the following criteria are relevant to
market segmentation. Which one is not?
a) Who the customers are.
b) What customers buy.
c) Why they buy.
d) The price you charge.
8. Pareto’s Law is often found to operate when
62 í Malcolm McDonald on marketing planning
marketing data is analysed. If a company had a
customer base of 200, how many of these are
likely to account for approx. 80 per cent of the
sales revenue? Is it:
a) 10? c) 38?
b) 22? d) 54?
9. A company analysed its three major competitors
using CSFs and weightings gathered from
research. It assessed each one as shown below.
Which is the most dangerous competitor? What
does it score?
10. Four companies operate in the same industrial
market segment. Company A has a 10 per cent
share of the market and operates with the lowest
prices. Company B has a 6 per cent share and
charges the highest prices. Company C has a 18
per cent share and has the most up-to-date facili-
ties. Company D has a 12 per cent market share
and the largest sales force. Which company is
likely to be the most profitable?
a) Company A. c) Company C.
b) Company B. d) Company D.
Defining markets and segments prior to planning í 63
Competitor Assessment Scores
on a scale of 1–10 (high)
CSF Weighting A B C
On-time delivery 0.5 9 5 7
Product quality 0.3 5 5 7
Quality of sales staff 0.2 4 8 4
Question 2 The product range is designed to meet
the needs of a market segment, not to
Answer = a).
Question 4 Answer i) = D, ii) = A, iii) = B, iv) = E, v)
= D, vi) = C1, vii) = C2, viii)= C1, ix) = B,
x) = A.
Question 5 A differential benefit gives you a com-
Answer = c).
64 í Malcolm McDonald on marketing planning
Product class Beer Cars Vacuum cleaners Cosmetics
Product sub-class Bitter 4-wheel-drive Upright vacuum cleaners Lipstick
Product brand Bass Subaru Hoover Revlon
10 % ‘Pick your own’
Question 6 While the level of advertising may
impact on sales revenue, when seen
from the customer’s point of view it
does not compare with factors such as
delivery, service, design, etc.
Answer = c).
Question 7 Price is part of the marketing mix, and
may be irrelevant.
Answer = d).
Question 8 Pareto’s law is also known as the 80/20
law, so 80 per cent of sales revenue can
be expected from roughly 20 per cent of
customers. 20 per cent of 200 is 40, thus
38 is the closest figure.
Answer = c).
Question 9 Note: All raw scores (1–10) are multi-
plied by the appropriate weighting fac-
tors and the results for each company
Answer = A.
Question 10 Note: This answer is based on the out-
come of PIMS research, which indicates
that a company’s profitability is
directly proportional to its market
share. Since all companies operate in
the same market segment, market
share must also be a relative measure of
Answer = c).
Defining markets and segments prior to planning í 65
The other half of the marketing audit, having con-
sidered whom we sell to, is what we sell to them.
The central role that a product (here meaning prod-
uct or service) plays in marketing management
makes it such an important subject that mismanage-
ment in this area is unlikely to be compensated for
by good management in other areas. Understanding
products by means of a product audit is a prerequi-
site to setting meaningful marketing objectives.
A product is the total experience of the customer
or consumer when dealing with an organization.
The discussion on market segmentation in Chapter 4
explained how a product is a problem solver, in the
sense that it solves a customer’s problems, and is
also the means by which the company achieves its
objectives. When a customer buys a product, he or
she buys a particular bundle of benefits perceived as
Understanding products and
services prior to planning
satisfying his or her own particular needs and
As illustrated in Figure 5.1, a product or service can
be envisaged as a set of concentric circles. Functional
features (such as components and performance) form
the core. This is encircled by added values that
enhance the basic features (such as reputation, corpo-
rate image, and style of service and support), which is
known as the product or service surround. Generally
speaking, the product surround accounts for 80 per
cent of a product’s impact, while accounting for only
20 per cent of costs. The reverse tends to be true for
the core product. The importance attributed to the
intangible elements, specifically brand name and
value perceptions, is worth special consideration.
68 í Malcolm McDonald on marketing planning
80 per cent of
the impact, but
only 20 per cent
of the costs
Figure 5.1 What is a product?
Where a relationship with the customer develops,
this is often personified either by the company’s
name or by the brand name on the product itself. A
brand is a name or symbol that identifies a product.
The three principal components of a brand are:
brand strategy (which stems from its position in the
portfolio), brand positioning (what the brand actu-
ally does and what it competes with) and brand per-
sonality (its sensual, rational and emotional appeal).
A successful brand identifies a product as having
sustainable advantage. The reason why brands may
be valued at figures far in excess of their balance
sheet value is that it is relationships with customers,
not factories, that generate profits, and it is company
and brand names that secure these relationships.
When brand names are neglected their distinctive
values are eroded and they can no longer command
a premium price. Consequently, they offer no
unique added values and decay into commodities.
Commodity markets are typically characterized by
the lack of perceived differentiation by customers
between competing offerings, and thus purchase
decisions tend to be taken on the basis of price or
availability and not on the brand or company name.
Understanding the implications of brand value is
fundamental to good marketing planning.
Having considered the vital factor of benefits as
part of product management, we must ask ourselves
whether one product is enough. Historians of tech-
nology have observed that all technical functions
grow exponentially until they come up against some
natural limiting factor, which causes them to slow
down and eventually to decline as one technology is
replaced by another. The same phenomenon applies
to products, and is embodied in the product life
Understanding products and services prior to planning í 69
perceived to have no
customers leading to
purchasing decisions on
the basis of price
cycle (PLC), which plots the volume or value of sales
of a product within a market or segment. From a
management perspective, the PLC concept is helpful
in that it focuses attention on the likely future sales
pattern if no corrective action is taken. It is impor-
tant to note that an organization is only concerned
with the life cycle trend of a total market, or segment
and with the sales of their product within it.
A useful extension of the PLC is what is termed ‘dif-
fusion of innovation’. Diffusion is the adoption of
new products or services over time by consumers
within social systems, as encouraged by marketing.
It thus refers to the cumulative percentage of poten-
tial adopters of a new product or service over time.
The actual rate of diffusion has been found to be a
function of a product’s:
• relative advantage (over existing products);
70 í Malcolm McDonald on marketing planning
Product life cycle –
Diffusion of innovation –
Introduction Growth Maturity Saturation Decline
Figure 5.2 The product/market life cycle
• compatibility (with lifestyles, values, etc);
• communicability (how easy it is to communicate);
• divisibility (whether it can it be tried out on a
small scale before commitment).
Diffusion is also a function of the newness of the
product itself, which can be classified broadly under
• continuous innovation (eg, the new miracle
• dynamically continuous innovation (eg, dispos-
• discontinuous innovation (eg, microwave oven).
Discovering a typology for those who are prepared
to buy and try new products (‘innovators’ and ‘early
adopters’) can seriously help in the promotion of
new products. If we can target our early advertising
and sales effort at winning over the trendsetters and
opinion leaders in the market, then we can proac-
tively increase our chances of also convincing the
more conservative and sceptical customers to adopt
Understanding products and services prior to planning í 71
Time of adoption
Figure 5.3 ‘Diffusion of innovation’ curve
At any point in time, a review of an organization’s
different products would reveal different stages of
growth, maturity and decline. If the objective is to
grow in profitability over an extended period, then the
product portfolio should reveal a situation in which
new product introductions are timed so as to ensure
continuous sales growth. The idea of a product portfo-
lio is for an organization to meet its objectives by bal-
ancing sales growth, cash flow and risk. Ideally, a
company should have a portfolio of products whose
life cycles overlap. This guarantees continuity of
income and growth potential. It is therefore essential
that the whole portfolio is reviewed regularly and that
an active policy towards new product development
and divestment of old products is pursued.
All organizations have products that produce dif-
ferent levels of sales and profit margins. Profit
occurs from the mix of products, ranging from low
margin–high turnover to high margin–low turnover.
The purpose of the marketing plan is to spell out at
least three years in advance what the desired prod-
uct combination is. RONA (return on net assets) can
be portrayed as the business ratio:
Profits, however, are not always an appropriate indi-
cator of portfolio performance as they will often
reflect changes in the liquid assets of the company,
such as inventories, capital equipment, or receiv-
ables, and thus do not indicate the true scope for
future development. Cash flow, on the other hand, is
a key determinant of a company’s ability to develop
its product portfolio.
72 í Malcolm McDonald on marketing planning
The Boston Matrix, shown in Figure 5.4, is useful
in product portfolio planning as it classifies a firm’s
products according to their cash usage and their
cash generation along the two dimensions, relative
market growth rate and market share. It shows
graphically the positions of products in terms of rel-
ative market share and market growth, making it
easier to see the relationship between multiple
products. The Boston Matrix is based on the princi-
ple that cash – not profits – drive a product from one
quadrant to another. It is a valuable planning tool
for considering the implications of different prod-
uct/market strategies and for formulating policies
towards new product development, providing
great care is taken over the ‘market share’ axis. The
relationship of market share to cash generation is
that the higher the market share, the higher the
Understanding products and services prior to planning í 73
The Boston Matrix
Relative market share
(ratio of company share to share of largest competitor)
Figure 5.4 The Boston Matrix – cash management
output, and the lower the unit costs through
economies of scale and the learning curve – thus a
company can command higher margins and gener-
ate more revenue.
The four quadrants, or categories of products in
the Boston Matrix are sometimes labelled ‘star’,
‘cash cow’, ‘question mark’ and ‘dog’ to indicate
their respective prospects. The function of the
Boston Matrix is to aid forward planning by suggest-
ing strategy for the future development of the range:
selectively invest in ‘question marks’; invest in and
grow ‘stars’; maintain ‘cash cows’; and critically
examine ‘dogs’ and delete them as appropriate.
‘Dog’ products generate poor cash flow, and the
costs of maintaining them can sometimes impede or
destabilize overall business progress.
74 í Malcolm McDonald on marketing planning
Invest/grow Selectivity/earnings Harvest/divest
high medium low
Figure 5.5 The directional policy matrix (DPM)
There are, however, factors other than market
growth and market share that determine prof-
itability, so many companies use an expanded ver-
sion of this known as the directional policy matrix
(DPM). As shown in Figure 5.5, the axes become
relative business strengths and market attractive-
ness, indicating the relative importance of each
market to the business. It is extremely important
when using the DPM to define your markets
QUESTIONS AND ANSWERS
1. In what way should a marketer primarily view a
product or service?
a) In terms of its component parts and costs.
b) In terms of its features and benefits.
c) In terms of the total experience of the customer.
d) In terms of its sales.
2. Below are some statements about products and
services. Against each write T (true) or F (false).
a) Services cost more overall than
products. ( )
b) Only a product can be consumed after
it is produced. ( )
c) The person delivering a service is part
of the offer package. ( )
d) Only products have features. ( )
e) Only products can have a ‘surround’. ( )
f) It is difficult for services to be
reproduced consistently. ( )
Understanding products and services prior to planning í 75
Directional policy matrix
3. Which of the following are part of the core offer
(C), or the product surround (S)?
a) packaging ( ) d) brand name ( )
b) customer e) image ( )
service ( ) f) design ( )
c) price ( )
4. One of the following statements about successful
brands is not absolutely true. Please tick which
one it is. A successful brand must:
a) Have a logo.
b) Be instantly recognizable.
c) Give a sustainable competitive advantage.
d) Deliver superior marketing performance.
5. For a product in the growth phase of its life cycle
a) Let the growth trend develop naturally?
b) Find ways of cutting cost to maximize profit?
c) Spend to promote its competitiveness?
d) Reduce price to increase sales?
6. For a product at the saturation stage would you:
a) Increase promotion to extend its life?
b) Manage it for sustained earnings?
c) Kill it off to free resources for newer products?
d) Carry on as before and let nature take its
7. You are a late entrant into a market which,
though it has peaked, is sizeable and attractive.
What is your entry strategy?
a) Offer a keen price and stress the quality of
b) Price high and stress the status that owner-
76 í Malcolm McDonald on marketing planning
c) Price at mid-level and spend little on promo-
d) Price keenly and advertise heavily.
8. A company plotted a Boston Matrix for its prod-
ucts with the following results.
Which product ought to receive the major invest-
ment to ensure continued success? Tick your answer.
9. Which of the following could be market attrac-
tiveness factors (M), business strengths (B) or not
significant (NS) in a domestic market?
a) Few e) Non cyclical
competitors. ( ) sales pattern. ( )
b) High interest f) State-of-the-
rates. ( ) art
c) Customers equipment. ( )
requiring g) Few barriers
quality to to entry. ( )
ISO 9000. ( ) h) Guaranteed
d) Our location. ( ) supplies. ( )
Understanding products and services prior to planning í 77
10. The Boston Matrix is designed to be used for:
a) Showing whether you have sufficient cash to
run the business.
b) Carrying out a competitive analysis.
c) Demonstrating how products relate to markets.
d) Showing areas of market growth.
Question 1 The customer pays for the total experi-
ence of a purchase.
Answer = c).
Question 2 Answer: a) = F, b) = T, c) = T, d) = F, e) =
F, f) = T.
Question 3 Answer: a) = C, b) = S, c) = C, d) = S,
e) = S, f) = C.
Question 4 All the others are essential features of
Answer = a).
Question 5 It is important to promote products at
their growth stage. They can be ‘milked’
later when they mature.
Answer = c).
Question 6 This also means minimizing promotion
Answer = b).
Question 7 You have to appeal to the late majority
and laggards in the market.
Answer = a).
78 í Malcolm McDonald on marketing planning