Unit 2: Marketing Planning

Unit 2: Marketing Planning Notes

CONTENTS
Objectives Introduction

1. Components of Marketing Plan

2. Defining the Competitive Set

1. Levels of Market Competition

2. Factors Determining Competition

3. Methods for Determining Competitors

3. Category Attractiveness Analysis

1. Aggregate Market Factors

2. Category Factors

3. Environmental Analysis

4. Summary

5. Keywords

6. Review Questions

7. Further Readings

Objectives

After studying this unit, you will be able to:

Discuss the various Components of marketing plan

Define the competitive set

Identify the Levels of market competition

Explain the Methods for determining competitors

Discuss the Category attractiveness analysis

Describe the Aggregate market factors

Explain Category factors and environmental analysis

Introduction

In most organizations, “strategic planning” is an annual process, typically covering just the year ahead.
Occasionally, a few organizations may look at a practical plan which stretches three or more years ahead.

To be most effective, the plan has to be formalized, usually in written form, as a formal “marketing plan.” The
essence of the process is that it moves from the general to the specific; from the overall objectives of the
organization down to the individual action plan for a part of one marketing program. It is also an interactive
process, so that the draft output of each stage is checked to see what impact it has on the earlier stages - and is
amended.

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Product and Brand Management

Notes
Figure 2.1: Marketing Process Model

(1) (2) (3) (4) (5)

Market and Fixing Setting Marketing Marketing
Environment marketing marketing mix controlling
Analysis target strategy

Behind the corporate objectives, which in themselves offer the main context for the marketing plan, will lay the
“corporate mission”; which in turn provides the context for these corporate objectives. In a sales-oriented
organization, marketing planning function designs incentive pay plans to not only motivate and reward frontline
staff fairly but also to align marketing activities with corporate mission.

2.1 Components of Marketing Plan

Marketing plans vary by industry, by size of company and by stage of growth. The form isn’t as important as the
process of preparing it. Preparing a marketing plan is a process that makes you think about your business goals
and what your marketing strategy will be to achieve those goals.

This is an outline of a typical marketing plan. Your marketing plan may contain all or just some of these
components, depending on your company type, stage of growth, and goals.

[Link] Summary: The executive summary introduces your company and explains the major points of your
plan

Things to do:

(a) Briefly describe the nature of your business and the products or services you offer.

(b) State your mission and company objectives.

(c) Describe your management and marketing team, and the structure of your organization.

(d) Summarize the marketing objectives and strategies contained in the plan.

[Link] Situation: This section provides information about your location, target market and competitive
environment. Also, identifies key issues your company faces.

Things to do:

(a) Describe your current or planned business location.

(b) Describe you target market.

(c) Include a brief competitor and issues analysis.

[Link] and Issues Analysis: This section includes the details of the competitor and issue analysis.

Things to do:

(a) Include information about other individuals or companies (competitors) who offer similar products
and services as you.

(b) List key business issues that are potential challenges, such as new legislation or the impact of an
impending technological advance in your industry.

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 Unit 2: Marketing Planning

4. Marketing Objectives: As the name suggests, this section states your marketing objectives, including the Notes
time frame for achieving them.

Things to do:

(a) List key objectives that you want to achieve through your plan.

(b) Include the time frame against each objective

! Be as objective as possible in this section.

Caution

[Link] Strategy: The section including marketing strategy describes how you plan on achieving your
marketing objectives.

Product: Describes your product or service in detail, including product features and benefits.

Price: Describes your pricing strategy and payment policies.

Promotion: Describes the promotional tools or tactics you will use to accomplish your marketing objectives.

Place: Describes how and where you will place your product so customers have access to it and how you will
make the sale.

[Link] Programs: Describes what will be done, when it will begin or be completed, and who will accomplish
the tasks.

[Link]: Lists the cost of the marketing activities you are describing in the marketing plan.

[Link]: Describes numerical targets that will measure the results of implementing your marketing
plan, including time limits for achieving your goals. For example, increase sales by 10 percent in 12 months.

[Link] Documents: Include any supporting documents referenced in other plan sections here, such as
resumes of key personnel, spreadsheets, and market research results.


Case Study Marketing Plan: American Technology

O
ur new marketing focus, made explicit in this plan, renews our vision and strategic
focus on adding value to our target market segments, the small business and
high-end home office users, in our local market.

American Technology will change its focus to differentiate itself from box pushers and improve the
business by filling the real need of small business and high-end home office for reliable information
technology including hardware, software, and all related services. Our marketing challenge is to position
our product and service offerings as the high- quality, high value-add alternative to box pushing in a
vacuum.

Contd...

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 Unit 2: Marketing Planning

Notes
AMT is such a vendor. It serves its clients as a trusted ally, providing them with the loyalty of a business
partner and the economics of an outside vendor. We make sure that our clients have what they need to run
their businesses as well as possible, with maximum efficiency and reliability. Many of our information
applications are mission critical, so we give our clients the assurance that we will be there when they need
us.

Objectives

1. Increase sales by 20%.

2. Increase gross margin to more than 25%.

3. Increase our non-hardware sales to 65% of the total.

Target Markets

AMT focuses on small business in the local market, with special focus on the high-end home office and the
520 unit small business office.

Market 1997 1998 1999 2000 2001 Total

Home Office $25,000,000 $27,500,000 $30,250,000 $33,275,000 $36,602,500 $152,627,500
Small Business $50,000,000 $52,500,000 $55,125,000 $57,881,250 $60,775,313 $276,281,563
Totals $75,000,000 $80,000,000 $85,375,000 $91,156,250 $97,377,813 $428,909,063

Market Definition and Segmentation

We have broken our markets into groups according to standard classifications used by market research
companies: home offices and small business.

Exact definitions of these market segments is not necessary for our marketing planning purposes here;
general definitions will suffice. We know our home office customers tend to be heavy users, wanting high-
end systems, people who like computing and computers. The low-end home office people buy elsewhere.
We also know that our small business customers tend to be much less proficient on computers, much more
likely to need and want handholding, and much more likely to pay for it.

Target Markets for 1997

Home Office

Small Business

Target Market Segment Strategy

We cannot survive just waiting for the customer to come to us. Instead, we must get better at focusing on the
specific market segments whose needs match our offerings. Focus on targeted segments is the key to our
future.

Therefore, we need to focus our marketing message and our product offerings. We need to develop our
message, communicate it, and make good on it.

Contd...

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 Unit 2: Marketing Planning

Notes
Keys to Success: The main key to success with HO buyers is making the product and marketing positioning
clear. Many potential buyers would much prefer our offering to the box only offerings of the chain stores
and mail order sources, if only they possessed adequate information to conduct a value-add cost/benefit
analysis.

Word of mouth is critical in this segment. We will have to make sure that once we gain a customer, we
never lose them. To help accomplish this, we must work to reinvigorate relationships through successful
database marketing, among other means.

We must always remember to sell the company, not the product. They have to understand they are taking
on a relationship with AMT, not just buying boxes. Boxes they can get cheaper elsewhere.

Target Market: Small Business

Small business in our market includes virtually any business with a retail, office, professional, or industrial
location outside of someone’s home, and fewer than 30 employees. We estimate 45,000 such businesses in our
market area.

The 30 employee cutoff is arbitrary. We find that the larger companies turn to other vendors, but we can sell
to departments in larger companies, and we shouldn’t be giving up leads when we get them.

Needs and Requirements: Our target SBs is very dependent on reliable information technology. They use the
computers for a complete range of functions beginning with the core administration information such as
accounting, shipping, and inventory. They also use them for communications within the business and outside
of the business, and for personal productivity. They are not, however, large enough to have dedicated
computer personnel such as the MIS departments in large businesses. Ideally, they come to us for a long-term
alliance, looking to us for reliable service and support to substitute for their in- house people.

These are not businesses that want to shop for rock-bottom price through chain stores or mail order. They
want to be sure they have reliable providers of expertise.

Our standard SBs will be 520 unit installations, critically dependent on local area networks. Backup, training,
installation, and ongoing support are very important. They require database and administrative software as
the core of their systems.

Distribution Channels: The SB buyers are accustomed to buying from vendors who visit their offices. They
expect the copy machine vendor, office products vendors, and office furniture vendors, as well as the local
graphic artist, freelance writer, or whoever, to come visit their office to make their sales.

There is usually a lot of leakage in ad hoc purchasing through local chain stores and mail order. Often the
administrators try to discourage this, but are only partially successful.

Competitive Forces: The SB buyers understand the concept of service and support, and are much more likely
to pay for it when the offering is clearly stated.

There is no doubt that we compete much more against all the box pushers than against other service
providers. We need to effectively compete against the idea that business should buy computers, the heart of
their business, as plug-in appliances, that don’t need ongoing service, support, and training.

Communications: One of the best places to reach the target SB is the local newspaper. Unfortunately, that
medium is saturated with pure price only messages, and we’ll have to make sure that our message is
excellently stated.
Contd...

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Product and Brand Management

Notes
Radio is potentially a good opportunity. Our SB target buyers listen to local news, talk shows, and sports.
Sponsoring a technology discussion/call-in talk show is a possibility.

Seminars are a good marketing opportunity with SBs. Employees are often happy to leave their normal
routines for a day to learn something new.

Keys to Success: The main key to success is making the product positioning clear. Many potential buyers
would much prefer our offering to the box only offerings of the chain stores and mail order sources, if only
they knew the trade-offs.

Word of mouth is critical in this segment. We will have to make sure that once we gain a customer, we
never lose them.

We must always remember to sell the company, not the product. They have to understand they are taking
on a relationship with AMT, not just buying boxes. Boxes they can get cheaper elsewhere.

Marketing Plan Strategy

AMT will change its focus to differentiate itself from box pushers and improve the business by filling the
real need of small business and high-end home office for reliable information technology including
hardware, software, and all related services.

Emphasize Service and Support: We must differentiate ourselves from the box pushers. We need to
establish our business offering as a clear and viable alternative, for our target market, to the price only kind
of buying.

Emphasize Service and Support

Networking Excellent Proprietary

Expertise Training Offering

Service Training mailers, Train VAR Mailers,

Training, pricing the trainers remarketing company
Mailers pricelist sales promotion programs programs literature

Emphasize Relationships: We need to focus our offerings on small business as the key market segment we
should own. This means the 520 unit system, tied together in a local area network, in a company with 550
employees. Our values training, installation, service, support, knowledge are more cleanly differentiated in
this segment.

Emphasize Relationships

Market the More Regular Increase sales

Company Contacts per Customer

New Regular mailings, Upgrades, training,

Mailings seminars, seminars, software
Literature
sales management expertise

Contd...

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 Unit 2: Marketing Planning

Notes
Sales Forecast by Manager: As might be expected, Leslie has by far the largest sales quota to manage. This
is suited to our strategy of putting Leslie in charge of the sales force, and tracking sales through the sales
force. Details follow:

Planned Sales by Manager for 1997

Ralph Casey Jan

Sonny

Leslie

Manager 1997

Ralph $1,372,500
Leslie $4,100,750
Sonny Jan $110,000
Casey
$272,500
Totals
$102,500

$5,958,250

Sales Forecast by Markets: Our most important market, by far, is the small business market. The sales
forecast shown in the following table and chart is a superb reminder of why we need to focus on the
specific target markets.

Planned Sales by Markets for 1997

Markets 1997

GEN SB $2,543,000
HO $3,133,750
Totals $281,500

$5,958,250

Contd...

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 Unit 2: Marketing Planning

Notes
Planned Sales by Month

$800,000

Training

$600,000
Software

$400,000
Services

$200,000 Systems

GEN
$0
Jan Mar May July Nov Year 1997
Feb Sep June Oct Dec
Aug
Apr

Product 1997
GEN $1,37
2,500
Systems $3,29
3,500
Service $380,
000
Software $799,
250
Training $113,
000
Totals $5,95
8,250

Measurement and Comparison

Overall, we plan to spend 7.28% of sales on sales and marketing expenses, which seems about in line for our
plan, and for our industry. That breaks down to 3.78% of sales for home offices, 12.79% for small business,
and 10.98% for expenses not tied to either one. As broken down by products, we spend about 3% of sales on
software and systems, and 16% on service and 23% on training. This breakdown makes sense for our
marketing, because of the impact on software and systems of better training and better service.

Marketing Organization

AMT is still a small company, despite our recent growth.

Ralph, President, is responsible for general management. He specifically manages the advertising budget, but
otherwise is responsible for sales and marketing as the head of the organization.

Leslie, our sales manager, is responsible for managing the in-house and the outbound sales forces. We have
also put the mailing programs under Leslie, because they must be carefully coordinated with the follow-up of
the sales force.
Contd...

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Product and Brand Management

Notes
Casey, our marketing manager, is responsible for marketing programs including sales literature, trade
shows, the catalog, etc.

Jan, who reports to Casey, will take the key role in the seminar marketing programs. Sonny, who manages
service, will also manage the marketing programs related to service.

Critical Issues

[Link] and follow-up: will we have the discipline, as an organization, to track results of the marketing
plan and make sure that we implement?

[Link] segment focus: how can we be sure we have the discipline to maintain the focus?

[Link] no: can we say no to special deals that take us away from the target focus? Can we say no to
unprofitable deals?

Self Assessment

Choose the appropriate answer:

1. Marketing plan objectives, strategies, and mix decisions are influenced by the
firm’s:

(a) mission (b) objectives and strategies

(c) policies and resources (d) all of the above

2. A marketing plan is a written document for all the below reasons except:

(a) produces disciplined thinking

(b) gets the plan out of the marketing managers head

(c) to publish externally

(d) vehicle of communication across internal functional areas

3. In reality, which of the following is often overlooked or at least given minimal effort in the marketing plan
process?

(a) Talking with other marketing managers

(b) Competitor, Industry and Customer analysis

(c) Working on the marketing mix

(d) None of the above

4. When identifying competition, product managers usually focus the current competition or product form of
competition. Why is this a significant issue?

(a) It leads the product manager to overlook other potentially serious competitors.

(b) It leads the product manager to focus on generic competitors.

(c) It leads the product manager to focus on how competitors are pricing.

(d) They are lazy.

5. Which of the following is not a category factor?

(a) Bargaining power of suppliers (b) Bargaining power of buyers

(c) Pressure from substitutes (d) Pressure from international agencies

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 2.2 Defining the Competitive Set

[Link] has to define one’s competitors in terms of primary and secondary importance.

Example: For a Fitness club or Spa, the primary competitors may be comparable properties
(such as upscale day spas within a fifty-mile radius), while the secondary competitors could be
any similar product competing for the same consumer dollars-such as fitness clubs, full-service
beauty salons and community-based wellness centers.

[Link] the bases of competition and key success factors for industry success—in
descending order of importance. Then define competitive characteristics in terms of:
(a)Market segments
(b)Products offered
(c)Prices/rates
(d)Advertising programs
(e)Distribution Channels

Did u know? What are the bases of Competition?

Bases of competition are known characteristics that customers use to choose among
competitors. They include location, price, product/service offering, quality, and reputation.
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 2.2 Defining the Competitive Set

2.2.1 Levels of Market Competition

The level of competition can also vary. At various levels, competition can be in
[Link] form
[Link]
[Link]
[Link]

Let us understand each of them one by one.

Product form: In this level one has to convince the customers that his brand is better than others.

Category: This level involves one to convince customers that his product form (like small refrigerator) is best
in a particular category (of refrigeration).

Generic: Generic level of competition involves the marketers to convince customers that a particular category
(refrigeration) is best way to satisfy needs (of providing safe food).

Budget: Under this level of competition, the customers are convinced that generic benefits (of
refrigeration) are best use of income compared to TV, washing machine, etc.
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2.2.2 Factors Determining Competition

[Link]: It is a very easy to understand the concept the relationship between price of a product and the
competition it can generate in the market. If the prices of the product of a particular firm are substantially
high, it is very likely to generate a price war among competitors.

 The competitors in such a case would very easily come up with similar products (that may even be low
quality goods) with low or relatively very low prices. This would result in a very fierce competition.

[Link] of Production: Cost of production per unit is the costs associated with production divided by the
number of units produced. Is a case, where the factors of production are low priced, it would mean the cost of
production is also low.

 This might give rise to a possibility of the determination of price level at a high level and a subsequently
significant profit. This would in turn lead to attract a higher number of competitors in the market.

[Link] in the Market: Demand comes out as a very important factor of determining competition. It is a
quite well understood fact that the higher the demand of a product in the market, the higher is the willingness
of the customers to pay for it.

 For a product with an inelastic or near inelastic demand, the customers most often than not pay even high
prices. Again the higher the prices that can be charged from the customers, the higher are the chances of the
profit being huge in such transactions. So the competition in such cases is very strong.

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4. Availability of Substitutes: There is a likeliness of having a smaller number of competitors in the market if
a particular product has a large number of substitutes.

 Obviously, the moment a seller would try to increase his profit margins, the consumers would shift
to a more satisfactory substitute.

5. Number of existing Players in Market: If the market of a particular product witnesses a huge number of
players in teak market, it is not very likely to attract more competitors. But the situation may be opposite if
each or most of the market players are making good profits.

 On the contrary, if the number of market players in a particular industry is low and the product is a new
introduction with good potential, it would always attract a strong competition. Similarly, if the product is
an old and well accepted in market with a low number of players, the competition will be strong.

6. Barriers to Entry: Barriers to entry are designed to block potential entrants from entering a market
profitably. They seek to protect the monopoly power of existing (incumbent) firms in an industry and
therefore maintain supernormal (monopoly) profits in the long run.

• Barriers to entry have the effect of making a market less contestable.

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 Example: Patents: Giving the firm the legal protection to produce a patented product for a number of years.
Limit Pricing: Firms may adopt predatory pricing policies by lowering prices to a level that would force
any new entrants to operate at a loss.
Cost advantages: A lower cost, perhaps through experience of being in the market for some time, allows
the existing monopolist to cut prices and win price wars.
Advertising and Marketing: Developing consumer loyalty by establishing branded products can make
successful entry into the market by new firms much more expensive. This is particularly important in markets
such as cosmetics, confectionery and the motor car industry.
Research and Development expenditure: Heavy spending on research and development can act as a
strong deterrent to potential entrants to an industry. Clearly much R&D spending goes on developing new
products but there are also important spill-over effects which allow firms to improve their production
processes and reduce unit costs. This makes the existing firms more competitive in the market and gives them a
structural advantage over potential rival firms.
Presence of Sunk Costs: Some industries have very high start-up costs or a high ratio of fixed to variable
costs. Some of these costs might be unrecoverable if an entrant opts to leave the market. This acts as a
disincentive to enter the industry.
International Trade Restrictions: Trade restrictions such as tariffs and quotas should also be considered
as a barrier to the entry of international competition in protected domestic markets.
Sunk Costs: Sunk Costs are costs that cannot be recovered if a business decides to leave an industry.

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2.2.3 Methods for Determining Competitors

Substitution in Uses: This focus group exercise focuses on generating substitute uses for the target use. Then
product/service substitutes can be brainstormed for the identified uses. Generates a lot of potential
competitors.
Perceptual Mapping: This method does a pair wise comparison of two brands. They are then rated on being
similar or dissimilar. This leads to a mapping of brands along identified vectors.

 Brands close together are similar. Brands far apart are deemed dissimilar. Clusters of brands are
looked at as competitors.

Levels of Competition: Looks at identifying competition at four levels: Product form, Product category, Generic
and Budget. Within each level appropriate competitors are identified.

 The trick here is to determine how many levels to analyze. To few, means missing competitors. To
many, means having an overwhelming number to analyze.

Brand Switching: Looks at actual consumer buying patterns over time. It shows the percentage of consumers
who purchase the same or different products after purchasing the current product.

 Customers who do not switch to other products will be identified with low or zero percentages (not
competitors). Larger percentages indicate competitors.

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Managerial Judgment: Brainstorming by managers who know the product category. It is framed
along two axis: same or different markets, and same or different products.

• This is a quick method, but may miss competitors not previously seen.

Geographic: Looking at the geographic reach of competition. Those firms with a sales reach into
where we are located is our competition.

Porter’s 5 forces: This method looks at five potential sources of competition. Potential entrants,
Buyers, Suppliers, Substitutes, and current Competition.

 This method recognizes value chain competition along with more common competition. It
can generate a large amount of competitors including potential competitors.

Task Make a competitors’ analysis in the market of FMCG goods in and

around your city.
 Unit 2: Marketing Planning

Self Assessment Notes

Choose the appropriate answer:

[Link] factors attempt to take into account and analyze factors that are not in the companies control when assessing category attractiveness.
(a) The statement is TRUE.
(b) The statement is FALSE.
(c) This statement is unrelated to the topic.
(d) This statement is true in certain conditions and false in others.
[Link] analysis utilizes many methods of analysis to help predict competitor future strategies and programs.
(a) The statement is TRUE.
(b) The statement is FALSE.
(c) This statement is unrelated to the topic.
(d) This statement is true in certain conditions and false in others.
[Link] potential and sales forecasting attempt to quantify sales. In general, which of the following is true?
(a) Sales forecasting leads to larger sales estimates than Market potential.
(b) They both lead to the same sales estimates.
(c) Sales forecasting leads to smaller sales estimates than Market potential.
(d) None of the above.
[Link] marketing strategies do which one of the following?
(a) They enhance coordination among functional areas of the organization.
(b) Defines how resources are to be allocated.
(c) Leads to superior market position.
(d) All of the above.
[Link] product positioning themes are identified, they need to be screened. Two for the four uses for screening questions are to ensure the positioning
is meaningful to customers, and are they competitively sensible.
(a) The statement is TRUE.
(b) The statement is FALSE.
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(c) This statement is unrelated to the topic.

(d) This statement is true in certain conditions and false in others.
 2.3 Category Attractiveness Analysis
An essential component of the marketing planning process is an analysis of a product’s potential to achieve
a desired level of return on the company’s investment. Thus the category analysis is done to define the set
of competitors against which one most often competes on a daily basis

2.3.1 Aggregate Market Factors

Aggregate market factors include those factors that are determinant of the entire market segment.

Category Size: Category Size is an important determinant of the likelihood that a product will
generate revenues to support a given investment. That is why, in general larger markets are better than
smaller ones.

Category Growth: While analyzing the category growth as a crucial factor, it has to be remembered
that fast growing categories are almost universally desired due to their ability of support high margins
and sustain profits in future years.

 However the faster the growth the category has, the higher is number of the competitors
the category is likely to attract.

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 Stage in Product Life Cycle: This makes a very interesting stage of the category attractiveness analysis. In
the introductory phase, both the growth rate and the size of the market are low, thus making it unattractive for
most potential participants.

 When market growth and sales start to take off, the market becomes more attractive. In the
maturity phase the assessment is unclear; while the growth rate is low, the market size could be
at its peak. This is a classic pattern for many consumer packaged goods (esp. eatables).

Example: AT&T had a big problem in the home segment of the personal computer market even though it
was at its growth stage.

Sales Cyclicity: Many companies experience cyclicity in demand of their products.

 Example: Air conditioners are more in demand in the summers.

High capital intensive businesses suffer through peaks and valleys of sales as GDP varies. Agricultural goods
vary in accordance with the rainfall and similar natural phenomena. Such a category would obviously not be
considered to be attractive.

Profits: While profits vary in products and brands in category, large inter-industry differences also exist.
The higher the profit margin, the higher is the category attractiveness for the potential participants in that
category.

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2.3.2 Category Factors
Porter developed a five force model to assess the structure of the industries.
[Link] of New Entrants
[Link] Power of Buyers
[Link] Power of Suppliers
[Link] Category Rivalry
[Link] from Substitutes
Let us understand each of them one by one.
Figure 2.2: Porter’s Five Force Model

Threat of New
Entrants
Current
Bargaining
Bargaining Power
Category
Rivalry Power of
of Suppliers Buyers

Pressure
from
Substitutes

Threat of New Entrants: The competition in an industry will be the higher, the easier it is for other companies to
enter this industry. In such a situation, new entrants could change major determinants of the market environment
(e.g. market shares, prices, customer loyalty) at any time. There is always a latent pressure for reaction and
adjustment for existing players in this industry.

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Product and Brand Management

Notes The threat of new entries will depend on the extent to which there are barriers to entry. These are typically:

1. Economies of scale (minimum size requirements for profitable operations),

2. High initial investments and fixed costs,

3. Cost advantages of existing players due to experience curve effects of operation with fully depreciated
assets,

4. Brand loyalty of customers,

5. Protected intellectual property like patents, licenses, etc.

6. Scarcity of important resources, e.g. qualified expert staff,

7. Access to raw materials is controlled by existing players,

8. Distribution channels are controlled by existing players,

9. Existing players have close customer relations, e.g. from long-term service contracts,

10. High switching costs for customers,

11. Legislation and government acts.

Bargaining Power of Buyers: Similarly, the bargaining power of customers determines how much customers can
impose pressure on margins and volumes.

Customers bargaining power is likely to be high when:

1. They buy large volumes, there is a concentration of buyers,

2. The supplying industry comprises a large number of small operators,

3. The supplying industry operates with high fixed costs,

4. The product is undifferentiated and can be replaces by substitutes,

5. Switching to an alternative product is relatively simple and is not related to high costs,

6. Customers have low margins and are price-sensitive,

7. Customers could produce the product themselves,

8. The product is not of strategic importance for the customer,

9. The customer knows about the production costs of the product,

10. There is the possibility for the customer integrating backwards.

Bargaining Power of Suppliers: The term ‘suppliers’ comprises all sources for inputs that are needed in order to
provide goods or services.

Supplier bargaining power is likely to be high when:

1. The market is dominated by a few large suppliers rather than a fragmented source of supply,

2. There are no substitutes for the particular input,

3. The supplier’s customers are fragmented, so their bargaining power is low,

4. The switching costs from one supplier to another are high,

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5. There is the possibility of the supplier integrating forwards in order to obtain higher prices and margins. Notes
This threat is especially high when the buying industry has a higher profitability than the supplying
industry,

6. Forward integration provides economies of scale for the supplier,

7. The buying industry hinders the supplying industry in their development (e.g. reluctance to accept new
releases of products),

8. The buying industry has low barriers to entry.

In such situations, the buying industry often faces a high pressure on margins from their suppliers. The
relationship to powerful suppliers can potentially reduce strategic options for the organization.

Current Category Rivalry: This force describes the intensity of competition between existing players (companies)
in an industry. High competitive pressure results in pressure on prices, margins, and hence, on profitability for
every single company in the industry.

Competition between existing players is likely to be high when:

[Link] are many players of about the same size,

[Link] have similar strategies,

[Link] is not much differentiation between players and their products, hence, there is much price competition,

[Link] market growth rates (growth of a particular company is possible only at the expense of a competitor),

[Link] for exit are high (e.g. expensive and highly specialized equipment).

Pressure from Substitutes: A threat from substitutes exists if there are alternative products with lower prices of
better performance parameters for the same purpose. They could potentially attract a significant proportion of
market volume and hence reduce the potential sales volume for existing players. This category also relates to
complementary products.

Similarly to the threat of new entrants, the treat of substitutes is determined by factors like

[Link] loyalty of customers,

[Link] customer relationships,

[Link] costs for customers,

[Link] relative price for performance of substitutes,

[Link] trends.

To the above five factors as given by Porter, one more factor is added, that is the factor of category capacity.

Category Capacity: Chronic overcapacity of a category is not a positive sign for profitability. When a category is
operating at capacity, its costs stay low and their bargaining power with buyers is normally high. Thus a key
indicator of the health of a category is whether there is a consistent tendency toward operating at or under
capacity.

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Notes 2.3.3 Environmental Analysis

Environmental factors include those factors that are outside the control of the firm and its industry. These factors
can be divided into five categories viz.:

[Link]

[Link]

[Link]

[Link]

[Link]

Let us understand each of them one by one:

[Link]: Product categories that are weaker on the technology dimension are particularly vulnerable to
competition both from new products and from foreign competitors that have ventured the industry and the
category.

Obviously it follows from above that attractive product categories are strong in invention, innovation, or diffusion
of new products and services.

[Link]: The political/legal system creates the rules and frameworks within which business operates.
Government policy supports and encourages some business activities
e.g. enterprise, while discouraging others.

[Link]: The monetary system facilitates business exchange. Monetary activity is based around earning,
spending, saving and borrowing. Money has been likened to the oil that lubricates the wheels of commerce.
Monetary activity involves businesses in a web of relationships involving financial institutions (e.g. banks and
building societies), creditors, debtors, customers and suppliers. A key monetary influence for business is the
interest rate. Higher interest rates increase business costs and act as a break on spending in the economy. Almost
all capital goods industries are sensitive to interest rate fluctuations since their high costs to buyers are often
financed at short-term interest rates.

[Link]: Government and other agencies have an impact on category attractiveness through regulations.
Some product categories might become less attractive over time because of laws that restrict product manager’s
abilities to market certain categories in ceratin markets.

[Link]: The social system is the fabric of ideas, attitudes and behavior patterns that are involved in human
relationships. In particular businesses are influenced by consumer attitudes and behaviours which depend on such
factors as the age structure of the population, and the nature of work and leisure.

For consumer products, a key question is whether the product category under consideration is well positioned to
take advantage of current trends. Moreover, the social trends also determine the attractiveness of a category.

Example: The tendency of more time spent during working in office and less time left for family and household
cores has given way to the attractiveness of restaurant category.

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Self Assessment Notes

Choose the appropriate answer:

[Link] of the following are good criteria for customer segmentation?

(a) The segment is of relatively large size.

(b) The segment is reachable.

(c) The segment members are stable over time.

(d) All of the above.

[Link] little attention is paid to a brand by the firm, which of the following is most likely for brand equity:

(a) it is hard to build and hard to harm.

(b) it is easy to build and hard to harm.

(c) it is hard to build and easy to harm.

(d) it is easy to build and easy to harm.

[Link] strategies, especially basic customer strategies, will most likely stay the same over the entire
product life cycle.

(a) The statement is TRUE.

(b) The statement is FALSE.

(c) This statement is unrelated to the topic.

(d) This statement is true in certain conditions and false in others.

[Link] of the following is not a environmental factor?

(a) Technology

(b) Social customs

(c) Regulatory practices

(d) Marketing plan

[Link] of the following is not a reason for supplier bargaining power to be high?

(a) The market is dominated by a few large suppliers rather than a fragmented source of supply

(b) There are many substitutes for the particular input

(c) The customers are fragmented, so their bargaining power is low

(d) The switching costs from one supplier to another are high

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Notes


Case Study
Life‘s Good for LG

LG Electronics India’s market share dropped in January 2005 — for the first time since the company was
set up in 1997. But Managing Director Kwang-Ro Kim isn’t worried.

“The dealers must have met their targets in December itself, so they took it easy in January,” he explains.

Were it any other company, the managing director’s insouciance would appear to border on foolhardiness.
But this is LG, a company that can afford to take it easy.

Even after the blip in sales in January — LG’s market share in refrigerators fell fractionally from 28.6 per
cent the previous month to 28.1 per cent — the Korean consumer electronics brand is still the preferred
white goods brand in India — across categories and sub-categories.

Whether it is refrigerators, air-conditioners, washing machines or colour televisions — LG’s dominance

over the white goods market is complete.

In volume term LG No. 2 player

Refrigerators 27.2 - 1.2
2 (Whirlpool)
Colour TVs 25.5 - 15.1 (Samsung)
Microwave ovens 41.4 - 19.7 (Samsung)

Washing
That’s machines
pretty decent going for 34.0 -
a company whose first13.8
experience in the Indian market was nothing short of
disastrous. In its earlier avatar, the Korean company came to India as Lucky Goldstar.
(Whirlpool)
This was in the early 1990s, and the rules at the time didn’t permit foreign companies to start independent
ventures. So Lucky Goldstar took on not one, but two joint venture partners. The first partnership ended
acrimoniously while the second one never got off the [Link] 1997, the Foreign Investment Promotion Board
finally gave the Korean company permission to set up its own factory to make washing machines and
refrigerators.

Rechristened LG Electronics, the new company — a 100 per cent subsidiary of the Korean ‘chaebol — swung
into action and set up a state-of-the-art manufacturing facility at Greater Noida, Uttar Pradesh.

There’s been no looking back since then. In October 2004, LG set up a second manufacturing facility at
Ranjangaon, near Pune, which makes white goods as well as cellular phones — the first GSM handset
manufacturing facility in India.

Another facility, exclusively for GSM handsets, is being set up and will start operations in August. Turnover is
also on the upswing: starting from ` 150 crore in 1997, LG registered a turnover of ` 6,500 crore last year and
is targeting ` 9,000 crore in 2005.

So, what went right?

Perhaps the most important step was to leave behind the baggage of the past.

Contd...

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Notes
As Lucky Goldstar, the company’s biggest fault was that it did precisely what other white goods brands of
the 1990s were doing: some half-hearted advertising and pushing the products only when the consumer
entered the store.

Activities that “pulled” potential buyers into showrooms were conspicuous by their absence. Once it got the
permission to operate as a wholly owned subsidiary, though, all that changed. Within just five months, LG
products were available across the country compared to the average two years competitors took for a
nationwide launch.

An advertising blitzkrieg followed. And the momentum hasn’t let up since. LG is one of the most aggressive
advertisers in the white goods industry, spending close to 5 per cent of its revenue on marketing activities
— that’s ` 130 crore last year.

A close tie up with cricket ensured the brand building exercise would score well on consumer recall —
apart from signing on leading Indian cricketers, LG also launched a cricket game on one of its television
models. Points of sales promotions were also extensively advertised to ensure customers were tempted to
visit the stores.

Importantly, for LG, a nationwide launch meant just that. A penetrative distribution strategy ensured that
products were available even in smaller towns and cities, breaking the chain of urban dependency that
plagues most white goods manufacturers.

More than 65 per cent of last year’s ` 6,500 crore revenue came from non-urban sources; up from under 60
per cent the previous year. And what was the industry average? It was between twenty-five to 30 per cent.
Add the fact that the rural markets accounted for a remarkable 30 per cent of total sales and it’s clear that
LG’s strategy is working. “We push rural marketing,” agrees Kim.

How does it do that? LG reaches into the hinterland through a pyramidal sales structure. Branch offices in
larger cities set up Central Area Offices (CAOs) in smaller towns; these in turn reach out to even smaller
towns and villages through Remote Area Offices (RAOs) — at last count, the company had 51 branch
offices, 87 CAOs and 78 RAOs.

Each RAO has servicing, marketing and sales teams at its disposal and an individual budget for marketing
activities in its territory. The executive in charge has independent decision-making powers — he can decide
the tenor and scale of brand promotions in his area, without having to cross check every little detail from
the head office.

Technology, too, is being used to the hilt to ease their jobs. The RAOs and CAOs are all electronically
connected through a V-SAT and Intranet network.

And where earlier decisions about putting up large hoardings could be approved only after a visit from the
head office, LG has provided all its branch managers digital cameras — now they just click images of
suitable locations and get them approved electronically.

For customers, though, the direct approach is preferred. The advantage of an extended distribution
network is that marketing executives can keep a finger on the pulse of the market. Promotions and finance
schemes are designed to suit the needs of local customers.

In a small town in Uttar Pradesh, for instance, last year LG offered select households a free 15-day trial of a
50-inch flat screen television during the cricket season. The TV set costs close to ` 1 lakh, but several
families took the bait and considered buying the TV — at which point the showroom staff offered them
carefully planned finance schemes.

Of course, it’s not just the finance schemes that are tailor-made. LG has been careful right from the start to
offer customers a “value-plus” proposition.

Contd...

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Notes
Explains KSA Technopak Principal Harminder Sahni, “LG has always taken the stand that ‘We’re selling the
AC, not the remote. The remote comes as part of the package.” “Which is why, he adds, the company does
not qualify as a “budget” models company.” “LG does not sell no-frills products; it gives you all the bells and
whistles,” Sahni says.

LG recognised the need to do that early on. Kim — who’s been with LG India since 1997 — points to a basic
characteristic of Indian consumers: “They are very price sensitive. They want the best quality at reasonable
prices.” Accordingly, LG introduced its economy range in the country, which Kim predicted would be
“easily accepted”.

The company was ready to do battle on two flanks: it offered modern, features-packed products, at the
same time keeping its margins wafer-thin. Even competitors accept the merit of the tactic.

“LG has been a price warrior while retaining its brand equity,” points out Ajay Kapila, vice president, sales
and marketing, Electrolux India. “Our success is the result of hard work and commitment. There’s no
miracle involved,” says Kim.

The hard work was on the features, which were carefully chosen — and adapted — to appeal to Indian
audiences. For instance, Kim points out that consumers in southwest India prefer big sound and big bass
outputs.

Accordingly, LG India created Ballad, a flat screen television model that sells only in the subcontinent and
comes equipped with 2,000 watt speakers.

Similarly, refrigerators in India have smaller freezers and big vegetable compartments — Indians prefer
fresh food and a significant proportion are vegetarian. Colours, too, are chosen keeping market preferences
in mind. White refrigerators, for instance, don’t sell well in Kolkata and Punjab — while the sea air in
Bengal corrodes the paint, the masalas used in Punjabi cooking discolour the fridge.

So LG offers a range of bright colours in these markets. The cricket game in TV sets wasn’t the only “go
local” innovation: LG also offered on-screen displays in five languages and large capacity semi-automatic
washing machines that would suit Indian families.

The research for these adaptations and innovations is done in-house. LG invests significantly in local R&D
— last year the company spent over ` 100 crore on research.

“We want to be independent of Korea,” states Kim. It’s working towards that: already 70 per cent of its
product line is produced locally, with the rest imported from China, Korea and Taiwan. In refrigerators, 95
per cent of the components are localised. All of which also help keep prices down.

But that was in the past. “Economy” and “value-for-money” are no longer going to be the cornerstones of
LG’s India strategy. In the next five years, says Kim, the company will concentrate on building itself as a
premium brand, targeting 10 per cent of its earnings from super-premium products.

That includes products like the Whisen range of wall-mounted air-conditioners ( ` 50,000 and above), Dios
refrigerators (` 65,000 and above) and X-canvas plasma TVs (` 1 lakh and above).

LG has already set up 75 exclusive showrooms for these products, which were launched earlier this year,
with more in the pipeline. This year it will spend upward of ` 20 crore promoting the super-premium sub-
brands. “High-end products need high-end outlays,” smiles Kim.

Contd...

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Notes
Perhaps, but industry analysts have their doubts whether exclusive showrooms for such big-ticket items
will bring in the bucks. “When it comes to consumer durables, people prefer comparison shopping. I will be
surprised if the stores make money,” comments KSA’s Sahni.

Meanwhile, there’s the imminent departure of the man who built up LG India to its present height. Kim,
who was last year promoted as head of LG South West Asia, is likely to move up within the parent
organisation some time soon. “I am preparing to leave,” he admits. Will that make a difference to LG’s
growth curve? Kim doesn’t think so.

“The system is working, so things will continue as they are,” he says. That thought finds an echo in Sahni,
who points out “Kim may be leading from the front, but LG couldn’t have achieved what it has without a
strong team.”

The challenge now will be to integrate the new incumbent’s working style with the existing culture of the
organisation — and work on the new marketing strategy. If LG meets that head on, then, like its tagline
says, Life’s Good.

Questions:

1. Study the case and identify significant issues.

2. Conduct a SWOT analysis of LG.

3. What marketing strategies did LG adopt to be so successful in India?

Source: [Link] April 5, 2005

2.4 Summary

 To be most effective, the plan has to be formalized, usually in written form, as a formal “marketing plan.”

The essence of the process is that it moves from the general to the specific; from the overall objectives of the

organization down to the individual action plan for a part of one marketing program.
Marketing plans vary by industry, by size of company and by stage of growth. The form isn’t as important as the

process of preparing it.

A thorough study of your potential competitors is essential to the successful positioning

 of your property.

Choosing
 your “competitive set,” is a step by step task.

The
 level of competition can also vary. At various levels, competition can be in Product form, Category, Generic
and Budget.

Out of the many methods for determining the competitors, the most important and prevalent ones are Substitution

in Uses, Perceptual Mapping, Levels of Competition, Brand Switching, Managerial Judgment, Geographic
 and Porter’s 5 forces.

An essential component of the marketing planning process is an analysis of a product’s potential to achieve a
desired level of return on the company’s investment.

Thus the category analysis is done to define the set of competitors against which one most often competes on a
daily basis.

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Notes  Category attractiveness analysis examines the main areas of enquiry including business aggregate factors
related to the major participants and environmental factors.

5. Keywords

Economy of Scale: Reduction in cost per unit resulting from increased production, realized through operational
efficiencies. Economies of scale can be accomplished because as production increases, the cost of producing each
additional unit falls.

GDP: The abbreviation for Gross Domestic Product. The total market value of all final goods and services
produced in a country in a given year, equal to total consumer, investment and government spending, plus the
value of exports, minus the value of imports.

Law of Diminishing Returns: The tendency for a continuing application of effort or skill toward a particular
project or goal to decline in effectiveness after a certain level of result has been achieved.

6. Review Questions

[Link] and describe two methods for determining who competition may be. If you could only choose one method
to use, which method would you choose and why would you choose it?

[Link] the aggregated market factors, their impact on category attractiveness and give a specific source for
where you’d get the information for each of them.

[Link] would be those 7-8 questions that you would consider necessary to answer before making your marketing
strategy and implementation summary?

[Link] your opinion, what should a marketing plan address?

[Link] your opinion, which environmental variables shows effect on marketing plan? Justify your answer with
reasons.

[Link] to you, what are the qualities necessary for a marketing planner?

[Link] which situations, the bargaining power of customers is low? Is it always useful for the producers?

8.“A threat from substitutes exists if there are alternative products with lower prices of better performance
parameters for the same purpose”. Examine this threat.

[Link] the role of Porter’s analysis in the category attractiveness analysis.

[Link] would be the main factors on which you would base your decisions of choosing a category to enter as a
new marketer and why?

Answers: Self Assessment

1. (d) 2. (c)
3. (b) 4. (a)
5. (d) 6. (a)
7. (a) 8. (c)

9. (d) 10. (a)

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Notes
11. (d) 12. (c)
13. (b) 14. (d)

15. (b)
2.7 Further Readings

Books Angelo Kinicki, Brian Williams, Management: A Practical Introduction, McGraw- Hill/Irwin.
Jessie Paul, No Money Marketing, McGraw Hill. Marc Gobe, Emotional Branding, Allworth.

Roger Kerin, Steven Hartley, and William Rudelius, Marketing, McGraw-Hill/ Irwin.

Online links [Link]

[Link]
marketing_strategy.htm

[Link]/[Link]

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