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.