In his ground-breaking series of books on innovation, Harvard professor Clayton Christensen, said his research had shown that 90% of company directors do not know what the components are of their business’s marketing strategy. It’s a view upheld by Professor Malcolm McDonald, a UK-based academic authority on marketing strategy.
“Marketing exists to drive sales, which is the lifeblood of any company,” says McDonald. “Yet on the FTSE 100 there are a mere 14 companies which have the marketing director on the board. This has to change, because in today’s economy, two factors matter: who is your target market and what is your differentiator. Whatever business you are in, there’s a copy of it somewhere – so the only way to differentiate, is in how you market it.”
McDonald says global retailer Tesco is one of the few big organisations that truly understands the value of marketing as the driver of sales; as a result, it has left competitors like Asda eating its dust. Another example is Procter & Gamble.
“This is the age of customer power, and as marketing companies, they really know their customers. Through segmentation and qualitative (not quantitative) market research, both have ensured ongoing profitability and a growing market share. These are not companies driven by budgets, which are backward looking and inflexible.”
Marketing in the boardroom
McDonald says there are ten questions that directors should ask marketing – and that marketing must be able to answer. These include understanding key markets, addressing real segments, prioritisation of markets and the key segments within each one, setting realistic objectives for revenue growth and market share, devising strategies that are consistent with objectives, assessing risks associated with marketing strategy, and measuring effectiveness of the strategy.
The Ten Questions
1. Do we know and understand quantitatively our key target markets?
- Is there a clear and unambiguous definition of the markets we wish to serve?
- Are they clearly mapped, showing product/service flows, volumes/values in total, our shares, and critical conclusions for our organisation?
- Do we know what the key decision points are in the value chain?
2. Do we address real segments in our target markets that will create super profits?
- Are the segments in each target market clearly described and quantified?
- Are the real needs of these segments properly quantified?
3. Do we really know for sure whether we have differential advantage in each of the principal segments in our key target markets?
- Is there a clear and quantified analysis of how well our company satisfies these needs in each segment compared with our competitors?
- Are the opportunities and threats clearly identified by segment, with implications for the company spelled out?
4. Have we prioritised our scarce resources across our customer base?
- Are the markets, and the segments in each, classified according to their relative potential for growth in profits over the next three years and according to our company’s relative competitive position in each?
5. Are the objectives for revenue growth and market share realistic?
- Are the objectives consistent with their position in the portfolio (volume, value, share, profit)?
- Are we certain that, for example, if we have aspirations to grow our competitive position in an attractive market where we have few strengths, we do not set an unrealistic profit growth objective for it?
- Are we certain that we are not over-serving markets which are not particularly attractive and in which we have few strengths?
- Are we being prudent in these markets where we have strengths but which are not particularly attractive to us in terms of future growth?
6. Are our strategies (including products, services and solutions) consistent with the objectives?
- Are these strategies based on the improvements we need to make in our offers to the market as a result of a deep understanding of the needs of customers in all targeted market segments?
7. Have we assessed quantitatively and dispassionately the risks associated with our strategic plan?
- Have we assessed the riskiness of the markets we are targeting?
- Have we assessed the riskiness of the strategies we are planning for these markets?
- Have we assessed the riskiness of the profit pool available in our markets (price levels, margins, competitor response)?
- Based on the risk assessment, have we reduced the forecast free cash flows if necessary?
8. Is our business plan creating or destroying shareholder value?
- Have we allocated a notional amount of capital to be invested in each major product in the plan?
- Have we multiplied that by the cost of the capital?
- Have we deducted the resulting sum from each of the risk-free cash flows from each product or market? (Some will be positive and some will be negative if we are taking a deliberate decision to invest in them for the future).
- Having done this for each year of the strategic plan, is the resulting figure positive? If so, the plan is creating shareholder value. If not, the plan is destroying shareholder value and should be revisited.
9. Do we have a marketing effectiveness matrix and is it in use?
- Do we know the levels of promotional expenditure necessary just to maintain our current levels of sales and market share?
- Have we subjected any promotional expenditure over and above ‘maintenance’ levels to net present value calculations based on new or incremental levels of sales?
- Are we clear about the difference between ‘lag’ indicators (sales, market share growth, profit growth, customer retention/growth, cross-selling, up-selling) and ‘lead’ indicators (the actions taken by us such as product/service improvements, promotional expenditure)?
- Have we decided:
» What needs reporting?
» Why it needs reporting?
» How frequently it needs reporting?
» Who should be responsible for reporting?
10. Are our strategies world- class? Are we happy that the time, effort and expense involved in developing them are worth it?
- Do they demonstrate a clear understanding of the market?
- Do they list in order of priority key target markets and segments?
- Do they describe the value that is required by each market?
- Do they spell out how our company is going to create sustainable competitive advantage?
- Are they creative, interesting and believable?
- Do they enable us to allocate appropriate resources to achieve our commercial objectives?
- Do they enable us to initiate reward structures to facilitate the achievement of our commercial objectives?
Sustainable Advantage
“The best companies in the world roll out marketing plans that contain the answers to these questions,” says McDonald. “These companies do not give customers discounts because they understand that you cannot trade on price. They also know that the purpose of strategic marketing planning and its principal focus is the identification and creation of sustainable competitive advantage. It’s that type of strategic thinking that creates real shareholder value and that will get the marketing director onto the board.”
Malcolm McDonald is an Emeritus Professor at the Cranfield University School of Management and an Honorary Professor at Warwick Business School. He has written over 40 books on marketing and is a renowned speaker. He has consulted to major companies around the world in the areas of strategic marketing and marketing planning, market segmentation, key account management, international marketing and marketing accountability.
