Measuring and Forecasting Markets

"Market measurement and forecasting skills are an essential requirement for formulating marketing objectives and plans."

As Kotler discusses in Chapter 2, the two criteria for market attractiveness to organisations are; i) market size and ii) market growth.

Measuring the market size accurately and precisely are important skills for the marketer. Kotler provides a model on page 257, that provides 90 different types of demand estimates for a market size that an organisation could use; Kotler's model has three dimensions, i) product level, ii) space/territory level and iii) time. 

"Market demand for a product is the total volume that would be bought by a defined customer group in a defined geographical area in a defined time period in a defined marketing environment under a defined marketing program."

This clearly shows how complex market measurement can be and that as marketers, we must embrace all of these areas to fully understand what we mean when we say that a market size is x.

Measuring market share is relativley easy when you know the actual size of the market. Forecasting future market share is discussed by Kotler and he provides some interesting modelling based on relative marketing expenditure values. I think that these are now outdated as we have moved into an era where digital can provide us with more accurate means to predict future sales and market shares.

The chapter goes onto discuss forecasting future market sizes - again, an important element for the marketer when developing a marketing plan over one, three and five years.

In my experience, knowing the size of the defined market and what share each organisation has, is critical when developing marketing objectives and strategies. Being as precise as possible with market definitions, market size measurements and market shares, is one important part of the process of developing strategies for growth, i.e. if the market is static, market growth will come from stealing market share from a competitor - which one(s) and how ? then follow.

Analyzing Competitors

This chapter starts off with "having an understanding of customers is not enough today" - in saturated markets where growth is relatively flat, business growth will predominantly come from taking market share away from competitors, hence, the importance of knowing your competitors.

This market situation is one faced by many companies/brands competing in Europe and North America. Other parts of the world, such as the Middle East and Africa are experiencing market growth and so as long as a company/brand holds onto its market share, the business will grow with the market.

Kotler goes onto to say that companies should have a good understanding of the following five things;

i) who are our competitors ?
ii) what are their strategies ?
iii) what are their objectives ?
iv) what are their strengths and weaknesses ?
v) what are their reaction patterns ?

Who are the competitors ? This often appears to be a simple question to answer but it is important to gain a good understanding of how a market works and have a view based on the industry and customers.

"Economists define 'close substitutes' as products with a high cross-elasticity of demand" Companies often take a view that their market is made up of companies offering similar products at similar price points - but, as Kotler points out, consumers take a different view - in one of the markets I work in, we have witnessed the small automobile market being affected by motorcycles - traditionally, the small automobile market would have been viewed as all small automobiles. Due to the economy, consumers are seeking out more cost effective ways to satisfy their need for independent travel - motorcycles are satisfying this need very well.

Having identified the competitors, marketers must then work to establish; their strategy, objective(s), strengths & weaknesses and what their reaction patterns maybe.

This level of information will be vital for a company to establish its own strategy of where market share growth will come from, i.e. which competitors to attack and how and which competitors to avoid.

As Kotler says, "this is especially necessary in slow-growth markets because sales can only be gained by winning them away from competitors"

Analyzing Organisational Markets and Buyer Behaviour

Organizational buying is defined in this chapter as; "the decision-making process by which formal organizations establish the need for purchased products and services, and identify, evaluate, and choose among alternative brands and suppliers."

Kotler goes on to say; "no two companies buy in the same way, yet the seller hopes to identify enough uniformities in organizational buying behaviour to improve the task of marketing strategy planning."

As we know, the b2b market is very different to the b2c market, in terms of buyer behaviour. The buying decision is often not made by one person but in many cases, a committee of people - making it very complex for the marketer to understand the target and how best to market to them. 

The time line for decision making is also very much longer and there are often many steps in the process - all of which need to be understood and appropriate marketing strategy put in place.

A third difference can be geography, buyers in the b2b sector can be located in a different country from where the product & services will be used.

This complexity must be fully understood if today's marketer is to be successful in the b2b sector - again, we have a chapter from Kotler, that understood this and the relevance today is even more so - with digital marketing becoming an important part of the marketers tool kit, this makes the process of marketing in this sector even more complex and therefore it's even more important for the marketer to put the customer at the centre of their business.

Analyzing Consumer Markets and Buyer Behaviour

"Understanding the buying behavior of the target market is the essential task of marketing managers under the marketing concept". Ref: Kotler

He goes on to say that marketers find it useful to segment consumer groups & to develop products & services for these groups. If a segment is large enough, it maybe effective to implement focussed marketing programmes to these groups. The question is; how do you know if the segment is large enough ? The answer lies in the area of cost v benefit - if the benefit is greater than the cost, then it maybe worth creating tailored marketing programmes to segmented groups.

Marketers should seek to understand the buyer behaviour and in particular, how consumers respond to "marketer-controlled stimuli" - if marketers understand this relationship, then it can be used to maximise ROI of valuable resources. This level of understanding will also help develop competitive advantage and help with growth in market share.

The consumer buyer behaviour is influenced by a range of factors; cultural, social, personal and psychological. This chapter explores all of these in great detail and I believe can still be useful for today's marketer seeking to gain the best understanding of their target segment as possible.

Kotler goes on to talk about the process the buyer actually goes through and talks about the buying decision, the type of buying decision involved and the steps in the buying process.

An effective marketing programme must show an understanding of the consumer buying behaviour and how groups respond to marketing messages and also allow for the buying process itself and allow for the steps in the buying process.

Since 1988, the world has become even more complex and for us marketers, the task of understanding our consumers has become even harder. But, if we are to be successful, we must understand our buyers, the buying behaviour and how outside factors influence them in choosing a brand and once the brand choice has been made, what factors will affect the buying process.

Another chapter full of very insightful thoughts and very practical ideas for today's marketer.

Another way !

I booked a taxi to collect me and my wife from Bristol

Airport to take us home to Bath – I am amazed that taxi firms still exist that appear to have some form of monopoly and offer such a bad service.

The car was not too old or too dirty but it had about three of those air freshener trees hanging from the inside rear mirror – I hate the smell and it makes my wife feel sick. I nearly asked the drive to stop and throw them away!

The driver had also been smoking so we had the stale smell of smoke as well.

The driver had the radio on and without asking turned the music up so it felt as though I was in some club !

His driving was ok but they do insist on driving very quickly – presumably so that they can get to the next job as quickly as possible.
Now, if there is a taxi company wanting to develop a service led proposition based on what the customer would like, I’d love to be able to help.

Providing new or relatively new, clean and comfortable cars, discussing with the customer their requirements for the journey, e.g. radio on or off, air con on or off, preferred route ?, making sure the passenger(s) are comfortable before setting off ……………

I’m convinced there is a gap in the market – any takers ?

Setting price

If you follow that you are in business to make a profit, the following model helps explain how your business works;

The manufacturer is the maker of the product and supplies this product to the market, i.e. the buyers, at a set price. If the price is set at the correct level and there are enough buyers, then the manufacturer makes a profit - simple !

But, if a manufacturer sets the price at a level where no profit is generated, who actually wins ? The buyers may get a good deal in the short term but their chosen manufacturer will eventually go out of business. But the buyer then moves onto a new manufacturer and the cycle starts again.

Setting the correct price is not easy but manufacturers must build their business on the premise that their product(s) will achieve some brand loyalty that will generate the profit levels required and keep them in business over the longer term.

Too many manufacturers set their price at a level where they believe the buyers will be happy to pay - this is a false starting point and will only lead to one end. Manufacturers must commence their business planning by answering some fundamental questions; why are they in business ? what levels of profit do they want to achieve ? what product(s) will they offer the market ? how will these generate brand loyalty ? 

I have come across too many companies setting price at a level to match what they believe to be the competition and what they believe their customers will pay. Often, these companies are very busy but make no profit ! Some even sale very little and also make no profit.

Clearly, buyers will not pay any price, they do want to feel ripped off or feel as though their tight budget is being squeezed by a greedy manufacturer.

Setting price at the correct level is one of the most important tasks of any company - get it right and the company will make a profit.

Analyzing the Marketing Environment

"We have repeatedly emphasized that excellent companies take an outside-inside view of their business".

Kotler goes on to say that these companies have an excellent system for monitoring and evaluating the environment that the company competes within and then makes decisions based on this knowledge that gives the company the best opportunity to survive and grow - adapting to a changing environment.

How many times have we comes across organizations that do something just because they have always done it that way ! In some cases, it is very difficult to change the product offering etc and in others, e.g. service companies, it is very quick and easy to change.

Kotler covers both the micro-environment and the macro-environment and provides examples of what should be included in both. He also provides some examples where companies have systems for monitoring the marketing environment and the impact it is likely to have on the organization.

This is clearly another area that is as important to successful companies today as it was back in 1988 and most likely was before and will be for the future.
 

Learning from sport

We have witnessed some remarkable sporting achievements recently – Roger Federer winning Wimbledon for the 7th time, Spain winning the Euro 2012 Championships and Bradley Wiggins winning the Tour de France.

All of these achievements, and many more not mentioned, are remarkable because if somebody had said they would happen, not many people would of believed them.

Why, because they all go against the pattern of what has gone before and they seem impossible.

This reminds me of what we are tasked to do in business planning – we set business objectives based on what we need to achieve and what we believe is possible.

But, is there a role for setting business objectives that seem impossible ? Can we learn from sport and how teams plan for the impossible.

Let’s remember that before 2008, Spain had not won a major football tournament – they are now the European Champions, World Cup Holders and then if you look below the surface, they are the under 21 European champions, Under 19 European champions.

Before Bradley Wiggins won the 2012 Tour de France, there has never been a British winner of this race.

No doubt somebody started the dream for both Spain and a British winner of the Tour de France.

One key lesson to learn is that it’s not just about having a dream – it’s also about having a plan to achieve the dream.

British Cycling and Sky put together a team and then planned for success. Spanish Football set out a way to play football to conquer the world.

Both of these achievements seemed impossible but with a dream and well developed strategy and implementation plan, these dreams became reality.

What business dream do you have ?

Marketing Information Systems and Marketing Research

Clearly companies & brands do not operate within a vacuum. They operate within a market.

Defining the market and how your company/brand fits within the market is one area where marketing information systems and marketing research can help.

Kotler says that "marketing information is a critical element in effective marketing" - we probably have all experienced working with companies that have too much of the wrong information and/or information that is so badly collected that it provides an inaccurate view of the market and where each brand sits within it.

Spending time on this area of the business is I believe essential - how can you possibly know what to do next if your understanding of the current situation is flawed. Setting realistic business goals/objectives and then developing sound strategies and implementation plans is dependent upon having accurate information.

Kotler outlines four key systems - systems is an interesting word that suggests that marketing information and intelligence should be collected systematically and then analysed using a system of established techniques.

Far too many times I have come across organisations that base business and marketing decisions upon data where the source of the information has not been taken into account. I have actually heard a senior manager say that they think competitor X has a market share of Y because he read a trade press article saying so - this may be accurate but how do you know. Surely, there would be a more accurate way to obtain market share data, especially if you are about to base a strategic plan on stealing some of that share - it may not exist !

So, marketing information systems and marketing research are still important today as they were back in 1988. The way markets have become more complex, you can easily argue that they are even more important.

The Marketing Management Process and Marketing Planning

This chapter starts with the following quotation from Dwight D. Eisenhower - ”plans are nothing; planning is everything”.

From my working experience I must say that I fully endorse this statement – running a successful business has nothing to do with producing a nice looking plan – it must be all about the thinking behind the strategy.

Having said that, the planning is nothing if the implementation is not carried out effectively.

Like many of us working as a consultant, we are too familiar with business & marketing plans that do not join up the thinking and provide a thread from the objectives right the way through to the implementation of the strategy. Many plans go a long way to say what they are planning to achieve and why they believe it is possible but fail to get to grips with the analysis of the market to provide the most effective strategy for the business.

When I read a business & marketing plan, one of the judgments I make is how confident I feel that the plan will be implemented and will achieve the stated objectives. If this confidence is missing, it’s normally because the plan has failed to convince me that the market opportunity for growth has been fully understood and then the implementation of the plan falls down on the level of detail.

I recently read a plan for a charity that is looking top raise a lot of money to set up medical healthcare facilities in a third world country. The plan very clearly provided details of the current status and where they wanted to get to in a given time period. The plan went on to spell out in detail exactly what will be required, where the new resources will come from and how they will be recruited and then used in the country. The plan included a detailed budget to show where the money would be spent.

When I was at Bass back in the 1980’s, my brand plan had to support the growth objectives and I remember including details about exactly where I believed market share gains would come from, which brand would lose share and how we would steal their share. Without this level of detail, my brand plan would not have been approved and the budget would not have been available for me to spend. The Bass Board needed to have a high degree of confidence, that the money being spent would return on their investment.

Phil Kotler says that to plan effectively, marketers must understand the key relationship between types of marketing-mix expenditures and their sales & profit consequences.

In today’s marketplace, this is still very much the case. Philip Kotler goes into great detail in this chapter and shows us how we can create an effective marketing plan that will support the rationale behind the strategy and the planned marketing-mix expenditure to generate the required sales & profits, i.e. the objectives of the business.

In 2013, this level of detail is even more important if businesses are going to plan their way to success.

Laying the groundwork through strategic planning

“strategic planning is the managerial process of developing and maintaining a viable fit between the organization’s objectives and resources, and its changing market opportunities. The aim of strategic planning is to shape and reshape the company’s businesses and products so that they combine to produce satisfactory profits and growth” Ref: Philip Kotler

The above quote taken directly from the book is jam packed with concepts & ideas that we as marketers need to fully understand if we are to be good at marketing.

If marketing is a way of doing business, then strategic planning is right at the start of how a business works. We learnt in the previous chapter that businesses can be explained using a simple marketing system, i.e. connecting the organisation to its market by communicating the products/services offered, in return for cash/profit.

Strategic planning takes this model and says that for a business to achieve its objectives, there must be a viable fit between the objectives, the resources and the market that the organisation competes within.

In the UK, we have seen a number of large retailers fail recently because they have not maintained a viable fit between what they are looking to achieve, the resources they have and the changing market environment. HMV and Blockbuster are two case studies that history will probably show were too fixed in their ways of doing business and ignored the changing market environment they were trying to compete within.

Kotler mentions early in the chapter that strategic planning came into being in the early 1970’s post a “succession of shock waves” that rocked the markets in the US. Surely, we must ask ourselves the question; do we need a new way to manage businesses in 2013 post the global recession that we have lived through in recent years and are still probably in ?

From the work I do in helping businesses grow, I have followed Kotler’s approach to strategic planning with minor changes, depending upon the organisation I am working with.

The strategic planning process I most often use is as follows;

• Business Mission- why is the business in business ?

• What is the business objectives – in terms of value measure ?

• What is the market the organisation wishes to compete within ?

• Where are the market opportunities ? 

• What is the product & brand strategy ? 

• Who is the target audience ? 

• What is the marketing implementation plan ? 

• KPIs & CSFs and feedback/review

The above process is very similar to The Business Strategic Planning Process as seen on page 49 of Kotler’s book. It uses a different language that may be due to time span and culture.

The important point is that planning a successful business today follows the same key stages as strategic planning suggested back in the 1970’s.

Understanding the critical role of marketing in organisations and society

Marketing is a way of doing business rather than a function of the business. We all probably know organisations that have marketing departments but their core driving force is something else; it could be financial, sales or manufacturing.
Philip Kotler gives us a very simple model of a marketing system, it connects a group of sellers/an industry to a group of buyers/a market via an exchange of goods/services in return for money. This exchange is two way and involves communication about the goods/services and also a build up of information that provides a better understanding of each other.
If this system is applied effectively within the organisation, it will deliver the overall aims/goals of that organisation. If done badly, it can lead to closure.
Marketing can be explained by this simple model but it must be implemented well for it to be effective.
We are all aware that doing business in 2013 in Europe and North America, is extremely challenging and I would say that for businesses to survive in tough economic times, they need to embrace the principles of marketing like they have never embraced them before.
Many organisations I know are working in markets that are shrinking - just to stand still in terms of sales income and gross profit, often means having to put on double digit market share gains. Gaining market share in a static market means having to take business away from a competitor, not always easy but in a shrinking market, you can assume that all competitors will have their strategies and plans in place to do all they can not to lose valuable business.
Using the Kotler model of a marketing system, clearly shows us that to increase share in a shrinking market, organisations need to connect with more of the market, i.e. gain more customers. I always believe that it's important to make sure you look after what you have to ensure any leakage is kept to a minimum. Do this first to make sure any gains are not offset by losses. Then work out how you will take share away from your competitors.
Understanding your competitors as well as possible should highlight some areas where you could attack. It may be in the area of the brand proposition, service or some form of promotional offer to get them to switch brands.
At the end of the chapter, Kotler says "companies cannot survive today by simply doing a good job". In 1988 this was probably true but in 2013, it almost certainly is.
Marketing as a way of doing business is I believe the only way for orgainsations to develop their business cultures, set business objectives and go about developing long term profitable customers.

First ever blog

I have been fascinated by Philip Kotler's Marketing Management since I was introduced to his book when I first worked in marketing. I have often referred to his book during my marketing career and it has been very helpful on many occasions.

My blog is going to explore his book, chapter by chapter, and see how the concepts & ideas can be used in today's business environment.

The edition I will be referring to is the Sixth Edition - published in 1988.

The first chapter looks at "understanding the critical role of marketing in organizations and society"