Foundations of Marketing -- BSAD 231An Overview of the Twenty

"Thinking and Acting Like a Marketer" Modules

This Foundations of Marketing course 'textbook' contains 20 modules and about 135 pages. These 20 modules introduce: the process of marketing management and planning; the process of being analytical; the tools of marketing numeracy … the ability to "crunch the numbers"; and, the process of communicating effectively … particularly via case analyses, memos and reports. The modules hang together as follows:

Module 1 Module 2 Module 3 Introducing Marketing Marketing Planning Researching Your and the Marketer and Analysis Marketplace

Module 4Conducting a Size Up

(Analysis Challenges)

Module 5 Module 6 Module 7 Module 8 Sizing Up Sizing Up Sizing Up Portfolio The the the AnalysisOrganization Marketplace Broader

Environment

Module 9Crafting Marketing Strategy

(Challenges Thrusts)

Module 10 Module 11 Module 12 Module 13 Module 14 Selecting Developing the Developing Developing Developing Target Markets Product:Service Pricing Place/Distribution Promotional And Market Strategy Strategy Strategy Strategy Positioning

Module 15 Module 16 Module 17Product:Market Marketing & MarketingGrowth Matrix the Internet Internationally

Module 18 Module 19 Module 20 On Being Keeping Score Communicating Analytical - Using Financial Your Ideas

Constructing Data Effectively

an ArgumentThe twenty modules introduce about 100 core concepts, 20 planning and communication processes and 15 analytical and mathematical tools of marketing. These concepts, processes and tools of marketing are generic. That is, they are as applicable to Highliner brand fish sticks as they are to clothing, automobiles, filing cabinets, computers, vacation destinations, political candidates, causes and issues.

Most first courses in marketing are heavy on concepts and theory. They employ principles of marketing textbooks that tend to be long and seem to believe that “if 10 new concepts is good, 20 is better”. On the other hand, these textbooks tend to be loaded with contemporary examples, well organized, well written and well illustrated so they have much to offer for introductory courses taught in the traditional way.

This course is different. It emphasizes “how to” process learning over “what is” content learning. It provides many opportunities to develop:

• Your analytical abilities These include finding and using evidence to draw conclusions -- to construct an argument and persuade others of the soundness of your reasoning, and to make tentative recommendations based on the accumulated evidence and conclusions.

• Your marketing numeracy This includes finding, “crunching” and using numbers and basic mathematical tools to help make decisions, and

• Your communications skills These include writing memos and reports and making presentations – as appropriate.

This course introduces terminology, concepts and theory only to the extent that a smart marketer requires them. Note though: a solid grasp of these core concepts is critical to being an effective marketer. Thus, we expect you to work as hard at building your conceptual knowledge as your applied skills and abilities.

Figure 1 presents an overview of the complete Thinking and Acting Like a Marketer process. It integrates the marketing management process with the process of ‘being analytical’. In effect, Figure 1 depicts the BSAD 231 course. But, don’t throw it out when the course is over because it depicts marketing reality as well. You’ll be able to use the framework in Figure 1 throughout the rest of your studies here … any beyond.

Figure 2 on pages four and five identifies the core concepts, processes and analytical tools of marketing employed in this course. For your convenience they have been grouped. Look them over carefully. They are your keys to success. All concepts and tools are defined or otherwise elaborated in the modules that follow so don't panic if the list appears a bit daunting.

The 20 modules in this short book are supplemented by the companion Cases and Exercises in Marketing. Together they provide all the material necessary for you to be thinking – and acting – like a marketer by the end of the course.

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Figure 2: Core Concepts, Processes and Analytical Tools of Marketing

Core Marketing Concepts: MarketingExchange TransactionProductMarketWIIFMCustomer orientedMarket drivenMarketing conceptCustomer serviceCustomer satisfactionCustomer valueRelationship marketingThe marketing mix (the 4Ps)

Planning Concepts:Marketing planningAnalysisThe marketplaceThe broader environmentChallengesThrustsA.C.T.ProblemsOpportunitiesMarketing objectivesMarketing resourcesMarketing strategyMarketing tacticsEnd-user groupsTarget marketsCompetitive advantagePortfolio analysisMarket positioningMarket penetration strategyMarket development strategyNew product development strategyDiversification strategy

Analytical Concepts:Size-upSituation analysisSWOT analysisInformation EvidenceFactsOpinionsCalculations Percentage comparisonsWeighted average

Frequency distributionPercentage changePercentage point changeReasonable reasoningIf… then… reasoningSensitivity analysisConclusionRecommendationImplications of implementation

Marketing Research Concepts:Marketing information systemMarketing intelligence gatheringInternal records and resultsResearch objectivesSyndicated servicesSecondary dataSyndicated research servicesSingle source research suppliersPrimary dataObservation researchExploratory researchConclusive researchFocus group researchDepth interview researchCase study researchSurvey researchControlled experiment researchPopulationSampleRepresentativenessGeneralizabilityDatabase marketingDatamining

Product Strategy Concepts:GoodsServicesRented-goods servicesOwned-goods servicesNon-goods (personal) servicesPerishability, intangibility,

inseparability, variabilityNot-for-profit organizations, places, people, causes, issuesProduct item, line, category, mixThe new product development processProduct life cycle

Promotional Strategy Concepts:AdvertisingSales promotional activitiesPublic relationsPersonal sellingIntegrated marketing

communications (IMC)Hierarchy of communication

effects

Pricing Strategy Concepts:Retail selling priceWholesale selling priceManufacturer's selling priceTrade marginsMarkup ContributionBreak even pointPrice discountsPrice allowances

Place Strategy Concepts:Place strategyPhysical distribution strategyChannel management strategyMiddlemenWholesaling middlemenDistributor, broker, agentRetailing middlemenDealer, reseller

Communication Concepts:ConsiderationControlCoherenceClarityConcisenessCorrectness

Internet Marketing Concepts:Intranete-taileronline marketingonline merchantdelivery specialistbanner adsbutton ads

~ Continued on next page ~

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The Ability to Undertake the Processes of:Marketing planningBeing customer oriented and

market drivenIdentifying marketing

challengesSetting marketing objectivesConducting a size up or situation

analysisConducting a marketing

research projectSegmenting a marketSelecting one or more target

marketsConducting a company analysisConducting a buyer analysisConducting a market analysisConducting a competitor

analysis

Conducting an environmental analysis

Pricing a productUsing the Internet to market a

productWriting a memoWriting a reportConstructing tables and exhibitsRunning effective group

meetingsPresenting your ideas in class (as appropriate)Making a formal presentation

(as appropriate)

The Ability to Employ these Analytical Tools Correctly:

Using percentages to compare numbers

Breaking aggregate results down "per" and "by"

Calculating and using weighted averagesCreating indexes (indices)Calculating break even pointCalculating payout on new

productCalculating and using markupsConducting vertical analyses of

income statementsConducting horizontal analyses

of data over timeUsing sensitivity analysisUsing frequency distributionsUsing "if…then…" reasoningVisioning or visualizing a

marketplaceCalculating share of marketDistinguishing between

percentage and percentage point chang

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Foundations of Marketing -- BSAD 231Module 1: Introducing Marketing and the Marketer

Module 1, Introducing Marketing and the Marketer, contains three sections. The first section offers a managerial perspective on marketing and introduces several core concepts of marketing. The second section provides a brief overview how marketers think and act. It introduces being customer oriented and market driven, being an enthusiastic champion, being analytical and being able to reason reasonably to extend a marketing analysis when important factual evidence is lacking. Most of the BSAD 231 course is built around developing your knowledge and skills in these areas. The third section presents a short quiz to help you determine if you possess the characteristics of a successful marketer.

1.1 Marketing: Core Perspectives and Concepts

In these modules we regard marketing as a set of activities designed to:

• provide solutions to people’s consumption problems, • satisfy their needs and wants, and • deliver bundles of benefits.

Phrased another way, marketing is all about understanding and facilitating the exchange process whereby products [tangible goods, intangible services, not-for-profit groups, other organizations, people, places, causes, ideas] are acquired [consumed, used, attained, attended to, understood] by markets [customers, consumers, buyers, resellers, clients, users, participants, members, fans, the audience].

In other words, a product is anything that can be offered to a market for attention, acquisition, use or consumption that might satisfy a need or want. A market is a person -- or an organization -- with needs or wants to be satisfied and, in the context of commercial transactions, with money to spend and a willingness to spend it. The act of exchange is referred to as a transaction. A transaction is the tangible manifestation of the exchange process. As you can see, there are many different types of products and many different types of markets. The scope of marketing is far broader than toothpaste, beer and corn flakes … and, far broader than buying goods and services for oneself or one’s family.

The relationships among marketing, the exchange process, products and markets look something like:

Marketing ↓ ↓ ↓ ↓ ↓

The Exchange ProcessMarket(s) Product(s)

(Transactions)

Marketing may also be regarded from an academic perspective as an applied social science. The marketing discipline – the formal study of marketing activities, the exchange process and consumption – is about 100 years old. Thousands of researchers around the globe – both academics and practitioners – devote their careers to understanding, describing, classifying, explaining and predicting marketing activities and their impacts on consumption. The marketing discipline supports dozens of respected academic journals and hundreds of professional and trade magazines and web sites. This course does not take an academic, social science perspective on marketing but it is important to realize such a perspective exists because the results of this on-going “basic research” influences much “practical application”.

Taking the definition of a market a step further, we may classify these persons and organizations into various end-user groups or segments of the overall market. Smart marketers always determine whether or not an adequate market exists for their products within various, broadly-defined end-user groups. In fact, a smart marketer's most basic examination of market segmentation usually starts with some analysis of sales, or potential sales, in each broadly defined end-user market. Here is one common way marketers classify potential end-user groups:

• The consumer market, also referred to as the retail market or the household market … families buying for their own consumption,• The institutional market including hospitals, schools, restaurants, prisons, day care centers, universities,• The industrial market including harvesters of natural resources, processors and manufacturers,• The commercial market including business services, retailers and wholesalers,• The not-for-profit or non-governmental organizations (NGOs) market,• The government market including federal, provincial and municipal departments and agencies,• The agricultural market … agribusiness markets, and• The export market or, international market.

Often a marketer's first cut at segmenting the total market into one or more similar groups of potential customers is taken by asking questions about the needs, wants, problems and relative sizes of these eight end-user groups. Module 4 introduces several more specific bases for segmenting markets into two or more meaningful groups.

In the early days of marketing the focus was on production and selling. The goal was profit through volume. In the second half of the twentieth century, for many organizations, the focus has shifted from production and selling toward customers and the marketplace. The goal has shifted to profit through customer satisfaction. Now it's customer patronage over production and marketing over selling.

This approach or philosophy is called the marketing concept. Organizations that have adopted the marketing concept see creating customers as more important than creating products and see marketing as the central integrating business function. Everything the organization does requires addressing the question, "How will this affect the customer and the satisfaction of her needs and wants?"

Here are a baker's dozen factors controlled by the marketer that may affect customer satisfaction:

• Friendly employees • Service quality• Knowledgeable employees • Overall good value• Helpful employees • Quick service• Courteous employees • Returns policies• Billing accuracy • Hours of operation• Billing clarity • Ease of obtaining information• Billing timeliness

Are you able to identify another five factors?

As you can imagine, it is not easy to get everyone in the organization thinking and acting like marketers and being customer oriented and market driven. At a marketing workshop for bankers some years ago, one customer service representative (teller) commented,

"If I wasn't interrupted by customers all day long, I could get my job done a lot better."

This is merely one example of the mindset that has yet to discover the wisdom of the marketing concept. This mindset is not exclusive to front line employees. It is equally prevalent among owners, presidents and top management. No doubt you have your own favourite examples of such thoughtless, product-centered attitudes and behaviour.

Organizations that have embraced the marketing concept as a philosophy of doing business also have led the way in implementing customer service programs, adding value to their products and attempting to establish long-term relationships with their customers.

Some organizations have a passion for customer service. They aren't satisfied until the customer is. They understand "word-of'-mouth" advertising and the importance of a positive reputation. They do everything possible to avoid screw-ups. They invest heavily in employee training and systems to ensure "the right products arrive at the right place at the right time". They dismiss bullies who demonstrate insensitivity toward customers. As evidence of this trend, you have

probably seen hundreds of advertisements that stressed customer service as a means of differentiating one company over another.Organizations with a passion for customer service are constantly on the lookout for ways to add value to their products. They understand consumers assess the extent to which various competing products will satisfy their particular set of needs, the cost of obtaining each product, and thus the perceived value each offers relative to the others. Putting perceived value in pricing terms: "The worth of a thing … is what it will bring". That is, the perceived value of a product from the customer's point of view is at least as important -- if not moreso -- than its cost in determining the product's price. Organizations that aggressively seek ways to add value to their products stand the best chance of increasing relative perceived value.

Professional sports teams do not merely provide fans with a game to watch. They provide a total three-hour recreational and entertainment experience. Athletic shoe retailers do not just sell shoes. They provide education and instruction via well-informed customer service people and long-term customer communications programs. They understand value … and they understand that their only goal is to find and retain customers by satisfying their needs and wants.

Organizations that have adopted the marketing concept and are passionate about customer service and seek to add value to their products, also are the leaders in building long-term relationships with their customers. Relationship marketing also widely called customer relationship marketing (CRM), means investing resources with the conscious intention of developing long-term, trusting customer relations. Not all customers seek or want long-term relationships with their suppliers, but many do. These customers like being kept abreast of trends. They like receiving special treatment. They like the comfort and security of patronizing a single supplier over a long period of time. Relationship marketing means a lot to these customers.

Of course, relationship marketing means a lot to marketers as well. It's a lot less expensive -- and therefore more profitable -- to retain a satisfied customer than it is to find a new one and, of course, loyal, repeat customers accumulate a lot more purchases over time. Loyalty is a core notion of marketing. Smart marketers understand the real goal is not merely to satisfy customers but to satisfy them so well they remain loyal.

Implementing relationship marketing programs carries a risk. Technology has reduced the cost, and increased the speed, of creating customer databases to the point where almost any business is able to develop database marketing programs. It seems today almost every company, and every brand, wants to establish long-term relationships with all their customers. Relationship marketing overload is causing many consumers feel too targeted, too often and causing them to reject all such offers. An emerging marketing challenge is getting close enough -- and staying close enough -- to customers to satisfy their needs and create some type of long term relationship without annoying the hell out of them.

1.2 Thinking and Acting Like a Marketer Overview

This section helps you understand a bit about how marketers think and what they are like. All points made are re-introduced and elaborated in later modules. This section also identifies several skills and abilities successful marketers possess … how they act. As you begin to understand how markers think and act, try to apply this thinking to the exercises and case situations created for this course. When you have your marketing hat on, you should:

1. be customer oriented and market driven, 2. be an enthusiastic champion, 3. be analytical, 4. be able to reason, and5. be able to visualize your customers and marketplace

1. Be Customer Oriented and Market DrivenMarketers understand that their customers -- in various marketing situations also called:

• consumers • buyers • clients • users • fans • the audience • participants • guests or • members of the organization

do not want products and services, they want:

• solutions to their problems,• satisfaction of their needs and wants, and • bundles of benefits.

Smart marketers do not sell products. They offer solutions. They offer satisfactions. They offer benefits. Smart marketers are much more concerned about delivering what their customers want than they are about selling the goods and services they have to offer. Their focus is on what the customer, wants, or gets, or feels, or looks like. Their focus is not "we" -- the company, the marketer. Their focus is "you" -- the consumer, their customer.

In effect, smart marketers are tuned in to every customer's favourite radio station WIIFM (What's In It For Me) because they know the interests of their customers come first. Effective marketers know customers are interested in the idea behind the product. People do not want can openers. They want open cans. People do not want garbage bags. They want bagged garbage. People do not buy cosmetics. They buy hope.

2. Be an Enthusiastic ChampionIf you aren't enthused about your product, service or new venture, who's going to be? Marketers by nature are optimistic and enthusiastic. When others see problems, they see opportunities. When others talk about survival, they talk about growth. When others dwell on yesterday, they are busy creating tomorrow. Marketers are the champions of new ideas, new products, new services, new projects. They love to create things. They try to be objective but often objectivity is difficult to achieve because they have such an emotional stake in the vision, the dream, the concept. Thinking like a marketer means being an enthusiastic — but hopefully realistic and objective — champion.

A test to determine if you possess the characteristics of a successful marketer follows in section three of this module.

3. Be Analytical Smart marketers are analytical. Smart marketers think like detectives. Detectives:

• search for clues (He has a smoking gun in his hand.) • to reach conclusions (He committed the murder.) • to make decisions or recommendations (Arrest that man!).

In a similar manner, marketers are constantly on the lookout for:

• evidence (facts, opinions, calculations and reasoning) to try to figure out what happened, what may happen, and what to do about it,• so they may draw conclusions based upon the evidence and linked to marketing decision making, • so they may then develop one or more recommendations to capitalize on an opportunity or overcome a problem.

Being analytical is also referred to as being persuasive, constructing an argument or critical thinking. It's what separates the pretenders from the real thing … effective marketers. Marketers instinctively go beyond mere description of their marketplace. They begin to analyze that marketplace. They instinctively think:

Information (Raw data)

Evidence (Clues)

Conclusions (Thus, ...)

Recommendations(Suggested Action ...)

They realize it is necessary to describe their situation accurately by collecting relevant information, but smart marketers are then able to use that descriptive information; that is, to turn it into clues or evidence and draw conclusions, to help decide what to do. Using information is the essence of being analytical. Sometimes using information is referred to as answering the, "So what?" question or, "How does this information help me market my product?" You'll have many opportunities to develop your analytical skills in this course. Here is a brief example of using information Follow it carefully.

Information, The Facts, Raw Data, Basic Description: • A clothing store in the mall has annual sales of $350,000.• The store is open 60 hours per week.• The average customer spends $50 each time she/he buys something at the store.• Across Canada average sales in clothing stores are $200 per hour and $40 per customer.

Selected Calculations Based on the Raw Data:• The store is open about 3,120 hours per year (60 hrs./wk. 52 weeks)• On average each hour the store sells about $112 worth of clothing ($350,000 3,120 hrs).• On average each hour the store has 2.2 customers ($112/hr. $50/customer).• The average clothing store in Canada has 5 customers per hour ($200/hr. $40/customer).

Tentative Conclusions from the Evidence (Facts and Calculations)• The clothing store in the mall may have a problem (conclusion) as it serves a lot fewer customers

per hour (2.2 vs 5) and has a lot lower sales per hour ($112 vs $200) than the average store. • It does however have a slightly larger average sales ($50 vs $40).

Tentative Recommendations (Suggested Action … Thrusts):• The analysis above hints at problems but there's too little information yet to suggest any specific

action. • Certainly the store should try to find out why its results are so different than the average store.

You will get a chance to use this type of analytical thinking throughout the course … and throughout life. Being analytical is a core skill of successful marketers.

4. Be Able to Reason No matter how good you are at the detective work of finding and using facts and opinions and making calculations to draw conclusions, there always will be gaps in your understanding about customers, markets, competitors, the environment and so on. Marketing situations are seldom 'black and white'. There's plenty of room for logic, judgment and interpretation. The ability to reason -- hopefully reasonably -- to close marketing information gaps is a critical skill of all smart marketers.

In using their powers of reasoning, smart marketers tend to avoid subjective phrases such as "I assume ..." or "I feel ..." or "I think ..." and replace such phrases with more objective, tentative, cautious and appropriate phrases such as, "If this (is true), then that (is true)" or "I would reason (a certain way) and, if this line of reasoning is accurate, then ...". Being able to employ "if…then…" reasoning to assist in constructing an argument is the essence of reasoning reasonably.

5. Be Able to Visualize Your Customers and MarketplaceAs input to their reasoning, marketers have an uncanny knack of being able to visualize their marketplaces accurately. They are able to close their eyes and picture their marketplace in operation. They are able to project themselves into the buying situation from the customer's perspective and generalize (tentatively) the results. Marketers are able to construct accurate pictures of reality from only a few details. Here are three examples of the kinds of thinking and visualizing smart marketers engage in rather naturally. Why 'rather naturally'? Because they are tuned in to the realities of their marketplaces, their competitors and their customers.

Visualizing The Residential Window Cleaning Market in HalifaxIf someone said, "the residential window cleaning market in Halifax" to a marketer, she would immediately begin visualizing different types of houses (old, new, one-storey, two-storey, three-storey), different types of customers (seniors, rich people, lazy people, fussy people), different types of needs (clean outside surfaces only vs. inside too, remove and clean screens, putty old windows and so on) and different types of competition (do-it-yourself, hire the neighbour's kid, do nothing, hire a commercial cleaner). Soon she would picture herself on the front porch of someone's house finding out about their needs and explaining how she could satisfy them. Her eyes would be closed. But, her mind

would be wide open and actively working to "see" her marketplace accurately and in detail.

Visualizing the Buyer of Lawn and Garden SpraysHere is a second example of reasoning reasonably and visualizing to build an argument (analysis). A manufacturer of a full line of high quality horticultural sprays and dusts (insecticides and fertilizers for outdoor plants) has asked you to help understand the market. You have no factual (hard) evidence in front of you but you reason that most people who purchase such products probably would be homeowners (reasonable) who value having nice lawns, rose bushes or whatever (reasonable). They probably like to get compliments on their lovely property (reasonable) and get pleasure from admiring the property themselves (reasonable). Because of the importance of a nice yard, such people probably will tend to consult friends or specialty outdoor products dealers to make sure all of their landscaping purchases, including sprays and dusts, are wise ones (reasonable).

If this line of reasoning is accurate, then the market probably is not overly price sensitive and there is probably brand loyalty to products which work. Such reasoning has important implications for developing a successful marketing strategy. In this case a reasonable strategy would appear to be to create and promote a strong brand name and brand image and avoid using price discounts to win customers.

Visualizing the Market for a New Mini Golf CourseHere is a third example. No one knows how many rounds of golf will be played next summer on a proposed new mini golf course but reasonable estimates are needed. This situation is encountered frequently in marketing. The rigorous, often expensive, answer is to do a lot of marketing research. And, perhaps in time you will. But if the answer is required immediately, you need to resort to reasonable reasoning such as: If one out of every one hundred teenagers in the city (70,000 teens 1% = 700) and if one out of every one hundred families in the city (300,000 families 1% = 3,000 families 3 people per family = 9,000) each played one round of mini golf on the new course, then the local teen plus family market would be about 9,700 rounds per season. You could employ similar reasoning for the tourist market or other markets such as senior citizens to arrive at additional rough estimates of market response.

Is it reasonable to think that 1 in every 100 teens and families would come once? In the absence of factual evidence, you have to rely on judgment and the reasonableness of this reasoning. Otherwise, you'd never have any estimate and that would be a lot worse. [Of course, time permitting, as noted you'd want to commit some marketing (research) resources to finding out what percentage of the population played mini golf last summer, where, how often and with whom.]

As you can see, it is not easy thinking like -- and acting like -- a marketer. It takes practice and experience. And even then, even marketers slide back into product-centered thinking and being descriptive instead of being analytical. You'll be a more successful marketer if you put yourself in

your customer's shoes and attempt to understand accurately and in detail what is going on out there in your marketplace.

1.3 The Characteristics of Successful Marketers

Do you possess the characteristics of a successful marketer? This little less-than-purely-scientific quiz may provide the answer. Score each characteristic:

5 = Definitely me, 4 = Somewhat me, 3 = A little bit like me, 2 = Not much like me, or1 = Definitely not me.

• I am an enthusiastic person … a cheerleader in the highest sense of the word. ___• I am optimistic. I tend to see opportunities, not problems. ___• I am entrepreneurial. I tend to exhibit enterprising behaviour. ___• I am a (calculated) risk taker. I am not afraid of uncertainty or the unknown. ___

• I am able to close my eyes and visualize how and why people purchase products. ___• I am empathetic … I am good at understanding other people's feelings. ___• I am a strong, confident person … not wishy-washy. ___• I am persuasive … I am able to convince others of the wisdom of my thinking. ___

• I am good at bargaining and negotiating. ___• I am growth oriented … I focus more on tomorrow than on yesterday. ___• I am customer oriented. ___• I am analytical. I think methodically about evidence → conclusions →

recommendations. ___

• I am numerate. I love percentages. I instinctively break down aggregate results or figures to make them more concrete and easier to understand .. revenue per day, customers per month and so on ___

• I am logical … my reasoning tends to be seen by others as reasonable. ___• I am tolerant of ambiguity … answers do not have to be black or white …

I am comfortable with a lot of gray. ___• I day dream a lot … (bonus if in colour). ___• Overall, I see myself, and others see me, as a true craftsperson … a bit of

a perfectionist who puts a lot of love into life's endeavours. ___

The maximum score is 85, the minimum is 17. I have not attempted to validate the scale, so the most I can say about your score with any confidence is that it provides food for thought.

1.4 Course Focus

Now, we return to the identification of the 100 core concepts, 20 processes and 15 analytical tools of marketing. Most first courses in marketing are heavy on concepts and theory. They employ principles of marketing textbooks that tend to be long and seem to believe that “if 10 new concepts is good, 20 is better”. On the other hand, these textbooks tend to be loaded with contemporary examples, well organized, well written and well illustrated so they have much to offer for introductory courses taught in the traditional way.

This course is different. It emphasizes “how to” process learning over “what is” content learning. It provides many opportunities to develop:

• your analytical abilities (finding and using evidence to draw conclusions; that is, to construct an argument and persuade others of the soundness of your reasoning),

• your marketing numeracy (finding, “crunching” and using numbers and analytical tools to help make decisions), and

• your communications skills (writing memos and reports and making presentations – as appropriate).

It introduces terminology, concepts and theory only to the extent that a smart marketer requires them. Note though: a solid grasp of these core concepts is critical to being an effective marketer. Thus, we expect you to work as hard at building your conceptual knowledge as your applied skills and abilities. The process of managing the marketing function and of ‘being analytical’ were introduced on page 3. The core concepts, processes and analytical tools of marketing employed in this course were identified on pages 4 and 5 of the Overview. Look pages 3, 4 and 5 over carefully. They are your keys to success. All are defined or otherwise elaborated in the modules that follow.

1.5 Core Concepts, Processes and Tools

This module introduced about 20 concepts you should understand and be able to use.• marketing • exchange• market • transaction• product • visualizing• WIIFM (What's in it for me) • end-user groups• customer oriented • the marketing concept• market driven • customer satisfaction• reasonable reasoning • value added• "if… then…" reasoning • perceived value

• relationship marketing

As well, this module introduced these processes:• the process of being customer oriented and market driven• the process of "being analytical"• the process of reasoning reasonably • the process of visualizing or visioning

Foundations of Marketing -- BSAD 231Module 2: Marketing Planning and Analysis

Module 2 introduces marketing planning and analysis. It contains five parts. The parts are inter-dependent. Each part answers a core marketing management question. The five questions addressed are:

2,1 What is marketing planning?2.2 What is analysis?2.3 What is evidence?2.4 What are marketing challenges?2.5 What are marketing thrusts?

2.1 What is Marketing Planning?

Here's a folksy definition. Marketing planning is investing today's time examining yesterday's information in order to affect tomorrow's results. Dwight Eisenhower, the former U.S. President and five star general, was fond of noting, "Plans are nothing. Planning is everything." In other words, from a marketing planning perspective, it is not just the details of the document produced. It is also the planning process -- thinking, dialoguing, networking, analyzing, identifying challenges, setting objectives, getting involved, reaching consensus) employed to generate the plan. Sometimes the value of marketing planning is expressed:

If you don't know where you're going, how will you know how to get there, or when you've arrived?

Marketing planning tends to be deskwork ... sometimes alone ... sometimes on the telephone or in person ... often in small groups to generate consensus. On a rifle range, planning would be "ready ... aim". Implementing the plan would be "fire". Marketing planning has a lot to do with trying to understand how well the product -- broadly defined -- is doing in its marketplace(s), where it is headed and where marketing management wants it to be. Only then may smart marketers decide what changes -- strategies, resource acquisition, resource deployment -- are necessary to get there. In the planning model below "we" means the product and the industry it is a part of, "results" means outcomes and "resources" means money, people, information, equipment and facilities.

Where are we now? Where are we headed? Where do we want to be? [Recent and current results [Projected results and resources] [Desired results and resources]

and resources]

When marketing management -- normally with considerable input from marketing research professionals -- generates satisfactory answers to these questions, the focus then becomes:

What changes are required to close identified gaps? [How may available resources be used more efficiently and/or what additional resources are necessary]Another vision of planning is the three step process:

A C T Analysis Challenges Thrusts

[Finding information. [Identifying problems. [Recommended Using information. Identifying opportunities. action plans.

Conducting a size-up. Establishing objectives.] Strategies.

Doing a situation analysis.] Tactics.]

Or, from a marketing management perspective …

A.C.T. like a C.A.T. and be ready to pounce

on any problem or opportunity (challenge) that comes along.

This too is a bit folksy, maybe even a bit corny, but it's a pretty accurate summary, and it works. It's the marketer's version of the old expression, "Look before you leap." It reminds us as marketers to put analysis before action and evidence before conclusions. This is critical stuff.

2. 2 What is Analysis?

The essence of analysis as noted briefly in Module 1 is:

Evidence ConclusionsInformation in the form of Inferences or supported assertions linked ∙ Factual evidence to the information and the issues/decisions ∙ Opinion evidence being considered expressed as therefore.., ∙ Calculations evidence thus.., the evidence suggests.., ∙ Reasoning evidence I conclude..

In other words, the essence of analysis or "being analytical" is using evidence to draw conclusions which affect the development of marketing strategy positively. In a somewhat expanded form the process of analysis looks like this:

Information → Evidence → Conclusions → Recommendations → Implications (Raw Data) (Clues) (Inferences) (Thrusts) (What if …)

As noted in Module 1, smart marketers really do think like detectives. Like detectives, they search for clues to draw conclusions which eventually lead to recommendations. Here's another example.

Evidence -- The 500 or so fixed roof accommodation units in Baddeck and area operate at about 90% capacity from July 1st to September 15th.

Conclusion -- There is not much room for growth among visitors seeking this type of accommodation during this 12 week time frame.

Tentative recommendation -- To generate growth in tourism, Baddeck should concentrate on increased visitation during the shoulder seasons and the off season. [Alternatively, of course, Baddeck could: (1) promote its campgrounds or (2) expand the supply of fixed roof accommodation units.]

Smart marketers are good analysts. They realize that merely describing a situation ("Once upon a time there was a small county in eastern Nova Scotia …) is inadequate for decision-making purposes. They are comfortable "being analytical". They are comfortable:

• interpreting information, • calculating new evidence • using their powers of reasoning to extend the evidence base• explaining how various factors affect or may affect buyer behaviour, • predicting outcomes/results and • allocating scarce resources (making decisions)

all under conditions of great marketplace uncertainty and ever scarcer resources.

The information (raw data) noted above becomes evidence (clues) when marketers use it to draw conclusions relevant to marketing decision making. A conclusion is an inference or a supported assertion made from one or more bits of evidence. The evidence to support any conclusion in the plan must be explicitly presented otherwise the manager or researcher is merely making a series of unsupported assertions prefaced by dangerously weak phrases such as, "I think… I feel… It seems to me ..." or worse, "I assume…".

Smart marketers have learned to replace "I assume…" reasoning with "If … then …" reasoning. It is far safer, and just as effective, to state, "if such and such occurs then so and so follows" than to assume away reality.

Here are eight better ways smart marketers draw conclusions and begin to construct an argument for one course of action over others:

1. The evidence suggests … 5. We conclude …

2. Therefore … 6. A reasonable inference would be that …3. Thus … 7. If such and such is true, then so and so would follow 4. It seems … 8. Or, we may simply state the conclusion.

Notice the future definite of the verb to be ("will") is never used in stating a conclusion. Always use would -- or might or could or perhaps or possibly. You do not have a crystal ball. You cannot see the future. So why pretend you can. Be a bit more humble. Humility does not weaken an argument. Humility strengthens an argument.

To maximize the usefulness and value of the analysis, each conclusion should be linked both:

• backward to the evidence (facts, opinions, calculations and reasoning) and • forward to its impact or effect on crafting, creating or adjusting marketing strategy.

Learning to make both of these linkages to construct powerful arguments is critical. Here is an illustration.

Elvira's -- a fictitious dining room in a fictitious Antigonish motel -- experienced sales decreases of 10 percent per year in each of 1997, 1998 and 1999 (factual evidence). Early in 2000 the company asked its marketing assistant to check things out. She interviewed 10 people involved in the hospitality industry (exploratory opinion evidence). They informed her other motel dining rooms seemed to be doing all right and they were unsure why Elvira's seemed to be the only one in decline. In her short memo to management, the assistant wrote:

• "It seems dining room market softness is specific to our company." [A tentative, but important, conclusion linked backward to the opinion evidence.], and

• "It seems further exploratory consumer research is warranted to determine which element of our marketing mix (product, price, place or promotion), if any, seems to be the problem." [An extension of the tentative conclusion forward to a decision-relevant conclusion -- almost a recommendation -- to conduct additional research.]

Linking a conclusion backward to the evidence that generated it is referred to as simply drawing a conclusion. Linking a conclusion forward to the crafting or adjusting of strategy is referred to as answering the, "So what?" question. That is, linking a conclusion forward permits smart marketers to indicate how the conclusion affects, informs or has an impact on the proposed strategy/plan -- the allocation of scarce marketing resources (money, talent, time).

The evidence → conclusions flow looks something like this:

Bits of Evidence: A Relevant Conclusion, Inference or Assertion Facts, Opinions, Developed from -- and Supported by -- Calculations, The Bits of Evidence Reasoning

A Decision-relevant Conclusion, Inference or Assertion

Linking the Bits of Evidence and Conclusions DrawnFrom that Evidence to the Crafting of Marketing Strategy

[Answering the critical, "So what?" question]

As elaborated in Module 4, a marketing size up or situation analysis contains three related chunks of analysis. Marketing research is an important input to all aspects of a marketing size up. Indeed, decisions made about conducting -- or not conducting -- marketing research projects are a key "behind the scenes" element of marketing.

1. Normally, the first chunk of analysis is examining the organization itself and the products being marketed. Sizing up "internal organizational reality" relies heavily on internal secondary data (recent results, recent strategies, recent resources and so on).

2. Sizing up "the marketplace" relies heavily on primary data collection -- focus groups, observation studies, surveys.

3. Sizing up "the broader environment" typically relies heavily on day-to-day marketing intelligence gathering and on using syndicated secondary data services. Marketing research does not have to be an expensive, time consuming activity. Well planned but folksy research is better than no research at all.

The starting point for the marketing size up or situation analysis is information. Then, information is used as evidence to support conclusions relevant to the marketing planning process and the development of strategies, tactics, and programs. The notion of evidence is elaborated next.

2.3 What is Evidence?

The information marketers employ to create a marketing plan may be classified as facts, opinions, calculations and reasoning. Figure 2.1 below reveals how the four types of evidence are similar and how they are different. To smart marketers Figure 2.1 presents critical stuff. Marketing planners need to know the nature and source of all information (evidence) in order to draw appropriate -- tentative or definite -- conclusions.

Figure 2.1 Four Types of Marketing Information → Evidence

Source of Information

Level ofConfidence Higher Confidence Lower Confidence

Obtained from others Facts Opinions

Generated by the marketer/analyst (you) Calculations Reasoning

Figure 2.1 may be summarized:

• Facts and opinions come from others. • Calculations and reasoning come from marketers/analysts (you)• Facts and calculations warrant a high degree of confidence. They are true, close to the truth or "givens". • Opinions and reasoning warrant a lower degree of confidence. They suggest tentativeness because the information cannot be immediately verified.

The distinctions among the four types of evidence are important. Smart marketers know the types of evidence they are using before drawing any conclusions or making any inferences.

If the evidence is factual -- including calculations -- they may conclude with confidence that, for instance, "Tourism in Industrial Cape Breton is growing." But, if the evidence is the opinion of others or their reasoning -- however reasonable that reasoning may be -- the most they can say with some tentativeness is, "Tourism in Industrial Cape Breton appears to be growing."

A word of warning: when writing a memo or report do not use the expression "my reasonable reasoning." That would be quite self-serving. Simply say "my reasoning". It is up to the recipient, not you, to judge how reasonable you have been.

The nature of marketing information and typical sources of facts, opinions, calculations and reasonable reasoning are indicated below. The lists are important for both entrepreneurs and existing marketers. • Typical Sources of Marketing Facts

∙ Matters of context ("givens") such as time, place, history∙ The organization itself (results, resources strategies)∙ Internal secondary data … much of the information contained in data bases∙ Much of marketplace reality (buyers, market characteristics, competitors,)∙ Most external secondary data sources, and∙ Observation studies

• Typical Sources of Opinion Evidence∙ Most marketing research … surveys, focus groups∙ Meetings, presentations, conferences, trade shows∙ Assertions made in conversations and interviews∙ Assertions made in print (articles, books, cases)∙ Feedback from employees or customers

[Sometimes opinions are misrepresented as facts. Beware. Always consider the source and the motive. See if an opinion may be verified or confirmed by examining or obtaining additional information.]

• Typical Tools for Calculating New Evidence∙ Using the four basic mathematical functions (add, subtract, multiply, divide) to

combine or compare two or more numerical facts,∙ Using percentages to compare numbers,

∙ Using weighted averages,∙ Breaking down aggregate results "per" and "by",∙ Using frequency distributions of results (how many people did what things how often),∙ Horizontal and vertical analysis of results, and∙ Using break even, payout and markup.

• Using Your Own Reasoning as Evidence∙ Having the ability to interpret facts, opinions and calculations and the confidence to discuss the unknown,∙ The art of persuading others by combining and extending bits of evidence … constructing an argument … critical thinking,∙ Using "if… then…" statements instead of "I assume…" to fill gaps in the analysis,∙ Using sensitivity analysis … low, medium and high estimates of a number∙ Visioning … "seeing" the marketplace,∙ Avoiding "I assume…", unsupported assertions and "whim driven analyses", and∙ Letting the analysis be driven by the evidence and reasoning stemming from the evidence … "data driven analyses".

2.4 What Are Challenges?

Smart marketers obtain information -- and use it (evidence) -- to understand (analyze) the marketplace and their place in it. As they draw conclusions from the size up or situation analysis they begin to identify current, emerging and future challenges. Indeed, three common conclusions flowing out of a size up are, "This appears to be an opportunity …" or "This appears to be a problem …" or, more generally, "This appears to be a challenge…".

Challenges are the realities of: (1) the product and organization, (2) the marketplace(s) in which they compete, and (3) the broader environment which require -- or may require -- some response in order to:

• exceed objectives, • meet objectives, or • avoid failing to meet objectives.

There are two types of challenges. Positive challenges are called opportunities. Negative challenges are called problems. Smart marketers want to capitalize on as many opportunities, and overcome as many problems, as possible. Of course, given scarce (finite) resources -- money, time, talent, available information, facilities and equipment -- rarely are marketers able to capitalize on all opportunities and overcome all problems within the next planning period. That is why objectives were invented.

Setting objectives is determining which opportunities to capitalize on and which problems to overcome during the next planning period and then specifying the desired outcomes for each. Smart marketers strive to develop objectives or desired outcomes that are:

• concrete and specific (not vague and general) • quantified or measurable (numbers or percentages),

• time bound (by such and such a date), • frequently targeted (a specific market segment is specified)• realistic/attainable ("doable"),• agreed upon, and • written down.

Well reasoned, clearly articulated marketing objectives -- desired marketing outcomes -- are crucial to successful marketing. They provide the direction and guidance necessary to determine what specific thrusts to employ and what specific resources will be necessary to implement each one. There is a direct, specific, explicit link between marketing objectives and marketing thrusts and a direct, specific explicit link between marketing thrusts and the resources necessary to implement planned thrusts to achieve identified marketing objectives. This is critical stuff.

2.5 What Are Thrusts?

In the context of the marketing planning process, thrusts are what marketers plan to do to achieve specific marketing objectives. Perhaps more accurately they should be referred to as planned thrusts. Planned thrusts are variously referred to as recommendations, action steps, programs, strategies and tactics. Whatever words are used, they are critical to success:

Thrusts — planned actions — linked to one or more specific marketing objectives and supported by the size-up of product and organization reality, marketplace reality and the forces of the broader environment beyond is exactly what marketing planning and the process of crafting marketing strategy are all about.

When a planned thrust -- a strategy developed to achieve one or more explicit marketing objectives -- is implemented properly ("fire") it is a burst of directed resources and energy.

The day-to-day implementation of strategy is referred to as tactics. You may have heard the expression, "Great strategy. Bad execution." It refers to the all-too-frequent situation in marketing where the intent --the planned thrust, the strategy -- was correct but the many, many details of implementation --execution -- were bungled badly. There's an important lesson here. "Doing things right" requires at least as much marketing planning -- perhaps more -- than "doing the right things."

Crafting a marketing strategy is covered in Module 8-11. Briefly, developing a marketing strategy requires answering the journalist's six core questions:

• The who, when and where questions are answered by selecting one or more target markets after conducting a detailed market segmentation analysis.• The what and why questions are answered by selecting a meaningful sustainable competitive advantage and articulating a market positioning statement.

• The how question is addressed by creating a marketing mix -- a recipe for success -- comprised of the 4Ps (product, price, place, promotion).

As noted, the use of marketing research projects to fill information gaps is often an important element of marketing strategy. In case you haven't guessed, the stuff in Module 2 is also absolutely critical stuff to know and, more importantly, to be able to do. When marketers have their planning hats on they try to:

A.C.T. (Analysis → Challenges → Thrusts) like a C.A.T. and be ready to pounce on any problem or opportunity that comes along.

2.6 Core Concepts, Processes and Tools

This module has introduced about 20 concepts you should understand and be able to use:

• planning • the broader environment• marketing resources • size up• analysis • situation analysis• challenges • SWOT analysis• thrusts • strategy• evidence • tactics• conclusions • marketing strategy• problems • target market• opportunities • market positioning• marketing objectives • marketing mix• the marketplace • the 4Ps (product, price, place, promotion)

As well, Module 2 has introduced these processes:

• the process of marketing planning• the process of analysis (being analytical, doing a size up, doing a situation analysis)• the process of using evidence to construct an argument• the process of identifying marketing challenges• the process of setting marketing objectives• the process of identifying planned thrusts (a marketing strategy)

Foundations of Marketing -- BSAD 231Module 3: Researching Your Marketplace

This module concerns researching your marketplace to generate the factual and opinion information needed for your size up or situation analysis. The note concentrates on marketing research studies as one important source of information. Marketing research studies are key tools in generating information. When properly conducted, marketing research studies reduce the risk of making bad decisions and increase the chance of making good decisions. This note helps you understand the marketing research process. It won't make you a marketing research expert but it should make you a bit more sensitive to the procedures necessary to obtain good information. First though, we take a brief look at all four sources of marketing information.

3.1 Where Marketing Information Comes From

All organizations have systems, however informal, for obtaining, processing, analyzing and using market-based information. Usually an organization's marketing information system includes:

1. Marketing intelligence gathering activities, 2. Internal records and results, 3. Secondary data sources including syndicated services, and 4. Marketing research projects.

Each of these information sources is elaborated below.

1. Marketing Intelligence Gathering Activities tend to be regular, every day, ear-to-the-ground efforts to understand your marketplace and scan the broader environment beyond. Here are half a dozen examples: • reading relevant newspapers or business magazines, • having lunch with one of your suppliers or middlemen,• using the telephone to network (keep in touch) with key people in your industry, • surfing the internet for any new, relevant information, • talking informally to your customers, and• attending a trade show … a gathering of manufacturers and middlemen within one industry.

2. Internal Records and Results provide many valuable insights for marketing decision-making. Here are half a dozen examples: • sales broken down by time period, sales area, product type or in other relevant ways, • customer comments and suggestions, • registration, credit card or charge account information, • salesperson observations of competitive activity, • the cost of goods sold and production schedules for each product, and • the operating expenses associated with different activities, products or sales areas.

In the past decade or so firms have begun to capture customer, prospect and transaction information to permit undertaking database marketing campaigns -- direct marketing (electronically, by mail or by telephone) to selected customers or prospects.3. Secondary Data Sources including Syndicated Services provide information obtained by someone else for some other purpose -- that's why it is "secondary" -- but which you believe may be relevant and helpful to your situation. Sometimes secondary data are free (reference material and government documents from the library). Sometimes they require paying a small user fee (special requests of Statistics Canada, industry-specific research reports conducted by the media).

Sometimes the supplier is in the business of collecting and disseminating ("syndicating") research to its clients for substantial monthly fees. Examples include the A.C. Nielsen television ratings, the Bureau of Broadcast Measurement diary panels on radio listenership and television viewership, and retail store checkout UPC (universal product code) scanner research indicating which types of buyers are purchasing which types of products. In fact, the marriage of scanner data and survey data has created a new arm of the marketing research industry, single-source data services or suppliers The Mini Appendix at the end of this module identifies several print-based and secondary data sources. 4. Marketing Research Studies as the name suggests tend to be somewhat more formal, organized, systematic, objective efforts to obtain and analyze information about your marketplace. Marketing research studies tend to be requested, and conducted for or by, a specific organization. Thus, they are "primary" or first hand sources of information. Again, here are half a dozen examples:

• conducting a survey using the telephone, personal interviews or by mail, • doing an observation study such as a traffic count or a store inventory count or recording people's behaviour, • conducting a focus group discussion in which six to ten consumers spend about two hours with a moderator revealing their thoughts, feelings and behaviour about some service or product, • doing detailed studies of only a few customers (structured interview research) or marketing situations (case studies),• conducting a controlled experiment in which one variable, say price, is changed and the effects of these changes on other variables, say sales or image, are measured, and • combining many of the above tools at an early stage in the decision-making process to spot problems or emerging opportunities ... this is called exploratory marketing research. Its purpose is to understand the marketing situation better, reduce the number of factors studied, develop hypotheses about the relationships among variables and shape future, more conclusive research studies.

Smart marketers obtain and analyze relevant information from a number of sources. Good information helps them make good decisions and avoid costly mistakes. The next section provides an overview of database marketing … the use of parts of the total information system to reach selected customers.

3.2 Database Marketing [This section developed by Bobbi Hiltz]

People (customers) are a vital source of information and smart marketers know that every contact with the customer is a learning opportunity, regardless of whether there is any tangible contact with that customer. Think about it – if you had the capability to understand exactly who your customers are, how much they spend with you, which of your locations they frequent, when they shop, and what products they buy together, couldn’t you serve these individuals better? Now, what if you could instantaneously collect and store all this information each time a customer shops at your store by merely scanning a card? Many firms are now doing this very thing to create vast internal records and use the information in their database marketing efforts (direct marketing to selected customers).

You have already learned that people provide an abundance of information about the object of interest (store, brand, location, service, person, product) by telling you, but actions sometimes speak more loudly. Observing an individual’s purchase behavior provides an unbiased source of marketing information. Rather than asking people about their behavior towards a particular item of interest (store, brand, location, service, time to shop) a number of organizations are finding it effective to study an individual’s actual behavior by electronically collecting and storing point-of-sale information in internal databases.

This is not to say that talking with customers is not important, it is. Such conversations provide insights not available through point-of-sale data collection (personal information, attitudes, beliefs, feelings, perceptions) and are often the most practical information gathering techniques for smaller organizations. In other words, electronic data collection is not the only answer, nor is it always the best one. In fact, database marketing is only possible when electronically collected data (scanned data, point-of-sale data) is paired with customer demographic information (name, address, telephone number, email address, age, gender, occupation, income level) collected via surveys. As Table 3.1 indicates, there are a number of pros and cons associated with electronic data collection.

Table 3.1Pros and Cons Associated with Electronic Data Collection

Pros Cons Information collected instantaneously Very costly to implement Provides detailed purchase behavior

information Requires continual updating of linked

demographic information Provides unbiased information Customers inundated with store-

specific cards Customer perception – not bothered by

long surveys Customer perception – lack of privacy

Given this brief introduction to database marketing, there are two questions that you should be asking yourself:

1. How do companies get this information?2. What do companies do with this information?

1. Obtaining the Data

You probably own at least one “preferred customer “ type card like Shoppers Optimum, Air Miles, or HBC Rewards (or at least know someone who does). Companies issue these cards to their customers for two reasons:

• to collect information on their customers and track their actual buying patterns, and• to reward customers for their loyalty with some sort of point/discount mechanism.

Do you remember getting your card? You had to register. This meant that, at a minimum,you provided your personal contact information and you may have had to complete a survey requesting other demographic information as well (gender, age, income, occupation). Then, you were given a card. This card is equipped with an electronic id number that identifies you personally. So now, every time you make a purchase with one of these cards a record of the items you buy become stored in a database that is cross-referenced with the survey data you supplied when you obtained your card. Companies win because they acquire all the data they want and customers win because they receive some type of reward for using their card (points and/or discounts). Figure 3.1 summarizes the process that occurs in order to collect this data.

Figure 3.1Process of Obtaining Data

2. Using the Data

The last section on obtaining data may sound a little frightening given all the data that companies are collecting about your personal life and shopping patterns. However, organizations are

Complete survey including demographic info (first visit)

Receive a store card(first visit)

Present card for scanning (each visit)

Company records

details of transaction & matches

with demographic information

Customer receives reward (each visit)

collecting the data to serve you better and create customers for life, so most reputable companies only use the data internally (they don’t sell it).

• Smart marketers know that it is wasteful to invest the resources (time, money, information technology) into such elaborate data collection procedures if that data is not converted into information. • Smart marketers analyze the data provided to segment their customers and create targeted offers and information for selected groups (database marketing). (Database marketing is sometimes referred to as “one-to-many” marketing because the company has isolated a large group of customers with similar characteristics.) • Even smarter marketers take this process one step further and create long lasting, cost effective relationships with each of their customers by providing unique offers to each individual based upon their past behavior and feedback obtained from database marketing (relationship marketing). (Relationship marketing is known as “one-to-one” marketing because the company has used feedback from each customer to create specific offers tailored to them.)

Here are the steps that smart marketers take in using the data, all of which are depicted in Figure 3.2.

Figure 3.2Using the Data

Relationship Marketing(“One-to-One”)

Developing long-lasting, cost effective relationships with each customer for mutual

benefit

Database Marketing(“One-to-Many”)

Collecting and updating demographic, and consumption profiles of customers

to target them effectively

Information

Data

The data that was electronically collected is converted to information by a process referred to as datamining. Analysts “mine” the vast store of data looking for patterns - relationships among groups of customers or generalize customers based on groups of products purchased. As with all marketing research, however, you need to make sure the information you are seeking is relevant. With such vast amounts of interesting data on hand it becomes very important that you have well defined objectives and know exactly how the information is to be used before you begin your search.

As an example: Consider a grocery store that wants to increase sales of its store brand orange juice (objective). To do this, analysts can dig into (mine) the data and isolate different groups of customers that may respond to store brand orange juice offers (convert data to information). Some potential groups might be:

• breakfast customers - customers who purchase at least two of: bacon, eggs, hashbrowns, maple syrup, or pancake mix • current orange juice customers - customers who have purchased orange juice in the past (but not the store brand) • current store brand orange juice customers (may be given incentives like “buy 2, save $.50” to increase overall store brand sales)• non-orange juice customers – customers who do not buy orange juice, but who buy oranges (indicating a like for the taste of oranges)

Once one or more groups are selected, incentives to purchase store brand orange juice are sent to those customers via mail or email using the contact information provided by those customers (database marketing). Analysts then determine which customers responded to the offer and attempt to update incorrect addresses and use the information gained from this process in future contact with the customer. This is relationship marketing or customer relationship marketing (CRM) first introduced in Module 1.

3.3 Marketing Decisions Research Objectives

Smart marketers avoid collecting interesting information and concentrate on collecting decision-relevant information. The process of undertaking decision relevant research is outlined in Figure 3.3.

Figure 3.3Linking Marketing Research to Marketing Decision-making

That would If I knew really help me decide (such and such) (Linked) (so and so)

Research Objectives: Acquiring and Deploying Resources

to determine… (Money, Talent, Facilities, to estimate… Equipment, Supplies, Time) to measure… to Craft a Winning Strategy

The specific bits Target Market Selection of information Competitive Positioning needed but not Product Strategy available Pricing Strategy

Place Strategy Promotion Strategy

No one wants to construct an argument ("be analytical") with an evidence base of interesting but useless information. Before smart marketers "do a survey" they ask:

• What is the marketing problem, opportunity, challenge?• What are the marketing decision(s) which have to be made?• What information do we have now .. the current database?• What information do we need .. research objectives?• Who has the needed information .. sources?• How can we obtain it quickly and accurately .. methodology?

That's how you should think too:

Always stop and ask yourself why a particular piece of information is needed and how it will be used to help you make one or more marketing decisions better. When planning a marketing research project your frame of mind should be:

If I knew such and such (the specific research objectives) that would really help me decide so and so (some aspect of crafting a marketing strategy).

Or, conversely:

I could confidently decide so and so (some aspect of crafting a marketing strategy) If only I knew such and such (the specific research objectives).

Thinking such as this helps you specify your research objectives. Research objectives are the discrete, specific bits of information you need but do not have. Note: marketing objectives are the desired outcomes of implementing marketing strategy such as share of market, new product

?What’s The Issue

(The Problem,Opportunity, Challenge

Or Decision)

?What Information

Do We HaveAnd Need

?Who Has TheInformation

And How May WeBest Obtain It

development, new market development, sales, profits and so on. Do not confuse marketing research objectives (specific bits of needed information) with marketing objectives (desired outcomes).

3.4 Sources and Types of Information

Let's start with people. Frequently people are the source of needed information. People can provide information on:

• awareness of a particular object (store, brand, location, service, person), • their knowledge or familiarity with it, • their image of it, • their attitudes toward it (likes, dislikes, good, bad, right, wrong, overall preference for it ),• their behaviour towards it (own it, use it, have several, been there many times, eat it with applesauce or whatever), • their intentions towards it (will buy, will go there, will vote for her or whatever), and • their own personal characteristics or demographics (age, gender, number of kids, education, occupation, languages spoken, religion, family income and so on).

Here are five examples of typical marketing research objectives. The survey is of residents in one large town concerning the Seafood Fit For People restaurant. The survey is being done as input to future advertising and special promotions decisions:

• to determine the level of awareness of the Seafood Fit For People restaurant.• to determine the image of the Seafood Fit For People restaurant among those aware of it.• to determine how many times in the previous three months each respondent has been to (patronized) the Seafood Fit For People restaurant.• to determine customers' attitudes toward the Seafood Fit For People restaurant ... likely this objective would require many questions about the service, the food, the decor, and so on.• to determine the characteristics of each respondent including age group, gender, family size, occupation and where they live. ... likely these "demographics" would be used to identify and quantify various market segments.

A more detailed and structured list of the types of information provided by respondents is provided in Figure 3.4 on the next page.

People are not the only source of marketing research information. Sometimes the relevant population is, say, all of the stores which sell jeans within 100 km of New Minas, Nova Scotia or all of the harness racing tracks in Canada, or all of the cars passing a particular point along the Trans Canada Highway, or all of the homerooms in a school or ... well, hopefully, you get the idea.

3.5 Selecting A Sample of People To Survey

Not all people are alike. This reality is important when you identify the specific people to survey in a particular marketing research project. Some people live within the town limits, some have two or

more children at home, some have never owned a lawnmower, some have two lawnmowers, some use your brand, and some people are not even consumers. They are retailers, government officials, suppliers, mall managers and so on. Accurately defining the people you want to survey and including screening questions to make sure you reach them are critical steps in obtaining relevant information. In research terms you:

• need to specify the population or universe (the people or objects you are interested in), • then, select a sample of those people or objects,• which is representative of them, • so you can generalize or project your results from the sample to the whole population.

Figure 3.4Respondents Provide Information On …

Awareness Unaided recall (no prompting)Aided recall (some prompting)Top-of-mind, share-of-mind recall

Knowledge/ Facts and Opinions about an objectFamiliarity/ (a brand, company, person, place,Beliefs thing)

Image Connotative meaning -- Semantic profileAbsolute image, or compared to a standard

Attitudes/ Like:Dislike -- Good:BadAffect/Feelings Rating and ranking

Importance Of each attribute, feature, benefit

Expectations The existence of key attributes andanticipated performance on those attributes

Intentions To behave in a certain way (buysomething, go somewhere, do something)

Behaviour/ Facts about possession and consumptionUsage/ Facts about having done certain thingsOwnership

Performance How well a product performed on keyattributes and delivered benefits/satisfactions

Demographics Information about themselves and theircharacteristics, family circumstances

Please re-read the previous sentence. It is a bit tricky but very important. When planning a marketing research project you need to think:

Here is a brief example. The Seafood Fit For People restaurant is interested in determining the extent to which high school students patronize the restaurant. There's only one high school in the town and it has 800 students. These 800 students are the population for this study. Is it necessary to survey everyone? Certainly not. You can select a sample of students and if you are careful the sample would represent (be very similar to) the population. One approach might be to obtain class lists and survey, say, every eighth student on each list. This would give you a sample of 100 students which, because of the way you selected them, should be quite representative of all 800 students. Suppose 10% of these 100 students had been to the Seafood Fit For People restaurant an average of two times each in the past month. You could then generalize these results and say with some confidence that about 80 of the school's 800 students (10%) had patronized the restaurant a total of about 160 times (2 visits each x 80 students) in the past month. Then, you could link this information (evidence) to the restaurant's sales figures and possibly use the calculations to alter advertising or special promotions.

The size of a sample depends primarily upon:

• the manager's desired levels of accuracy and precision -- her desired confidence, • the amount of time available, • the available budget and, most important,• the importance of the information and decisions to be made.

You've probably seen and heard marketing research results presented on television or in the newspaper as "accurate to within plus or minus 3 percentage points 19 times out of 20." Three percentage points is the level of accuracy and 19 times out of 20 (95%) is the precision or level of confidence. A probability sample of approximately 1,000 respondents is needed to generate an accuracy level within 3 percentage points with 95% confidence.

Note: for large populations (roughly 10,000 and up) the size of the population does not affect the size of the sample for given levels of accuracy and precision. Thus, a sample of 1,000 respondents properly selected from Nova Scotia or from Canada or from the United States would each be accurate to within 3 percentage points 19 times out of 20 even though the three populations are under 1,000,000, 30,000,000 and 280,000,000. The mathematics of this -- the Central Limit Theorem -- is covered in every introductory statistics course.

3.6 Designing A Data Collection Form

What Is TheRelevant

Populationor Universe

?

How ShouldI Select My

Sample?

Is My SampleRepresentative

Of The Population

?

If Representative:Generalize

The Results To The Population

With Confidence

Whether you are designing a questionnaire to survey restaurant patrons or an observation form to record automobile traffic flows ask:

• What marketing decisions will be made as a result of this study?• What are the specific research objectives of the study (the bits of information needed)?• What will the research design or methods of obtaining the information be?• How will the overall approach and the questionnaire be pre-tested to make sure they will work?

You always want a concrete, specific answer to the question, "What resource allocation decisions will be made as a result of obtaining this new information?" Armed with answers to the fundamental questions above, you are now able to consider more specific questions such as:

• What types of questions should I use? Your two basic choices are open-ended questions such as "Why did you decide to vacation in Nova Scotia? or closed-ended questions such as, "How important was access to sandy ocean beaches in your decision to vacation in Nova Scotia?".

Very important Ο Somewhat important Ο Not very important Ο Not at all important Ο

• What order or sequence will the questions be in?

• Will it be necessary to use screening questions to interview only certain people? For example including the question, "Have you been to Nova Scotia before?" if you want to interview only first-time visitors and screen out veteran travellers or vice versa.

• What will the specific wording of each question be? Here are a couple of tips. ∙ Use Yes:No type questions only for matters of fact such as, "Have you ever been to Nova Scotia?" ∙ Use scales (Excellent ... Very Good ... Fair ... Poor ...) for opinions. ∙ Make the context absolutely clear. Do not ask "Do you go to the movies on Friday nights?" rather ask, "On how many of the past eight Friday nights did you go to the movies? Specific is always better than general.

• What instructions, layout and overall physical design will I use?

3.7 A Mini Appendix: Sources of Marketing Research Information

Here are several sources of marketing information. Never be shy about asking for assistance by telephone or in person ...

1. The Canada-Nova Scotia Business Service Centre (1-800-668-1010). The main resource centre is in the Cambridge Suites building on Grafton Street in Halifax.

2. Statistics Canada maintains toll free numbers (1-800-565-7192 and 1-800-263-1136) to help guide you to the information you need. Recently StatsCan introduced a user pay policy so be careful. They have a web site http://statcan.ca

3. The Statistics Branch of the provincial Department of Finance (902-424-5691) produces 5 Regional Profiles for Nova Scotia (Cape Breton, Northeastern, Halifax, Annapolis Valley and Southwestern). These profiles provide considerable information on each county in Nova Scotia. These profiles are also available from the Nova Scotia Government Bookstore on Granville Street in Halifax (1-800-526-6575).

4. The Financial Post book Canadian Markets is available in most public and university libraries. It contains detailed information on every market in Canada above 10,000 people. It also contains detailed county and provincial information.

5. Three valuable occasional reports on family spending produced by StatsCan are:• Family Expenditures in Canada (Cat. 62-5550).• Family Food Expenditures in Canada (Cat. 62-5540).• Home Repair and Renovation in Canada (Cat. 62-2010).

These reports help you estimate the size of many markets.

6. Normally a terrific information source is the Reference Librarian at any public or university library. Reference librarians are there to help and are flattered when you ask.

7. The larger public libraries carry several trade magazines [magazines for particular industries]. Trade magazines can be the source of a lot of good background [secondary] information.

8. Municipal, provincial and federal government offices and agencies such as the Atlantic Canada Opportunities Agency (ACOA) or your Regional Development Authority may be helpful.

9. Here are some other possibilities ... the Yellow Pages, the local Chamber of Commerce/Board of Trade, Canada's banks — including the Business Development Bank.

3.8 Core Concepts, Processes and Tools

This note has introduced about 20 concepts you should understand and be able to use:• marketing information system • case study research• marketing intelligence gathering activities • experimental research• internal records and results • exploratory research• secondary data • conclusive research• syndicated secondary data services • research objective• single source data suppliers • population or universe• marketing research • sample• primary data • representativeness• survey research • generalizability• observation research • focus group research• depth interview research • database marketing

• datamining

As well, the note provided brief introductions to these processes:

• the process of specifying research objectives and linking them clearly to marketing decisions• the process of conducting a marketing research study• the process of using samples to represent larger populations• the process of developing a data collection instrument.

• the process of database marketing and datamining.

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Foundations of Marketing -- BSAD 231Module 4: Conducting a Size-up (Analysis → Challenges →)

Module 4 illustrates the elements of a marketing size up or situation analysis. Thus, it is an extension of Module 2 on Marketing Planning and Analysis. In particular it elaborates the Analysis → Challenges stage of the A-C-T process. It is also an introduction to Modules 5, 6 and 7 which show how to conduct each of the three elements of a size up: the internal analysis, the marketplace analysis and the analysis of the broader environment beyond.

4.1 An Overview of the Marketing Size Up

Figure 4.1 presents an overview of the marketing size up or situation analysis. Smart marketers do not memorize the contents of Figure 4.1. They own them and use them to figure out ‘where are we now, how did we get here and where are we going.’

Figure 4.1An Overview of the Marketing Size Up or Situation Analysis

Sizing up the Organization∙ Marketing resources (money, time, talent, equipment, facilities, information)∙ Recent and current marketing results

∙ Recent and current marketing objectives∙ Recent and current marketing strategies∙ Recent and current resources, results, objectives and strategies of

all other departments in the organization∙ The relative strengths and weaknesses of the organization∙ The organization's "distinctive competencies", the things it does

better than others

Sizing up the Marketplace∙ Analyzing buyer behaviour … buyer processes and purchase criteria∙ Analyzing the market … its nature, structure, size, trends, factors

Conducting a affecting demand Marketing ∙ Analyzing the competition … direct and indirect competition, Size-up their resources, results, objectives, strategies, competencies

∙ Analyzing suppliers and middlemen … how these organizations may affect your objectives and strategies

Sizing up the Broader Environment∙ Identifying forces and trends in the "macro-environment" that

may affect your organization and its marketing strategy:∙ Economic forces and trends (e.g. inflation)∙ Government forces and trends (e.g. quotas, tariffs)∙ Social/cultural forces and trends (e.g. dining out trend)∙ Technological forces and trends (e.g. the www)∙ Natural forces and trends (e.g. global warming)

∙ Demographic forces and trends (e.g. an aging population)Sometimes a size up is referred to as an industry analysis. A thorough analysis (Evidence → Conclusions) of your organization, its marketplace and the broader environment beyond provides the base for identifying challenges and establishing marketing objectives. In Module 2 on marketing planning and analysis we indicated a size up provides the input to address four key questions:

• Where are we (the product, the organization, the industry) now?• Where are we (the product, the organization, the industry) going?• Where do we (the product, the organization) want to go? and• What changes (new or re-allocated resources) are required to close identified gaps?

4.2 Linking the Size Up to Marketing Challenges and Objectives

How your size ups lead to the identification of marketing challenges and the establishment of marketing objectives is shown in Figure 4.2. Notice that marketing objectives flow directly from challenges (problems and opportunities) and challenges flow directly from a thorough size up of the organization, its marketplace and the broader environment beyond. It’s a logical, evidence-driven process.

Figure 4.2The Size Up → Marketing Challenges → Marketing Objectives

A Thorough Size-up or Analysis(Evidence → Conclusions)

∙ The Organization ∙∙ The Marketplace ∙

∙ The Broader Environment ∙

Negative Challenges: Positive Challenges: Problems Opportunities

To be Overcome To be Capitalized Upon

Marketing Objectives(Desired Outcomes)∙ Selected Problems ∙

∙ Selected Opportunities ∙

Notice also the absence of the phrase SWOT Analysis. This is deliberate. Although the phrase SWOT Analysis is used widely, all too often students get the idea they can simply create four lists (strengths, weaknesses, opportunities and threats) and that's it. Wrong. Creating lists is not analysis and any tool suggesting it is analysis is dangerous. Explaining lists, drawing conclusions and linking those conclusions to the crafting of strategy is analysis. Addressing the “So What?” question is analysis. Making lists is not analysis.

Here’s a brief elaboration of the process illistrated in Figure 4.2. Modules 5, 6 and 7 are all about doing a size-up and specifying the marketing challenges it reveals. The notions of marketing challenges and marketing objectives were first introduced in Module 2, Marketing Planning and Analysis. The points bear repeating so the size up gets used to the fullest.

We do not undertake a size-up merely as an academic exercise. We undertake a size-up to determine what marketing problems (relative weaknesses of the organization; threats in the marketplace or the broader environment) and what marketing opportunities (relative strengths -- distinctive competencies -- of the organization; changes in the marketplace and trends or forces in the broader environmental) exist, or are likely to exist.

Given a finite amount of resources, we probably cannot overcome every problem and capitalize on every opportunity in the next planning cycle. Thus, we need to establish marketing objectives. Marketing objectives specify which marketing opportunities and marketing problems will be tackled and why. Marketing objectives specify the desired outcomes of each opportunity or problem tackled. You’ll recall ‘good’ marketing objectives are:

• specific • time bound (by such and such a date) • targeted (market specific)• quantified • realistic, attainable, reasonable • written down & agreed upon

4.3 Concepts, Processes and Tools

When you have completed Modules 5-8 on conducting a size up you should have working knowledge of the following core concepts, processes and tools.

• marketing size-up • market segmentation• marketing resources • demographic segmentation• buyer analysis • behavioural segmentation• purchase processes • competitor analysis• purchase criteria • supplier and middleman analysis• marketing analysis • macro-environmental analysis• differentiation strategy • concentration strategy

• portfolio analysis

As well, these modules introduce many important marketing processes:

• conducting a size-up (analysis → challenges → )• sizing up the organization• sizing up the marketplace including conducting buyer, market, competitor and

supplier/middlemen analyses• segmenting a market• sizing up the broader environment• using the results of a size-up to identify marketing challenges and specify marketing

objectives and• undertaking a portfolio analysis to help identify opportunities.

Foundations of Marketing – BSAD 231Module 5: Sizing up the Organization

Module 5 indicates how to conduct a size up of internal, organizational reality. Normally a size-up progresses from the inside out. Marketers need an understanding of their own organizations to determine which objectives and strategies are reasonable, or possible, and which are not. Then they are ready to undertake marketplace and environmental analyses to determine the effects of individuals, organizations and forces outside the organization.

Sizing up your organization means assessing its relative strengths and its relative weaknesses. Often tentative conclusions are drawn about the organization using the three key words: opportunity, problem or challenge. Remember though, to be helpful, conclusions must be linked to the crafting of strategy, the making of decisions, or the acquisition and deployment of scarce resources. It's not drawing conclusions merely for the sake of drawing conclusions. Doing an organizational size up is a purposeful activity.

5.1 An Overview of Marketing Resources

Every organization is a bundle of finite, or scarce, resources. Here are five important resources to the marketer. The goal is to draw conclusions about the ability to implement different marketing strategies in light of these resources and, if needed, to identify any changes to the resource base (additions, improvements). Measuring capacity is a key component of assessing marketing resources. So is assessing the fit or lack of fit between each scarce resource and the organization’s needs. The goal is not merely to catalogue or describe the resources.

1. People Marketers need estimates of available and future human resources to plan, implement and monitor marketing programs. Are "people resources" full time, part time or volunteers? Are the people experienced and capable? Do they possess the skills and motivation to carry out assigned tasks? Does the talent exist to implement approved strategies? Will they require close supervision or training? Do they work well together now?

2. Time An important marketing calculation is the amount of time available individually and collectively among people involved in planning, carrying out and monitoring marketing plans. If the organization works a 40 hour week, each full time marketing employee has about 2000 hours to contribute to helping achieve specific goals and objectives. Smart marketers attempt to match planned activities to available manpower. A second dimension of time is the length of time an organization requires -- lead time -- to get ready to act. Organizations able to respond to change quickly have a strategic advantage over those that are unable to do so.

3. Money

It would be nice, say, to add five new sales reps and expand overseas but where would the million or so dollars come from to implement these plans? Smart marketers have one eye on the recent past and present to determine how much money is available and one eye on the future to build the case for investing in marketing activities now in order to generate significant returns later. Earlier we noted that assessing the "doability" of implementing recommendations is part of the planning process. A critical element of "doability" is assessment of the availability of funds.

4. Equipment and Facilities Again, it would be nice to double production, say, to take advantage of an overseas opportunity but if the firm's physical resources -- plant and equipment -- could not deliver such an increase, there would be no point spending a lot of time on this alternative. Marketers require a good sense of the physical capabilities -- estimates of capacity -- of the organization as well to assess the operational "doability" of possible strategies.

5. Information Information is also a scarce resource to be examined. Does the organization have systems in place to monitor sales, costs and profits? Does it know what is going on in the marketplace? Is it monitoring trends in the broader environment that may affect the organization? Are systems in place to get the right information in the hands of the right people at the right time? Can decision makers access and manipulate information in the organization's database to increase response time?

5.2 Sizing Up Marketing Objectives, Strategies and Results

A thorough size-up of internal, organizational reality includes a detailed assessment of recent and current marketing objectives, marketing strategies, the results these objectives and strategies produced, and some interpretation why.

1. Marketing ObjectivesHere is a list of typical questions asked … and answered … about recent and current marketing objectives:• Did the organization have any marketing objectives (stated desired outcomes)?• Were the objectives implicit or explicit?• Were they ‘good’ (specific, measurable, time bound, targeted, realistic, agreed upon, written down)• Did the objectives ‘drive’ strategy? That is, could you see linkages between what were the desired outcomes and how the organization went about realizing its desired outcomes?• Were the objectives achieved?

2. Marketing StrategiesA thorough size up analyzes recent and current marketing strategies. Here are some questions asked and answered about recent and current marketing strategies:• What was the strategy? That is, who were the targeted market segments and what marketing mix or mixes (the combination of product, price, place and promotion) were employed?• What information approaches and sources were employed in generating and monitoring marketing strategies?• Did the various aspects of strategy seem to hand together and make sense?• Did the strategy work?

3. Marketing ResultsSmart marketers assess outcomes as well as inputs. They need to know if recent marketing objectives were met and if marketing strategies worked. Here are some aspects of the assessment of marketing results:• What were the results and how do you know?• Depending upon the situation, what were sales, margins, net profit, growth, share of market, the launch of new products, entry into new markets, customer satisfaction, company image, employee morale, marketplace momentum.

5.3 Sizing Up The Rest of the Organization

Even if marketing is the driving force behind the organization, all other functions and departments -- accounting, finance, operations, human resource management, information management, research and development -- contribute to its success. Marketing plans need to be developed in the context of the relative strengths and weaknesses of the whole organization, not merely the strengths and weaknesses of the marketing department. Key questions include:

• How large/small is the ogranization?• What is the overall resource base upon which to implement marketing plans and strategies?• What does the organization do particularly well -- its distinctive competencies -- that marketing may take advantage of? • What does it not do very well that marketing may avoid or attempt to improve?

Once you have a thorough understanding of internal, organizational reality and how the organization will or might impact marketing strategy, you can turn to an analysis of marketplace reality. Module 6 indicates how to undertake buyer analyses, market analyses, competitor analyses, market segmentation analyses and middlemen analyses. Typically, these are the five components of a marketplace analysis or size up.

Foundations of Marketing – BSAD 231Module 6: Sizing up the Marketplace

Module 6 contains five ‘chunks’ of the overall size-up. Collectively these five ‘chunks’ are commonly referred to as the marketplace. An organization's marketplace are those individuals and firms an organization encounters on a daily basis and which have the greatest impact on marketing efforts. Module 6 examines the nature and process of buyer analyses, market analyses, market segmentation, competitor analyses and supplier/middlemen analyses.

6.1 Conducting a Buyer Analysis

This section helps you understand what a buyer analysis is and how to conduct one. Doing a buyer analysis draws heavily on the processes and skills you read about in earlier modules. Buyer analyses are not restricted to the buyers of your product or service – your customers. The analyses could just as easily be for buyers of competitors' products and services. Or, they could be for prospective buyers of a totally new product or service.

The objective of a buyer analysis is to understand peoples':

• purchase processes – how they think, feel and behave (shop) with respect to a particular product – their • purchase criteria – what it is they want from that product ... the benefits they seek ... what's important to them and their • consumption behaviour – that is, how much they consume, when, how and with whom.

Conducting a buyer analysis requires visualizing and empathy. It may include making very tentative generalizations from a sample of one (your own experiences) as in, ‘Been there. Done that.’ You can learn a lot about buyer behaviour – purchase processes, purchase criteria and consumption behaviour – by examining your own shopping and product usage and the shopping and product usage of those you know.

Purchase processes are sometimes referred to as the six stages in the consumer's purchase decision:

Stimulus → Problem Awareness → Information Search → Evaluation of Alternatives → Purchase → Post Purchase Behaviour

Of course, not all consumer purchases involve six stages. Some purchases are habitual and routine. When a purchase situation is infrequent, important or new, however, it may well involve all of:

• Stimulus/Cue/Trigger -- What cue or stimulus triggered the purchase process? Was it a social cue such as family conversation? Was it a commercial cue such as sign along the highway? Was

it a non-commercial cue such as a government report? Or, was it a physical cue such as hunger or thirst? Marketers need to understand the situations and factors triggering needs.

• Problem Awareness -- What needs or wants have been stimulated? What is the state of inner tension suggesting something is missing?

• Information Search -- How does the consumer find out about the various alternatives that may "solve the problem"? What sources are contacted? Who or what influences the search for information? Is the perceived risk of making a bad purchase decision great enough to motivate an extended search? Smart marketers assess three types of perceived risk:• perceived financial risk -- will it be worth the money?• perceived social risk -- will it receive approval from friends and family?• perceived performance risk -- will it work well and be hassle-free?

• Evaluation of Alternatives -- Marketers need to know the criteria consumers employ to evaluate the various alternatives. What's important? Which attributes or features or services matter? How much? How does the consumer combine all of this information into a decision?

• Purchase -- The purchase act is actually several decisions at once. The purchase act reveals what was purchased (brand, style, features and so on), how many were purchased (1, 2 …), where it was purchased (store, geographic location), and how it was paid for (cash, interact, credit card, installment, lease/buy). Purchase details provide many facts marketers may use to craft winning strategies.

• Post Purchase Behaviour -- How was the purchase used or consumed, by whom, in what circumstances? Did performance match expectations? Was the consumer satisfied? Is re-purchase likely? If appropriate, how was the product disposed of after use?

Purchase criteria call to mind every consumer's favourite radio station WIIFM … What's in it for me. This should act as a reminder to think about benefits, solutions and satisfactions moreso than attributes, features and products.

Here's a Rudyard Kipling poem which summarizes both the purchase processes and purchase criteria dimensions of a buyer analysis almost perfectly. Of course, Kipling wasn't referring to a buyer analysis in 1927 when he wrote:

I keep six honest serving men.They taught me all I knew.Their names are What and Why and WhenAnd How and Where and Who.

Smart marketers want to understand as much as possible about how the marketplaces they operate in work. The essence of buyer analysis is to understand how individuals, families or organizations think, feel, behave, or intend to behave. Here are several typical questions asked:

Who?

Who purchases the product, who influences the purchase of the product, who pays for the product, who consumes or uses the product, and who disposes of the product. In a family or an organization these individuals are referred to as the decision-making unit or DMU.

What? What problems they seek solutions to, what needs or wants they seek to satisfy, what bundles of benefits they want, what product features or attributes matter most, what types and sources of information are consulted.

When? When do buyers search for and evaluate information to make informed choices, when do the actual purchases occur, when is the product used or consumed, and when is the product discarded.

Where? Where do buyers shop for the product, where do they purchase the product, and where do they use or consume the product.

How? How do they decide on a particular purchase at a particular time, how do they pay for the purchase, and how do they use the product.

Why? Why do they want the product, why do buyers' processes and purchase criteria differ, and why do their choices differ.

As you know, to maximize the value of asking -- and answering -- questions such as these you must follow up by asking -- and answering -- the "So what?" question -- how can this information or reasoning be used to help develop marketing strategy.

As revealed in Module 2, Marketing Planning and Analysis, the information needed to conduct a buyer analysis comes from:

1. Marketing research projects,2. Marketing intelligence gathering activities,3. Internal records and results, 4. Secondary data and syndicated services, and5. Reasoning, visualizing and disaggregating.

Armed with this wealth of information, you then put your detective's hat on and use this information -- the facts, opinions, calculations and reasoning -- as evidence to draw conclusions (it seems ... the evidence suggests ... therefore ... I conclude ...) about buyers' processes and criteria to support one or more tentative recommendations or decisions (using your resources in a different way ... improving a product ... changing your prices ... changing the types of stores where buyers may obtain the product ... increasing the advertising ... or whatever ...).

Trying to understand buyers' processes and criteria and then using this understanding to craft marketing strategy — to make decisions about how to use your scarce human and financial

resources — is by no means easy. It requires creativity, sensitivity and imagination. Often the information you have to work with is not presented or available in the most useful groups, categories or classifications. Often it is incomplete and anecdotal. Often there is not enough time or money to obtain the information you need. These realities create huge challenges but they should never stop you from doing the best you can with whatever information you have … plus, of course, your ability to reason reasonably to develop an accurate picture of the buyers, customers or potential customers in your marketplace.

If you carry the process of breaking down results or disaggregation to the extreme you would have to analyze every buyer separately. Clearly, for most marketplaces, this is neither necessary nor possible. On the other hand, if you carry out no disaggregation at all your buyer analysis and your overall market analysis would be essentially the same. A useful balance between total disaggregation and no disaggregation is:

In a buyer analysis, break down the available information into as many small groups as the data permits or as your reasoning suggests make sense — meaning you think can "do something different" for that small group from a marketing point of view.

You have to decide what constitutes a relevant small group. Maybe it is all of the students in a high school broken down by grade — 10 compared to 11 and 12 — or by gender and grade — girls in grade 10 compared with boys in grade 12. Maybe it is all homeowners by age and location (under 30 living in the country compared with over 60 living in the city). This process is the essence of market segmentation and is elaborated upon later. Every good buyer analysis includes some assessment of the segments that make up — or could make up — the total market. Conceptually, moving from buyer analysis to market segmentation analysis looks like this:

Market Segmentation Analysis(Are there groups of buyers similar to each other but different than other buyers

we may attempt to target and satisfy?)

Buyer Analysis(What are the purchase processes and criteria of individual buyers and groups of similar buyers?)

Once you have obtained and organized buyer information for several small groups you should develop profiles, descriptions or prototypes of each group in terms of awareness, knowledge, image, attitudes, usage, behaviour and intentions and then compare the groups. Comparison, usually by calculating a lot of percentages, is a great way to understand the differences among small groups of buyers. Drawing comparisons and creating prototypes permit you to see your marketplace more clearly. Are the groups really different? Are the differences important in terms of marketing to them? Then, you can draw conclusions and make recommendations (decisions) with greater confidence.

Here's a brief example. Suppose you surveyed a sample of high school students and obtained the following results on the ownership of jeans:

• the average student owns 7 pairs of jeans including both denim and cords and both shorts and pants.• the averages by grade are: grade 10 = 8, grade 11 = 7, grade 12 = 6.• the averages by gender are: girls = 9, boys = 5• the group with the highest average is girls in grade 10 = 10 pair and the group with the lowest average is boys in grade 12 = 3 pair.

To compare the groups you could let the overall average of 7 pair equal 100%. Then you could say with confidence that girls are 129% of the average and boys are 71%, or, that girls in grade 10 are 143% of the average while boys in grade 12 are 43% of the average. In a report or presentation, you might convert the percentages into an index. Comparisons such as these may help you select certain segments to target and certain products to offer. Of course, you would also need to include additional buyer process and buyer criteria information such as styles and brands owned and stores shopped in.

Discovering how buyers' shop, why they behave as they do and what it is they really want are critical to developing successful marketing strategies. Be sure you conduct detailed buyer analyses as part of the size-up of your marketplace. And then be sure you try to group buyers and attempt some generalizations about behaviour to make the results more useful.

6.2 Conducting a Market Analysis

This section describes and illustrates a market analysis. Note that a market analysis and a marketplace analysis are not the same. A market analysis is the part of a marketplace analysis that defines what the relevant market is, its size, structure and the factors affecting demand. A marketplace analysis includes buyer, competitor and supplier/middlemen analyses as well as market analysis. Note also that a market analysis and a buyer analysis are not the same. A market analysis tends to take a broad, overall perspective. A buyer analysis tends to take a narrow, individual perspective. Both market analyses and buyer analyses are essential inputs to market segmentation.

Smart marketers try to learn as much as possible about their marketplaces. Market knowledge and understanding increase the chances of serving and satisfying your customers, adding new customers, responding to threats and taking advantage of emerging opportunities. Before a marketer attempts a market analysis however, she/he must address the question:

What market(s) am I in?

Every market can — and should — be defined by:

1. The nature of the product or service,2. The nature of the end user,3. The geographic scope of sales.

Let's say you make food for animals. Is the relevant market all types of food for all types of animals in all types of settings including in people's homes, on all farms, in zoos, in companies (like guard dogs), in universities (like experimental labs), and in all countries of the world? Probably not.

Let's say the food you make is canned dog food you sell through grocery stores and specialty pet stores in Atlantic Canada. Now we're getting somewhere:

1. The nature of the product is canned dog food,2. The nature of the end user (well, other than the dog) is the family or the household referred to as the retail market or the consumer market, and3. The geographic scope of sales is Atlantic Canada.

So, for you the relevant market is the retail canned dog food market in Atlantic Canada. This is the reference point for any further market analysis you do. This is critical stuff. Of course, if you are thinking of adding a canned cat food or selling directly to dog kennels or expanding into New England the definition of relevant market would change.

Here are seven (7) important questions you should try to answer as part of your market analysis:

1. How large is the market? Market size could be expressed in one or more of the following ways: dollars, kilograms, number of dogs eating canned dog food, or number of households with one or more dogs eating canned dog food. Smart marketers normally use all four measures and then compare their company's results to total market size estimates to see how they are doing. This is referred to as calculating share of market. In fact, they probably try to break these estimates down by province, by month, by type of outlet and so on. [As you have probably realized, marketers love details. The more details they have, the more relevant percentages they can calculate, and the more relevant comparisons they can make to draw conclusions about their marketplace.]

2. What trends are there in the market? You need to know if your market is growing or shrinking, by how much and where. Smart markers obtain annual estimates -- 1995, 1996, 1997, 1998, 1999 -- of market size as noted above to increase the number of relevant percentages and comparisons and thus increase their understanding of the market.

3. What is the market potential? If every dog in every home in Atlantic Canada ate only canned dog food — assuming such loyalty would be healthy — what would total consumption be in terms of dollars, kilograms, number of dogs and number of households? That is the type of question marketers attempt to answer about the potential of a market. Rarely will one company or one brand capture 100% of the total market potential for anything. There are simply too many different needs out there. Knowing total market potential permits calculating your company's and all competitor's share of market potential.

Estimating market potential is also appropriate when entering a new market. For instance, if you hope to open the first miniature golf course in your area, there is no existing market from which you may estimate the share needed to break even or make a certain profit. You need to resort to an estimate of market potential by finding out the size of the area in number of families, individuals and tourists if appropriate and use these statistics to assess the likelihood of reaching certain volume levels (numbers of rounds played in a season).

4. What types or forms of product make up the total market?

Estimates of total market potential frequently generate estimates of the sizes of different food types such as canned, bagged, boxed, bulk, table scraps, liquids and so on. Such information allows you to get a sense of the types of competition you have, what type of dog food is winning, what type is losing, and what this may suggest for your company. Estimating sales of different product forms is not always appropriate or necessary but when it is, such as for the many types of dog food, it is a critical input to your market analysis.

5. What companies make up the total market? Market potential estimates also frequently generate the names of competitors, the types of dog food they make and the brands of dog food they make. Information such as this can be critical in crafting strategy such as possible new brands, possible new packages, possible new advertising and so on. Obtaining and analyzing information on dog food types and dog food companies is called market structure analysis; that is, what parts or units or "chunks" make up the market. Of course, analyzing all of the dog food companies also provides a general start at competitor analysis.

6. What market segments exist? Smart marketers try to find out if there are two or more reasonably large groups of buyers of dog food, or canned dog food, whose needs (problems, benefits sought) or buying processes (shopping patterns) are different enough that it is worth analyzing them and possibly attempting to serve and satisfy them with different marketing mixes. This is the essence of market segmentation. What segments or groups of similar buyers exist? What are they buying? Are they satisfied? How is my firm doing within each segment? Every good market analysis includes some assessment of the segments that make up — or, could make up — the total market. Conceptually, moving from a market analysis to a market segmentation analysis looks like this:

Market Analysis(Is the market comprised of two or more end-user groups with

different needs or different purchase processes?)

Market Segmentation Analysis(Are there groups of buyers similar to each other

but different than other buyers we may attempt to target and satisfy?)

7. What factors affect market demand? A thorough market analysis asks what factors or variables seem to affect the demand for this product or service? For example, the demand for dog food is derived from the demand for dogs and the demand for dogs is derived in part from the number of single-detached houses, the overall population, and trends in disposable income. To understand your market more fully, you need to identify the factors, variables and conditions, which influence demand. Is demand seasonal? The same very day? Cyclical? Dependent on the weather? Affected by exchange rates? Altered by government policy?

6.3 Conducting a Competitor Analysis

Your first question should be, "What is a competitor?" Continuing the dog food illustration, if you had said the competition is only other canned dog foods you would have excluded all other types and forms of food. And, if you had said all manufactured dog food you would have missed table scraps, anything killed and eaten by dogs (sorry about that) and possibly liquids which some people might call food. Some competitors are direct — the same basic product, and the same market — and some are indirect — different ways of fulfilling the same need or solving the same problem. Sometimes "doing nothing" is your biggest competitor. A thorough analysis considers both direct and indirect competitors.

Every market analysis includes at least a cursory look at the competition: who they are, what types of dog food they make and what brands they make. As noted, the answers to these questions help you describe and understand market structure. But, there is a lot more to analyzing the competition than market structure.

Here are nine (9) typical questions you need to ask and answer to really begin to understand your competition:

1. Which companies are winning and losing in terms of share of market, profit, or access to important chain stores?2. Which brands or products are winning and losing?3. How important is this product/service to each competitor?4. Will they retaliate if their sales are threatened?5. Do they have the resources to respond to competition? 6. What resources such as money, talent, facilities, equipment do they have?7. What marketing strategies (target markets, sustainable competitive advantages, marketing mixes) are key competitors employing now?8. What are their particular strengths? their vulnerabilities?9. Are there any new entrants or competitors on the horizon?

6.4 Conducting a Market Segmentation Analysis

Buyer analyses, market analyses, competitor analyses and internal, organizational analyses are not undertaken in isolation from one another. They are all ‘chunks’ of an organized, integrated size up. One of the desired outcomes of a size up is a better sense of how the market is structured and what market segments may exist that could be targeted successfully by existing or new products. Graphically, the process is illustrated below.

Market Analyses

Internal Analyses Market Segmentation Competitor Analyses

Buyer Analyses

Smart marketers want to win (sales, share of market, growth) by satisfying peoples' needs and wants, solving their consumption problems and delivering bundles of benefits better than the other guys. That's why they spend so much time and money conducting buyer analyses, market analyses and competitor analyses. That's also why they undertake so many marketing intelligence gathering activities and sponsor so many marketing research projects. As noted earlier, marketers love details.

As you have come to realize, buyers differ. Smart marketers want to know how and why. This reality is the logic behind market segmentation. Typically, detailed market segmentation analyses require large samples of consumers and lots of cash. But even if you have neither a lot of information nor a lot of money you can at least do some market segmentation analysis using whatever information you have and, of course, your own reasonable reasoning about that information. In fact, whenever you are conducting a buyer analysis, market analysis or competitor analysis you also are -- or to some extent should be -- conducting a market segmentation analysis. They are not independent activities even though we discuss them sequentially. A buyer analysis is a market segmentation analysis from the bottom up. A market analysis is a market segmentation analysis from the top down. Competitor analyses and internal analyses come in from the sides so to speak.

If you can determine how the buyers who make up the total market for your product differ, you may be able to segment the market, that is, to divide it into two (or more) segments or groups of similar consumers and:

• attempt to satisfy both segments -- two targeted market segments or two target markets --each with a different package of benefits or marketing mix. This is called a differentiation strategy. Or, • attempt to satisfy one segment -- one targeted market segment or one targeted market -- with one package of benefits or one marketing mix. This is called a concentration strategy.

The ability to describe markets accurately and in detail, and then explain why buyers behave as they do is a characteristic of successful marketers. If you are able to describe your markets and explain how they work, you are better able to predict the impact of any changes to your markets and thus better able to control your own fate, and to a lesser extent, the marketplace itself.

Let's look first at the word market and then the word segmentation. A market is people, or organizations, with needs to be satisfied, money to spend and the willingness to spend it. Here are the eight (8) distinct end-user markets, first presented in Module 1, which may be potential markets for your product:

1. the consumer or retail market (households, families);2. the institutional market (hospitals, schools, prisons, day-care centres and so on);3. the industrial market (manufacturers, processors, harvesters of natural resources)4. the commercial market (retailers, wholesalers and business-to-business services) 5. the not-for-profit or non-governmental organizations (NGOs) market6. the government market (municipal, provincial, and federal departments and agencies);7. the agricultural (agri-business) market ; and

8. the export market (other countries … international markets).

Your first cut at market segmentation should be to inquire about the existence and satisfaction of needs and wants, and the benefits sought in each of these eight potential end-user markets. Often moving into a new end-user market is an effective way to increase sales. Your second cut should be some specific segmentation within one or more of the eight end-user markets.Now let's look at the notion of segmentation. We'll use the consumer market because that's the one you're most familiar with. Here are 25 or so ways the consumer market might be meaningfully segmented. Of course, not all of these segmentation bases work in all situations. In marketing, judgment is always required.

Demographic Segmentation Bases • Age (age group)• Gender• Size of household• Marital status• Presence of children

• Family life cycle• Education level• Occupation• Religion• Languages spoken

• Race• Nationality• Geography (region, province, urban, rural, climate)• Personal or family income• Social class, life style

Behavioural Segmentation Bases• Benefits sought (e.g., for toothpaste ... whiter teeth, no cavities, fresher breath; what different

needs exist)• Usage level (light, medium, heavy)• User status/patronage level (non-user, ex-user, potential user, regular user)• Readiness level/intentions to purchase (unaware, aware, informed, interested)• Current ownership (have none, one, two etc. plus types or brands owned)• Loyalty status (brand loyal, store loyal, "deal" loyal, switcher)

Marketers often combine potential segmentation bases – demographic and behavioural – to understand their markets better and spot opportunities. Here are a couple of simple examples to give you the idea. A manufacturer of ice cream products wondered if segmenting the market by age level and gender would reveal any new insights. Many tables of results looked like the following …

Age Levels Under 10 10 to 19 19 to 29 30 to 39 40+ Gender Females Males

Of course, to make market segmentation analyses work best, you need a lot of good information from your marketing information system. In the absence of a good database, you have to rely on reasoning and visualizing … a common reality in the world of marketing.

Here’s a second example. A television network was interested in learning more about the various segments (types of viewers) making up their audience and the audience of competitors. The marketing manager suggested looking at the results of TV ratings and telephone surveys by education level and benefits sought. Many tables of results looked like the fallowing …

Education Level Less Than High Some UniversityHigh School School University Completed

Benefits Sought Education/learning Sports/athletics Comedy/laughs Mystery

Many market segmentation bases -- the ways you may segment the market meaningfully in order to satisfy more people better -- are unique to a particular product:market situation. For example, hair colour matters to manufacturers of tinting products and the number of children in a household participating in minor hockey matters to summer hockey schools.

The key is to find one or more ways of classifying or grouping users or potential users which really matter in terms of reaching them and satisfying their needs. The best market segmentation bases are not always obvious. It takes vision and creativity to understand how a particular market works.

Module 6 concludes with a short section on sizing up middlemen – wholesalers and retailers.

6.5 Conducting a Supplier and Middleman Analysis

Organizations have marketing (trading) relationships with their suppliers and middlemen (wholesalers and retailers). For instance, if a particular good, say fresh lobster, is in short supply what can an organization do to ensure it obtains its fair share? Or, if aggressive new competitors are attempting to steal a firm's middlemen, what can the firm do to ensure their middlemen stay with them?

The answers lie in WIIFM. Smart marketers recognize that, in their roles as customer and supplier, they have on-going marketing relationships with their suppliers and middlemen. In some ways it's no different than the relationships they have with the final consumer. They need to understand their suppliers and middlemen's needs, wants, problems, solutions and benefits.

Suppliers value customers who are loyal -- relationship marketing -- who cooperate to achieve mutually beneficial goals, and who pay on time. Middlemen value suppliers who provide the right goods at the right place at the right time and at a fair price; and, who cooperate to achieve mutually beneficial goals.

There's no magic here. It's largely being sensitive to the needs and want of suppliers and middlemen and behaving in a 'do unto others as you would have them do unto you' manner. Smart marketers instinctively think about all trading relationships, not merely their relationships with end users. Smart marketers are good at marketing themselves and their organizations to all stakeholders in their marketplaces.

This completes our introduction to a marketplace analysis. The next short module introduces sizing up of the broader environment beyond the day-to-day marketplace.

Foundations of Marketing – BSAD 231Module 7: Sizing up the Broader Environment

The third element of a size up is assessing the forces and trends beyond the control of the organization and its day-to-day marketplace. Sizing up the environment is referred to as conducting a macro-environmental analysis. It requires identifying the forces or trends that affect -- or may affect -- the organization and its marketplace (industry) and then obtaining the required information to be ready to act.

Typically, your marketing intelligence gathering activities -- reading the newspapers, attending trade shows, networking with others in your industry -- generate most of the raw data to conduct a size-up of the broader environment. Sometimes it is necessary to purchase syndicated secondary information on forces and trends on a particular topic (e.g. a service providing quarterly information on legislation from around the globe affecting fish stocks, quotas and fishing rights). Sometimes it is necessary to conduct original research into a particular force or trend in the environment (e.g. a large survey on household access to, use of and attitudes toward the internet and electronic shopping).

Since each marketplace and industry is affected by a unique set of forces, it is difficult to generalize. Here are six broad forces that affect most industries:

1. Economic Forces Sometimes referred to as business conditions, economic forces include the rate of inflation, growth in GNP, interest rates, exchange rates, increases or decreases in various economic indicators such as housing starts and unemployment figures. Most economic forces are country or region specific (e.g. the collapse of the Asian economy in the late 1990s).

2. Government or Political Forces At the local, provincial, national and international levels, what regulations, laws and agreements are in place or about to be put in place that may affect how, or where, a company does business? Are governments friendly toward a particular industry or company? Can the firm do anything to influence public policy?

3. Social/Cultural Forces Many futurists, (Faith Popcorn and John Naisbitt come to mind) make their living monitoring human behaviour searching for trends and hints of change and selling the results to clients eager to see the future. Three noted by Popcorn are cocooning -- the tendency to spend more time at home (the nest) because the outside is too tough and scary; down-aging -- the tendency to feel and act younger than one's age; and save our society -- the tendency to want to make society more socially responsible (environment, education, ethics).

Two noted by Naisbitt are institutional help → self help -- an increasing emphasis on self reliance instead of institutional dependence; and, either/or → multiple options -- the demand for variety instead of "one size fits all". What other social or cultural forces and trends do you see emerging?4. Technological Forces Many experts now say innovations in the telecommunications and computer industries -- the marriage of voice, data and image -- will be as important to the way we do business as the industrial revolution was 300 to 200 years ago. When you read about the exponential growth of e-commerce it is difficult to argue with their predictions. In the past 20 years more firms have recognized the long-term value of greater investment in basic research and development (R and D) and more governments have enacted legislation to encourage such research. Organizations need procedures to keep abreast of technological changes to assess their possible impact on operations and to determine if adopting them would be worthwhile.

5. Natural Forces Some industries, like casualty insurers, are dramatically affected by the weather. Tornadoes, hurricanes, floods, electrical storms and ice storms all have a major impact on claims. Dwindling fish stocks have had a major impact on thousands of Atlantic Canadians. Global warming has had a major impact on many farm communities.

6. Demographic Forces The population keeps aging and the 'baby boomers' of the late 40s, 50s and 60s have begun to retire. A doubling in the number of senior citizens in a twenty year period has major implications for many industries. In Canada, the number of school aged children keeps declining. The market for teachers, school books and chalk has not been strong in recent years. The decades long trend away from farms and rural areas to cities and suburban areas has forced many small businesses to close. Despite massive educational, efforts the world's population continues to grow at an alarming rate.

We cannot do much about forces and trends in the broader environment. But, we cannot do anything about them if we fail to identify them, assess how they may affect us and make adjustments as appropriate to take advantage of the opportunities they create or overcome the problems they cause.

Foundations of Marketing – BSAD 231Module 8: Portfolio Analysis – Pulling the Size Up Together

Larger and medium firms -- typically those with many products, divisions and subsidiaries operating in many different industries -- use portfolio analysis as a marketplace size-up tool. One of the more popular portfolio analysis tools was developed by the Boston Consulting Group (BCG). In fact it is commonly referred to as the BCG Matrix or the BCG Grid. The analysis has four steps:

1. The analyst first divides the total organization into two or, most likely, more strategic business units (SBUs). An SBU may be a separate company, a separate division, a product line or a brand. The key is that each SBU has enough decision-making autonomy to be regarded as a profit centre. It may draw on head office resources but its management team operates with enough independence that it is, in effect, a separate (strategic) business unit.

2. Next the analyst measures each SBU's relative marketplace success or SBU performance. Some have relatively high shares of market. Some have relatively low shares of market. Some are about average. As you probably can sense, the analyst must have good market and competitive information (evidence) to make these judgments.

3. The analyst also needs information on the relative growth rates of each industry each SBU competes in. This information measures industry attractiveness. Some industries are growing rapidly. Some are not growing at all or are in decline. Some are about average. In North America mature industries grow at a rate of roughly 2 to 5 per cent per year reflecting some combination of population growth, inflation and real per capita or per household growth.

4. The analyst then determines where each SBU is in terms of relative performance and relative industry attractiveness and uses these determinations to allocate the firm's scarce resources. The BCG Matrix or Grid has four quadrants:

The Boston Consulting Group Portfolio Analysis Grid

Relative SBU PerformanceRelative Industry High Market Low MarketAttractiveness Share Share

High Growth Stars Question Marks

Low Growth Cash Dogs Cows

SBUs classified as Stars typically require considerable marketing resources (time, talent, money) to maintain or increase share. Question Marks require further analysis to determine whether to intensify marketing efforts or leave the market and deploy resources elsewhere. Cash Cows typically generate profits that may be employed first to maintain their market positions and then to aid growing SBUs or to invest in new product development (research and development). SBUs classified as Dogs invite either reduced marketing efforts or divestiture.

Portfolio analysis is simply a way to make sense of internal and external reality. It’s just an organizing device. But, used wisely, it can distinguish among better strategies and poorer strategies.

We now begin to consider Thrusts or Marketing Strategy.

Foundations of Marketing -- BSAD 231Module 9: Crafting Marketing Strategy (Challenges → Thrusts)

Module 9 concerns the crafting of marketing strategy. Inclusion of the word 'crafting' in the title of this module is deliberate. True craftspeople pour heart and soul into their work. They create works of art with keen attention to detail, patience and love. Successful marketers are craftspeople as well. They weave the needs of the marketplace together with the resources of their organizations to create goods and services offering long-term value to their customers.

Module 9 is short. The goal is to present an overview of the elements of marketing strategy. Each element is elaborated in Modules 10 to 14. Successful marketing strategies (Module 9) flow from, and are consistent with, the marketing size-up, marketing challenges and marketing objectives (Modules 4 to 8).

9.1 The Better Mousetrap

Years ago someone observed, "the world will beat a path to the door of the person who invents a better mousetrap" and many people mistook this opinion as fact. But not smart marketers. Smart marketers realized not everyone wanted a better mousetrap. They recognized the need to segment the market and select only certain people to satisfy (target market), not the whole world. They recognized the need to define how the mousetrap was 'better' (market positioning) -- its differential advantage -- in terms the consumer could understand. Smart marketers also realized that, to be successful, the better mousetrap (product) could not just sit in a factory hoping the good news would spread. It would have to be in the right place, at the right time, in the right quantities (place), at the right price (price), and be backed by adequate communication with potential consumers to generate awareness, knowledge, positive attitudes and purchase intentions (promotion).

9.2 An Overview of The Elements of Marketing Strategy

Marketing strategies are marketing management’s response to its understanding of internal reality, the marketplace and the broader environment beyond. An organization’s strategy is largely controllable. It’s what marketing management decides to do in light of its interpretation of current and emerging reality. It’s how scarce resources will be employed to achieve stated objectives.

To keep things simple, we think of marketing strategy as comprising the following related components:

1. Selecting one or more target markets or market targets to reach and satisfy. Market segmentation information is employed to assist in determining which segments are the best ones to pursue.

2. Developing a positioning strategy that is meaningful to members of the target market and, hopefully, different than the positioning statements of major competitors.

3. Developing a marketing mix, or recipe for success, to implement the positioning strategy comprised of four parts:• A product-service strategy indicating what specific products and services will be offered to the target market and how they will be different than competitive offerings.• A pricing strategy indicating no only suggested prices to the consumer but also prices and allowances to any wholesalers and retailers.• A place strategy indicating how goods will be physically distributed to the ultimate consumer through which types of middlemen (wholesalers and retailers).• A promotion strategy indicating how the organization intends to employ mass media advertising, personal selling, public relations and special sales promotional incentives (or deals) to reach and influence consumers, middlemen and, possibly, other stakeholders.

4. Acquiring and analyzing marketing information to improve decision-making with respect to any of the above components of the strategy. This could include conducting analyses of internal records and results, conducting marketing research studies, undertaking secondary data searches, purchasing of information from syndicated research houses or gathering market intelligence.

9.3 Core Concepts, Processes and Tools

Modules 10-13 introduce 30 or so concepts you should understand and be able to use:

• target market • SKU (stockkeeping unit)• market positioning • product mix breadth• competitive advantage • product mix depth• product strategy • product mix consistency• pricing strategy • product life cycle• place strategy • patronage motives• promotion strategy • price discounts• goods vs services • special allowances• rented-goods services • physical distribution strategy• owned-goods services • channel management strategy• non-goods services • middlemen• perishability • wholesaling middlemen • intangibility • retailing middlemen• inseparability • advertising• variability • personal selling• product item • sales promotional activities• product line • public relations• product category • integrated marketing communications (IMC)• product mix • hierarchy of communication effects

As well, these modules introduced the following processes:• selecting target markets• market positioning for competitive advantage• new product development• considerations in pricing a product

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• developing a promotional strategy• developing growth strategies using the product:market matrix

Foundations of Marketing – BSAD 231Module 10: Selecting Target Markets and Market Positioning

This module elaborates the process of selecting one or more target markets and of developing a positioning statement to meet the needs of the markets selected. Selecting target markets and developing positioning statements are core elements of marketing strategy. Before they develop a marketing mix (the 4 Ps), smart marketers know both whom they are attempting to reach and satisfy and what ‘package of benefits’ or market position will appeal to them.

10.1 Selecting Target Markets

Marketers undertake buyer, market, competitor, organization, and segmentation analyses, for many reasons but the key one is to permit them to identify, and select, the groups that make the most sense given:

• their unique package of benefits• the packages of benefits of direct and indirect competitors• the size of various buyer groups (segments)• the needs of various buyer groups (segments)• their resources relative to the resources of competitors• the ability to select and then reach efficiently any particular buyer group (segment)

What they want out of market segmentation is the ability to identify one or more groups that are:

• big enough to consider• not as satisfied in some fashion as they want to be• relatively easy to identify and reach via available channels of distribution and advertising media.

These are your target markets, market targets or target market segments. Whatever you call them, remember target markets are identified after you conduct a thorough size-up of the marketplace, not before. Remember also that each target market is unique and requires its own package of benefits or market positioning and marketing mix. Selecting target markets defines the who, when and where of marketing strategy.

10.2 Market Positioning for Competitive Advantage

You are more likely to be successful if your package of benefits -- product, price, place, promotion -- offers some advantage over the competition in a way that matters to a particular target market. Does your toothpaste reduce cavities better than other brands? Is your accounting software package fully compatible with the leading database software? Is your ice cream really richer or more

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flavourful? Can your product be on any customer's doorstep in 24 hours? Do you offer unique sizes? Is the image or personality of your store or product appealing to a large group of buyers? Questions such as these help you identify your competitive advantage and your market positioning. Your market positioning defines the what and why of marketing strategy.

The market positioning for any good, service or store is how you wish to be seen in the eyes of members of your target market relative to other competitive products, services or stores. Your positioning statement thus combines buyer information (segmentation) and product information (differentiation) to indicate how you are different from, and in some way better than, available alternatives. Frequently market positioning statements are revealed in advertising slogans. A good example is the "Conversation without Shouting" positioning slogan adopted by Chapters Lounge.

A company can successfully differentiate itself and enjoy market leadership through any of the following three strategies:

• Operational excellence -- providing customers with reliable products or services at competitive prices and easy availability.

• Customer intimacy -- knowing customers intimately and being able to respond quickly to their specific and special needs.

• Product leadership -- offering customers innovative products and services that enhance utility and outperform competitors' products.

Over the past 25 years or so, more and more firms have embraced the marketing concept and begun acting in a customer oriented and market driven manner. As they have done so, more and more market offerings (goods and services) are being differentiated in ways other than through strictly their physical, tangible, product differences. You may differentiate your company, brand or market offering along four basic dimensions:

Product Differences Services Differences Personnel Differences Image Differences Features Delivery Competence Symbols, trademark, brandingPerformance Installation Courtesy Atmosphere/AmbienceStyle Customer training Credibility Media advertising, associationDurability Consulting services Reliability Special event sponsorshipRepairability Repair ResponsivenessDesignReliability

Of course, if you attempt to differentiate your company, brand or market offering from competitors on any of these dimensions, be sure the dimensions are important, meaningful and matter to your target market and be sure you can deliver on the promise of 'better' whatever.

Ideally any meaningful competitive advantage you have, and choose to promote, is sustainable over a period of time. Obviously a sustainable competitive advantage is preferable to an easily copied

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competitive advantage. The market positioning you select and the sustainable competitive advantage you provide are presented and delivered to your target market via your marketing mix.

Foundations of Marketing – BSAD 231Module 11: Developing a Product:Service Strategy

This module and the three following it concern crafting a marketing mix for your product. The marketing mix is your recipe for success and frequently is referred to as "The 4 Ps" [Product strategy, Pricing strategy, Place strategy (location, distribution), and Promotion strategy]. The way you mix the 4 Ps is what makes you different from, and hopefully better than, the other products in your marketplace. It also defines the how of marketing strategy.

11.1 Defining, and Distinguishing Between, Products and Services

Buyers want to know What's In It For Me (WIIFM) when they are shopping. More than anything other element of the marketing mix, product strategy defines the unique package of benefits you offer. That's what buyers see, feel, touch, hear, smell, or taste.

Frequently products are identified as either goods (largely tangible) or services (largely intangible). However, it is preferable to think of all products as existing on a continuum from totally tangible to totally intangible. You will recall, in Module 1 we defined a product as anything that can be offered to a market for attention, acquisition, use or consumption that may satisfy a need or wantIncluded are tangible goods, intangible services, not-for-profit groups, other organizations, people, places, causes and ideas. In other words the concept of product is far broader than tangible goods. To illustrate: services are products, universities are products, the Cayman Islands is a product, Greenpeace is a product and "Don't kill whales" is a product.

Services deserve special mention because of their growing importance and the differences in marketing them compared to goods. The first point to note is that not all services are intangible. Many services include a tangible good as part of the market offering. Rented-goods services involve the leasing of goods for a specified period of time, such as the rental of an automobile or hotel room. Owned-goods services involve alterations to, or maintenance or repair of, goods owned by consumers, such as alterations to clothing and auto repairs. Non-goods services involve personal services such as hair care, consulting services, legal advice and tutoring. They do not involve goods.

Four attributes generally distinguish services -- particularly non-goods personal services -- from goods. These attributes affect marketing strategy.

Perishability An empty theatre seat on a Tuesday evening or a slow month for a consultant can never be re-captured. They're gone forever. The perishability of personal services leads many marketers to adopt differential pricing strategies to even out demand.

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Intangibility Perceived risk is greater when a consumer cannot easily judge quality. To overcome the risks of intangibility, marketers use testimonial advertising featuring satisfied customers; focus on the qualifications and experience of the persons delivering the service; and, promote the company name to build trust.

Inseparability It is impossible to separate a lawyer from the legal services she provides or a hairdresser from the hair care services he provides. This inseparability of provider and service leads marketers to emphasize the experience, education, training and accomplishments of the service provider.

Variability Service encounters are similar, but rarely identical, every time. Different employees have different skill levels and different ways of dealing with customers. Machines break down. Weather causes unavoidable delays in airlines arrival and departure times. To make the service encounter as consistent as possible marketers provide extensive employee training and require regular servicing and maintenance checks of any machinery.

As an organizing device, marketers think of their market offerings as product items, product lines, product categories and their product mix. This helps identify and evaluate what they have -- and do not have -- to offer to their customers and where their profits are coming from. A product item, also referred to as a stockkeeping unit (SKU), is the most specific unit offered for sale. Thus, if Starkist offers white and light tuna, each whole or flaked, and each in two different sizes, it offers eight unique product items or SKUs. All eight items combined equals Starkist's canned tuna product line. Canned salmon, shrimp and crab might be three other product lines Starkist offers. Closely related product lines such as canned tuna, salmon, shrimp and crab likely would be referred to by Starkist as its offerings in the canned seafood product category. Starkist's product mix would be all product items, lines and categories it offers combined.

Marketers describe their product mix in terms of its breadth (width), depth and consistency. Again, this helps identify and evaluate what they have -- and do not have -- to offer. Breadth (width) refers to the number of product lines, from narrow to wide, a company offers. Depth refers to the number of different product items, from shallow to deep, within each product line. Consistency refers to the extent to which a firm's product lines and product categories, from consistent to less consistent, share a common end use, end-user, channel of distribution, production method or production facility.

11.2 New Product Development and the Product Life Cycle

Understanding and evaluating the product mix helps marketers identify the need for new product development and how to manage the marketing effort as their market offerings move through the product life cycle. New product development is crucial for most organizations because the ever-changing marketplace -- new competitors, new needs -- forces firms to:

Generate Ideas

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Ideas for new products may come from customers, channel members, competitors, the company's research and development efforts, employees and the senior management team. The real trick is to have a process in place to find, organize and analyze new product ideas.

Screen Ideas The key word here is "fit". How well does this new product idea fit with existing products, existing markets, existing middlemen, existing production facilities, existing cash?

Concept Testing Marketing research is used to see which concepts generate favourable attitudes and intentions to purchase. Note: at this stage the actual product often does not yet exist.

Business Analysis An idea that tests well from a concept perspective, must also test well from a business perspective. Detailed estimates of costs and revenues are required.

Product Development Prototypes are made and tested. If the product is edible, these tests are referred to as "taste tests". The product is developed physically and from a marketing perspective … branding, packaging, advertising, pricing, and overall launch strategy. The product development stage often requires considerable market testing of various formulations and various aspects of the marketing mix to check on consumer acceptance.

Test Marketing Many firms launch new products in one or two markets (cities, smaller provinces) to see how they perform before the product is launched officially.

Commercialization If a product makes it out of a test market successfully, it is ready for commercialization. Most firms lack the resources to launch a product across the county all at once. Thus, they launch the product in one region and "roll it out" to the rest of the county over the following year or so.

One estimate is that it takes about 80 ideas to generate 1 commercialized new product. Clearly, new product development is not for the faint of heart. New product development requires a lot of time and a lot of company resources … but it’s a lot better than the alternative {no new product development and, soon, no business at all.]

A newly commercialized product is at the introductory stage of its product life cycle. Searching for available, appropriate middlemen and heavy consumer and trade promotion dominate the introductory stage. If the product is successful it moves into the growth stage. Competitors arrive on the scene. Some offer unique packages of benefits that cause a flurry of product differentiation efforts and claims. Prices tend to remain stable. Volume forces costs down thus profits often peak. As the growth stage ends, the product enters the maturity stage. There are few new customers to win. Growth slows dramatically. Most customers have already tried one of the alternatives. Brand or dealer loyalty makes it expensive to generate switching. Some competitors try to achieve market leadership by offering better products (technical superiority), others opt for offering the lowest

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price. Profits fall and many pretenders fall by the wayside. At some point in time -- this could be decades or even centuries -- overall product category sales begin to fall and the product enters the decline stage of the product life cycle. Each competitor has to decide whether to continue to support products in decline or to abandon them in favour of supporting new ones. Marketers realize where every product is along the product life cycle and what to expect and do at each stage to achieve agreed upon marketing objectives.

11.3 Product Differentiation

As discussed in Module 10, organization’s may differentiate their market offerings in many ways to create unique and meaningful positioning statements. Attributes or features employed to develop positioning statements are the same attributes and features employed to vreate fundamental product differences … product differentiation. Here is a partial list of the items firms may employ to create and define unique products and differentiate them from others:

IngredientsDesignShapeFeaturesColoursSizesFavourSoundsStylingQuality

Brand NameTrademarkPackagingLabellingImagePersonnel

ServicingTrainingInstallationDeliveryCreditWarrantyGuarantee

Even if your product is less tangible such as a game of mini golf or an entertainment event, you have to think about the creation and presentation of a total package of want satisfying benefits -- a product strategy. If your product is a place such as a store, restaurant, attraction, or accommodation, you need to think about patronage attributes or motives, the factors such as parking, hours of operation, layout, cleanliness, brightness, overall atmosphere (ambience), experienced, friendly staff, selection/variety, availability that matter to consumers and may serve to differentiate your place from other places.

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Foundations of Marketing – BSAD 231Module 12: Developing the Pricing Strategy

Smart marketers know "the worth of a thing ... is what it will bring" meaning they ask what the perceived value of a product is to their target market not just how much it costs to make or buy. Their pricing strategies are customer and marketplace sensitive. Here are five considerations to include in your pricing decisions. Conveniently all five start with – as Sesame Street would say – the letter C:

Customers An analysis of customers or buyers is one of the core activities in every size up. Price setting issues to examine include affordability, the price of alternatives, benefits sought, and the perceived value of the product.

Competition Directly and indirectly how may buyers satisfy their needs? Who or what are your competitors and how much do they charge for their packages of benefits? What competitive advantages do they offer? What competitive advantages do you offer?

Channels If you use wholesaler and retailers to distribute your product, you need to understand how much they require (their "trade margins" or their markups) to provide their services and what those services are. For example, a consumer might buy a really good sweater for $100 -- the retail (selling) price -- which the store (the retailer) bought from a wholesaler for $60 -- the wholesale (selling) price -- and the wholesaler bought from a manufacturer for $50 (the manufacturer (selling) price -- and the manufacturer made for $25. As the manufacturer you need to understand this markup and cost structure (chain) to craft your pricing strategy.

Middlemen also seek price discounts and special allowances as incentives to stock and support your products. Two common price discounts are early pay discounts (e.g. 2% if paid within 10 days of being invoiced); and, volume discounts (e.g. an extra 1% discount if an order exceeds $10,000 or "buy 10 cases, get 2 additional cases free", or an extra discount if annual purchases exceed, say, $100,000). Most special allowances are to support advertising, displays and weekly features. They are also referred to as merchandising allowances. Special allowances are one form of trade promotion, sales promotional incentives for the dealer instead of the consumer.

Costs The costs of making and marketing a product also enter into the pricing decision. What are the start-up costs -- the initial investment to get the venture under way? What are the operating expenses -- the costs which are relatively fixed for a period of time? What are the variable costs of

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making the product -- the costs, like ingredients, which vary directly with the number of units made or sometimes with the number of units sold (commissions, royalties). The selling price of a unit (S.P.) minus the variable costs of producing or purchasing the product (V.C.) is referred to as unit contribution.

Company Considerations Pricing decisions frequently require reference to internal factors other than costs such as the pricing of other company products, company image, and product objectives (e.g., high share of market-low price or high short-term profit-high price).

Related to pricing strategy, Module 19, Keeping Score: A Marketer's Use of Financial Information introduces the concept and calculation of markup and break even.

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Foundations of Marketing – BSAD 231Module 13: Developing Place or Distribution Strategy

Harvesters of natural resources, processors and manufacturers require distribution strategies to move their goods through to industrial customers and final consumers. For these businesses, place strategy includes:

Physical distribution strategy Physical distribution strategy includes activities such as shipping and receiving, warehousing, the use of trucks, trains, boats or planes, and materials handling. Physical distribution ("PD") also is referred to as logistics and transportation and supply (T&S) and usually is managed by technical specialists, not the marketing department.

Channel management strategy Channel management strategy includes issues such as whether to use middlemen at all; if so, which middlemen to use; how many to use; who performs which tasks; and, what legal relationships (contracts or 'arms length') exist among channel members. Responsibility for channel management usually resides within the marketing department.

Middlemen are the organizations and individuals who take ownership of goods, or actively negotiate the ownership of goods, as they move from producer (harvester, processor) to ultimate consumer. There are two types of middlemen. Wholesaling middlemen and retailing middlemen. Wholesaling middlemen sell, or negotiate the sale of, goods for resale. They also are commonly referred to as distributors, brokers and agents. Retailing middlemen sell goods to the ultimate consumer for household consumption. They also are commonly referred to as dealers and resellers. Thus, there is no such thing as "wholesale to you" no matter what some advertisements might suggest. If you are purchasing something for household consumption, you are obtaining it at retail. It is a retail transaction.

Here is a folksy definition of place strategy:

The Definition The Translation

How can I get............................ What locations, stores, middlemen, transportation, warehouses, catalogues, the internet.

Whatever I've got...................... My unique package of want satisfying benefits.

To whomever wants it............... To my target market segments or designated markets.

So they're satisfied.................... It's in the right place at the right time, and in the right

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quantities.

And I don't go broke.................. The cost of providing widespread availability is not so great that I lose money.

Channels of distribution are interdependent systems of (usually) independent businesses. They have a common goal of moving specific goods efficiently and effectively. They also have goals specific to their own businesses. Textbooks often depict channels as:

Consumer↑

Retailer↑

Wholesaler↑

Manufacturer

While this trade channel may be depicted accurately, such a rigid depiction fails to capture the many hundreds, and often thousands, of relationships a channel contains. A manufacturer's sales representatives may call on key wholesalers and retailers every few weeks. A wholesaler's sales representatives may call on key retailers just as often. Over time, many buyers and sellers become good friends.

Smart marketers recognize that a channel of distribution is also a channel of relationships. They are able to understand the needs and wants of middlemen. They prefer cooperation over conflict. They prefer dialogue and communication over silence and failure to follow up. They prefer training middlemen about their products over hoping their middlemen will somehow be able to sell them.

Marketers frequently used to joke that the three most important factors in success were, location, location, and location. This is probably still true in the tourism industry and maybe some retailing but it is becoming far less so in many other businesses with the growth of:

• catalogue sales, direct response advertising and infomercials (direct marketing), • the use of the telephone (telemarketing),• the use of the fax machine, and • the use of the internet (electronic marketing, e-commerce).

Since the mid-1990s, the whole notion of channels of distribution has been changing rapidly … and dramatically. Internet marketing, one of the main changes, is overviewed in Module 16.

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Foundations of Marketing – BSAD 231Module 14: Developing the Promotional Strategy

Products may be created, priced and delivered but, as noted in the little vignette on the better mouse trap, if they aren’t promoted, they may never be sold and never reach the people who need them. Module 14 concerns ‘the 4th P’, Promotion.

14.1 An Overview of the Promotional Mix

Just as there is a four-part marketing mix (the 4 Ps), so too there is a four part promotional mix. The four promotools available to communicate with consumers, middlemen and other stakeholders are:

Advertising Mass media advertising vehicles are either print-based or broadcast-based. Print-based media include newspapers, magazines, catalogues, direct mail, outdoor signs, and the yellow pages. Broadcast-based media include radio, television, cable, the internet, movie theatres, and compact disks.

Personal Selling Direct, face-to-face communication between a seller and a buyer still is the dominant promotool in many marketing situations, particularly business-to-business marketing. Increasingly personal selling is conducted over the telephone or electronically via e-mail.

Sales Promotional Activities Sometimes incentives are added to the purchase situation to cause buyers to try a new or re-positioned product, purchase one product over another, buy sooner, or buy more than they normally would. Such incentives are referred to as sales promotions or special promotions or simply "deals". Sales promotional activities may be directed at consumers (consumer promotions), middlemen (trade promotions), and sales representatives (sales force promotions). Here are ten examples of typical consumer promotions: coupons, in-store demonstrations, free samples, refunds, rebates, reduced prices, bonus packs, in or on pack premiums (little gifts), contests and sweepstakes.

Public Relations Smart marketers identify relevant publics such as employees, neighbours, the media, government officials, the general public, and buyers and create programs to generate and maintain positive relationships with them. The goal of public relations is not the immediate sale of a product. The

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goal is to earn trust and confidence by being a good corporate citizen. Of course, trusted firms also tend to be patronized firms so there is an indirect sales payoff of effective public relations. Publicity, so-called "free news", is one common tool of public relations. Five others are open houses/plant tours, newsletters for employees, donations, sponsorships of local teams, and investing time and money in selected charities or causes. Customer oriented, market driven organizations employ these four promotools to create integrated marketing communications (IMC) plans. Integrating advertising, sales promotional activities, personal selling and public relations is a huge challenge because historically, in larger firms, each promotool has been planned and implemented by different individuals. On the other hand, not meeting the challenge of integration is to risk being fragmented, or worse, sending different messages to the same target audience.

14.2 The Hierarchy of Communication Effects

One way to develop integrated marketing communications plans is to be mindful of the hierarchy of communication effects:

Unawareness → Awareness → Knowledge → Beliefs → Image → Liking → Preference → Intentions → Trial or Purchase → Re-purchase

Awareness, knowledge and beliefs comprise the cognitive level of the hierarchy -- Thinking. Image, liking and preference comprise the affective level of the hierarchy -- Feeling. Intentions, purchase and re-purchase comprise the behavioural level of the hierarchy -- Doing. Through marketing research marketers are able to determine where consumers are in the hierarchy, use that information to set communication objectives and then use the communication objectives to guide communication strategy.

14.3 Six Core Promotion Planning Questions

Here are six core questions marketers need to ask and answer to develop an effective promotional mix:

1. Is there a role for each of mass media advertising, personal selling, sales promotional incentives, and public relations?

2. What are the objectives (awareness, knowledge, image, attitudes, trial, purchase, re-purchase or, using another framework, what is it you want the recipient of the message to think? feel? do?) of each promotool?

3. How much money should be allocated to each promotool or each campaign (what promotional activities are really important)?

4. What should the message be and how should it be said (creative strategy)?

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5. When (time of day, day of week, month of year) and where (which markets and which media) should the promotools be used (media strategy)?

6. How, if at all, will the effectiveness of each tool be measured (monitoring performance and results)?14.4 Planning and Creating Effective Advertising

Here's a short note written to the owners of small retail stores. Its intent is to give the retailer greater confidence in his advertising planning and advertising execution. Although the context is a retail store, most of the points raised are appropriate to many settings.

Be Market Focussed and Customer Driven• Your customers do not buy goods and services. They buy solutions to consumption problems, satisfaction of their needs and wants and bundles of benefits. They do not buy products, attributes, features. They buy the idea behind the product, attribute, feature.• Remember every customer's favourite radio station is WIIFM … What's In It For Me! when they shop. So be sure to appeal to their self interest [How to… Three ways to… Announcing… Now in Pictou County… The secret of… Attention men with (whatever)… Suddenly…].• Every ad should focus not on "We have …" but on "You'll get … feel … be …".• Objectives … determine if the ad is intended to generate or influence awareness, knowledge, attitudes, feelings, patronage, intentions, repeat purchase, volume, timing, frequency. What is it you want the ad to do?• Visit your main competitors. Be like a sponge and soak up everything you can.

Invest Some Time Planning Your Marketing Effort• Analyze your sales by year, month, week and day of the week. Break results down by product line and by brand. Create and use lots of percentages to see how you are doing and have done. Look for opportunities to advertise ahead of time.• Know what a buck will buy in terms of the various media. Ask the media to provide cost estimates and suggestions. Determine how much you would have to invest in advertising to have adequate market coverage (number of ads or commercials per week or per month).• Consider a wide variety of media: radio, cable TV, regular TV, the internet, fax, direct mail, signage, billboards, newspapers, magazines, newsletters, brochures, handbills, flyers, letters and so on.• Get out a calendar and block out key merchandising dates (holidays, government cheque days, large employer paydays special events). This is a great way to start advertising planning.• Keep copies of past advertising in a file. It'll save you a lot of time next year.• Spend some time with your bookkeeper or accountant to review -- and probably revise -- your advertising related accounts. Be sure you do not include general travel, donations public relations or special events. Create separate budgets for separate activities. An accurate, detailed accounting system can be a good friend … and the incremental cost could be very small. • Do not think of one ad or one commercial. Think of campaigns. The back to school campaign. The father's day campaign. The Christmas campaign. Maybe the River John campaign. Targeted dollars are smart dollars.• Combine the information on media costs and possible campaigns to generate a very tentative budget (what you think you'll need to achieve certain objectives).

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• Scan trade and professional journals to get new ideas for advertising. When travelling cut out, or make note of, ads/commercials that caught your eye.• Talk to your suppliers about their co-op advertising programs. Some are very generous and not too restrictive. Ask them what support material they can provide (ad mats, really nice clip art, radio commercials with "donuts" for your specific message). Co-op advertising dollars can double your ad budget.• Invest some of your ad budget in production (photographers, graphic artists, copy writers). Creativity is a direct, explicit substitute for money.• Find out why customers patronize your business other than to obtain goods and services. What is important to them? What is it you do really well? Feature some of these things in your advertisements [hours of operation? experienced sales people?]

Some Thoughts on Creating Ads• Here are a few thoughts on print ads. Never put your store name in the headline … create a headline that contains a benefit or selects specific readers ("Attention Moms") or arouses curiosity (what's going on here). Always include a picture or illustration. Do not employ too many different type faces or type sizes. Keep it simple. Focus on one key idea. Do not try to cram in everything you can think of. Leave plenty of white space. If appropriate, create a unique border. Unique borders attract attention. Always print your logo/signature information (name, address, telephone number, slogan and so on) the same way. Consistency is a powerful communication tool. • For radio, avoid the tendency merely to write a newspaper-type ad and ask a radio announcer to read it. Boring! Capture and excite the listener's imagination with sound effects or dialogue. Exploit the "theatre of the mind". Give listeners something to "see".• Stick to one key idea. Repeat important details.• Never be vague, general and abstract if you can be clear, specific and concrete. For instance:Not… "We have lots of stuff to choose from and we offer the best value bar none." [Do you see how useless that would be? You may as well save your money.] • Consider testimonials to reduce perceived risk.• Consider using dialogue the audience can relate to.• Don't try to be funny if you're not.• But create a friendly feeling … you're trying to win friends as well as customers.

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Foundations of Marketing – BSAD 231Module 15: The Product:Market Matrix – Strategies for Growth

This Module introduces the Product:Market Matrix. It answers the strategically critical question, “Manager, manager future minded, how does your company grow …?” In fact, it is sometimes called the Strategies for Growth Matrix.

15.1 An Overview of the Product:Market Matrix

Businesses want to grow. They want greater sales, more customers, larger profits. A simple, but powerful, way to classify a business's growth strategy options is the Product:Market Matrix. This 2x2 matrix classifies growth options according to whether the focus is on current (existing) or new products and current (existing) or new markets (customers). The matrix is illustrated in Figure 15.1. You’ll find yourself returning to this simple but powerful matrix frequently to identify and assess strategic alternatives.

Figure 15.1The Product : Market Matrix -- Strategies for Growth

Product Focus Current (Existing) Products New Products

Market Focus

Current Markets Market Penetration New Product Development Strategies Strategies

• invest to increase share of market • make minor modifications to products • get consumers to switch (relaunch or reposition) • get consumers to use product in • add product line extensions in related different ways product categories • get consumers to use more of the • innovate - add truly new but related product products

New Markets Market Development Diversification Strategies Strategies• target new end user groups (e.g. if a • integrative growth (related growth) consumer product, look at industrial ∙ forward integration - buy out a or institutional or export markets) middleman• target new demographic markets (e.g. ∙ backward integration - buy out a supplier

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if targeting women, think of men, if to ensure access to key materials targeting youth, think of seniors) ∙ horizontal integration - buy out a • target new geographic markets - new competitor cities, provinces, countries • conglomerative growth (unrelated

growth) - invest in new industries

15.2 Market Penetration Strategies

Normally when marketers ask the question, "How can we grow?" they look first to market penetration strategies. The specific question is, "Can we get more sales, customers and profits by concentrating on current products and current markets?" Here are three common market penetration strategies:

1. Stimulate Primary Demand -- If your firm is among the market leaders and the industry or product category is still in the growth phase of the product life cycle, you may benefit from attempts to build primary demand, that is, demand for the product itself. Reynolds used this strategy in the early days of aluminum foil when the major competitor was waxed paper.

2. Stimulate Selective Demand -- If your firm has a meaningful competitive advantage you may benefit from attempts to stimulate selective demand, that is, demand for your brand (or company) over direct competitors. The idea is that effective promotion or improved distribution to reach targeted market segments will result in increased share of market as some consumers switch to your brand or company and some consumers discover the product category for the first time and select your brand or company.

3. Stimulate Variety or Frequency of Use -- Many firms attempt to grow by thinking up new uses or new usage occasions for their products. Promoting recipe ideas is a common approach used by the food and beverage industries. For instance, use cheese in soups, salads and with hot vegetables or more generally, as the commercial reminded us, 'take it out of the fridge more often'. Use soups in casseroles. Drink orange juice anytime not just at breakfast. Don't use baking soda just for baking. Put one in your fridge and one in your freezer. Shake it in your carpets or your kitty litter boxes to control odor.

Typically, market penetration strategies are implemented by improved promotion and distribution and sometimes, if necessary, by adjusting price. Typically market penetration strategies require no changes to the product itself (that would be new product development), the target market (that would be market development) or the fundamental competitive advantage (although ads may focus on new/different features or attributes of the brand or company).

Improved promotional strategies could mean investing more money, shifting the budget, creating new more creative advertising, developing unique sales promotional incentives or improving the performance of company sales representatives. Improved distribution could mean adding wholesalers and retailers (more intensive distribution) in existing markets or working more closely with existing middlemen to stock, support and merchandise your products more effectively. Improved pricing could mean lowering (or raising) suggested retail prices, revisiting

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wholesaler and retailer margins, or changing the nature, frequency and magnitude of volume discounts and merchandising allowances.

15.3 Market Development Strategies

If market penetration strategies appear to offer limited potential for growth, marketers look to market development strategies. Market development strategies seek growth by concentrating on current (existing) products but offering them to/in new markets. Three common market development strategies are:

1. Target New End User Markets -- If it seems the current end user market has reached its potential for growth smart marketers look to new end user markets. If your primary end user market is the consumer (the retail market) ask yourself if there are opportunities in other end user markets such as institutional markets or industrial markets or government markets or export markets. Avoid myopic thinking that locks you into one end user market.

2. Target New Demographic Markets -- Johnson's Baby Shampoo, Powder and Lotion all found great success targeting adults after decades of being marketed exclusively for babies. After being launched as a deodorant soap for men, Irish Spring, found sales growth and success in marketing it to women. Secret Deodorant did it the other way around. Targeting new demographic markets means staying with the same end user market (e.g. the consumer market) but within that market targeting a new segment. Any demographic or behavioural segmentation variable could be used to identify new markets but basic demographics (age, gender, race or ethnicity) seem to offer the most obvious possibilities.

3. Target New Geographic Markets -- Many small businesses grow by moving into new towns or cities. Many larger businesses grow by moving into new provinces, regions or countries. When Moosehead Beer had captured a significant share of the Atlantic Provinces market management elected to launch it in New England. "The Moose is loose," became the rally cry for millions of beer-drinking Americans. When Admiral Auto Glass, Bergengren Credit Union and the Sunflower Natural Foods Store achieved success in Antigonish they looked to neighboring communities to open new outlets. Going international is the subject of Module 17.

Of course aggressive, well-funded firms do not have to wait until growth in existing markets has slowed to implement market development strategies. Firms can engage in market development strategies at any time.

15.4 New Product Development Strategies

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A firm may elect to focus on serving the needs of existing markets better by creating new products. Such efforts are called new product development strategies. Again, there are three common strategies:

1. Making Minor Modifications to Existing Products -- Throughout the product life cycle a brand may have several incarnations. The ingredients may change. The style may change. The colours may change. The packaging may change. The sizes may change. All such changes -- often called re-launching the product or re-positioning the product -- are, in effect, minor product modifications. The goals are to remain fresh to consumers, middlemen and the sales force; to reinforce product differentiation; and, to extract modest sales gains in tough, competitive, mature markets.

2. Adding Product Line Extensions -- Sunlight laundry bar led to Sunlight Detergent and Sunlight Liquid. Duncan Hines Cake Mixes led to Duncan Hines Cookie and Muffin Mixes. Kraft Macaroni and Cheese Dinner led to Kraft Dinner with Spirals. Uncle Ben's Converter Rice led to Uncle Ben's Seasoned Rice Dishes. In all of these instances a successful product spawned one or more related products trading on the original name and marketplace success. Sometimes a great way to grow a business is to add related products or services under the umbrella of an existing successful brand.

3. Adding Innovative New [Related] Products -- Procter and Gamble had never made brooms before launching the Swiffer in 1999 but this addition is considered 'new product development' not 'diversification' because brooms are related to many Procter and Gamble household cleaning products. When a firm adds innovative new products in existing product categories or enters new, but related, product categories it engages in the most challenging of new product development strategies. Another examples of this type of new product development occurred when StFX launched its web-based and cd-based multi-media courses in Aquatic Resources (still a post secondary education product).

15.5 Diversification Strategies

Normally the most challenging growth strategies involve both new markets and new products. For this reason marketers usually look at other growth options first. There are two types of diversification: related and unrelated. Related diversification is called integrative growth. Unrelated diversification is called conglomeration. 'Related' in this context means related to the kinds of product categories currently being marketed.

There are three types of integrative (related) growth. We'll use the example of Fitrite, a fictitious Canadian shoe manufacturer to illustrate these options.

1. Forward Integration -- To guarantee access to markets a firm may elect to invest its resources in acquiring, merging with or engaging in joint ventures with one or more of its middlemen. Fitrite purchasing a small chain of shoe stores would be a good example of forward integration. So would a flour mill buying out a bakery.

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2. Backward Integration -- To guarantee a supply of needed raw materials or ingredients a firm may elect to invest resources in the acquisition of one of its suppliers. Fitrite purchasing a tannery to assure it a supply of quality leather would be a good example of backward integration. So would Sobey's buying out several wholesalers or a pop bottling or printing operation.

3. Horizontal Integration -- Sometimes growth may be best achieved by acquiring a competitor. Since competitors are at the same level in the channel of distribution such a move would be 'horizontal' integration. If Fitrite purchased another manufacturer with complementary lines that would be horizontal integration.

Sometimes firms accumulate cash -- profits from Cash Cow SBUs or via share offerings -- and go looking for expansion opportunities such as investing in totally new (but logical) industries. Such growth is called unrelated diversification and begins the process of building a conglomerate -- a group of companies simultaneously managed centrally (by a holding company) and decentrally (semi-autonomously by operating management). If Fitrite became very successful it may elect to diversify by investing in an upscale executive travel business or in jewelry manufacturing. In either case there must be some business logic for such diversification.

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Foundations of Marketing – BSAD 231Module 16: Marketing and the Internet

This Module developed for the BSAD 231 course by Bobbi Hiltz

Module 16 explains how the Internet applies to the smart marketer. It begins with a look at the various marketing uses of the Internet. The next section covers some of the criteria to keep in mind when creating a web site. This is followed by a discussion of how each of the 4Ps are affected by Internet business and finally, some suggestions for using the Internet to accomplish the four marketing growth strategies are provided.

16.1 Using the Internet for Marketing Functions

When someone refers to the online marketplace, what do you think this means? Buying and selling products over the Internet? If so, then you are partially correct. The Internet is used for the exchange of goods (buying and selling products and services), but it is also used for much, much more. Smart marketers recognize this fact and try to optimize the technology by using the Internet to carry out a number of traditional (usual, conventional, established, accepted) marketing activities. Smart marketers are also aware that the Internet is not a replacement for these traditional marketing methods, but a supplement and complement the more recognized practices. With this in mind, smart marketers use the web to:

1. create awareness for their product or service or company. You do not need to process transactions on your site to have a web presence. Many companies or products or services have web sites for the sole purpose of educating the customer about their offering. (The expectation being that sales in traditional channels will result.)

2. brand (build brand image). The Internet provides another medium for traditional firms to properly position their product, service or company in customers minds.

3. offer incentives in the form of e-coupons, printable coupons, discounts for ordering online, contests and sweepstakes. These devices are used to create excitement and encorage purchase behavior.

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4. provide customer service. Most sites offer a Frequently Asked Question (FAQ) section and others are equipped with return email systems where you email your question or comment and a customer service representative will return a response. (hopefully a solution)

5. process transactions. Some sites allow customers to order their products online (paid for with credit card information).

6. gather information. You know how important information is to a smart marketer. Well, each of the four information gathering techniques can be employed online.

• Marketing intelligence gathering via online newspapers, newsflash services, and email contact with suppliers and customers• Primary marketing research activities can be conducted online and can be valuable, but caution needs to be taken:

Surveys and focus groups are easily conducted, but there is concern about disguised identities (a 14 year old boy can say he is a 35 year old woman) and statistical inaccuracies (not random)

Observation (clickthrough) studies track the sites you visit, but are controversial for privacy reasons.

• Secondary marketing research can also be accessed online (journals, government databases, AC Nielsen data) • Internal records and resources are usually made available to employees over secure company intranet connections (an Internet network with controlled access, usually for employees) and internal databases are generated from contact information supplied by customers online.

7. generate leads on potential customers by asking visitors to leave personal information. Still other sites generate leads by asking for your contact information in addition to that of friends and relatives. These leads are then compiled in databases and used in direct marketing efforts.

16.2 Criteria of a Great Web Site

The experience your potential customer has when visiting your web site can make or break a sale (online or in traditional channels). Therefore, smart marketers know that web sites must be well designed and function properly in order to create positive experiences. Some of the most important criteria of a great site are that it:

• is user-friendly. The Internet is always gaining new users, most of whom are not technically literate and sites must therefore be easy for them to use. • has a memorable, simple URL (uniform resource locator, or web address). www.stfx.ca is direct and easily remembered whereas you might have a little more trouble with info.lib.uh.edu/wj/webjour.html.• is consistent with company/product image portrayed using other media. Portraying a consistent image helps with product positioning and branding.

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• easily navigated. You cannot afford for potential customers to become lost and frustrated with your site. It needs to be simple and easy to move around.• downloads quickly. You will lose the interest and attention of possible customers if they have to wait too long for unnecessary graphics to load.• is well organized. If customers cannot easily get to where they want to be, you will lose them and their potential business.• is attractive. While unnecessary graphics are a no-no, the site still needs to be visually appealing. Remember, you are trying to attract and keep the customer’s attention.• enables secure transactions (if transactions are an offering). Customers that are not convinced that their credit card information is safe with you will not purchase from you. • values user privacy. Again, if customers do not feel secure at your site (if they suspect that you will sell their personal information) you have lost a potential sale.

16.3 Managing the Marketing Mix Online

The marketing mix is your recipe for success in traditional business and the situation is no different in the online marketplace. As you know, smart marketers effectively mix each of the 4Ps (Product, Place, Price and Promotion) to create a competitive advantage, so in order to do this you must first understand how each element is affected by online business.

1. Product The Internet has not only changed the way products are exchanged, by allowing customers the opportunity to place product and service orders online, it has also altered the products that are available.

• The Internet has created a market for a wide array of new products (computer equipment, web-publishing software, email software, browsers, ISPs, MP3 players) and more new products are expected to appear as the technology continues to develop. • Traditional companies have diversified their offerings by creating on-line versions of their products. (The New York Times is available in an online version at nytimes.com and tsn.com provides sports information in an online format.)• New companies have been created to market and distribute traditional products online. (Amazon.com dealing in books and now music and Peapod.com sells groceries.)

2. Place The supply chain, too, becomes a bit different for business conducted online. As you know from studying the traditional marketing mix, the standard supply chain is viewed as:

Manufacturer Wholesaler Retailer Customer

Now, consider what happens when you purchase a product online. To make it easy, let’s buy a book. Depending on the product, you have the option of ordering directly from the manufacturer (like McGraw-Hill) or from an online merchant (an online retailer or e-tailer, like Amazon.com, who actually gets the product from a manufacturer). Next, you enter all of your contact and credit card information on the site along with the product (book) you want and

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your parcel magically arrives in a few days. Now, try to envision the rest of the supply chain in this transaction.

• What happens after you place your order? Think about how you received the product. Someone delivered it (a delivery specialist like FedEx, Purolator Courier, UPS or Canada Post). The delivery specialist, then is the last step before you, the customer, in the supply chain. • Are there any other players? Well, if you placed an international order there are. Before your book reaches the delivery specialist there is another important middleman - a broker – who ensures the product moves efficiently across international borders. Export brokers are often employed by online merchants to handle their international sales.

Just as the traditional supply chain diagramed above is not always the case, neither is this version of an online supply chain. However, the online supply chain shown below is a general representation of the Internet process.

3. Price As with the traditional pricing strategy, the 5Cs (Customer, Competition, Channels, Costs, Company Considerations) serve to affect the prices that are charged online. Let’s look at some channel considerations as an example. Since online transactions often eliminate the traditional middlemen (wholesalers and retailers), you can expect fewer markups and hence, lower prices on the product, right? Not exactly. As we have just seen, online merchants, delivery specialists (post office, UPS, FedEx) and brokers become the new intermediaries and most, if not all, anticipated cost savings are lost. Paying these new middlemen, then, serves to increase the price.

Some of the other factors affecting online prices are listed in Figure 16.1

Figure 16.1Factors Increasing and Decreasing Prices of Goods Sold Online

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Prices in Online Transactions

the customer paying for direct distribution (Channel)

web site development (Cost) higher marketing costs (Cost) and in some cases, brokerage fees or tariff

for international deliveries (Channel/Cost) auction sites (Channel) quality image through price (Company

Considerations) customer requirements – fast delivery,

after-sale service (Customer)

Are driven up by

ManufacturerOnline

Merchant BrokerDelivery Specialist Customer

4. PromotionThe four traditional advertising elements are all used in online marketing as follows:

• Advertising is everywhere online. Banner and button ads are the most common. Banner ads are rectangular, narrow bands that appear at the top, bottom or along the side of a web page and button ads are, as the name implies, circular. To try to break through the clutter in Internet advertising and make the ad more appealing, these ads can be animated and made interactive (include games). Some companies are also purchasing key word ads from search engines that allow for a more targeted audience. They buy a list of key words and if you use any of their words in your search, you will have an ad for their product pop-up on your screen.• Personal Selling is conducted via email where companies use their extensive databases of contact information to solicit new business and more business.• Sales Promotion occurs when customers are offered incentives via e-coupons (coupons issued and used online), printable coupons to bring into the bricks-and-mortar store, contest and sweepstakes entries for purchasing or discounts for ordering online.• Public Relations are carried out mainly via email newsletters to current customers. The sponsorship of various webcasts (for concerts, sporting events) is also a means of public relations used by some e-marketers.

16.4 The Product:Market Matrix – Strategies for Growth Online

Now that we have looked at how each of the marketing mix elements are affected in online business, it is important to examine how they can be applied to grow and enhance your business. Remember the product : market matrix? Smart marketers can use the Internet to help accomplish each of the 4 marketing objectives of i) market penetration, ii) market development iii) product development and iv) diversification. (In most cases, these examples would be used in conjunction with traditional marketing techniques.) A few examples of how smart marketers might use the Internet to accomplish each are presented on the next page.

16.5 Core Concepts, Processes and Tools

This module introduced concepts that you should understand and be able to use:

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international competition automatic reordering systems lower inventory and merchandising costs, penetration strategies (items being priced

at a loss to gain acceptance) auction sites value image through price (Company

Considerations) customer requirements – basic service

(Customer)

Are driven down by

Intranet Online marketinge-tailer Online merchantBroker Delivery SpecialistBanner ads Button ads

As well, the module introduced these processes:

maximizing marketing functions online effective web site design using the Internet to manage the 4Ps (Product, place, price, and promotion) using Internet Marketing to accomplish the 4 growth objectives (market penetration, new

market development, new product development, diversification)

Figure 16.2Using the Internet to Implement Growth Strategies

Internet

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IfYour

ObjectiveIs

Market Penetration

New MarketDevelopment

New ProductDevelopment

Diversification

Email multiple purchase incentives to current customers (“buy 2, save $5”)

Promote new uses of your product on your site and in email

then you can use the web to

Access new geographical markets

Advertise (banner ads or button ads) on sites frequented by different demographics

Use key word ads to reach new audiences

Be the technology for your new product/service (online version of traditional product)

Inform current customers of new product (via email, e-newsletters, web site)

Obtain feedback from current customers to modify current offering

Allow product developers to

Serve as one branch of your conglomerate (Time Warner merged with AOL in 2001)

Support forward integration (engage in joint ventures with online merchants to sell your products)

then you can use the web to

then you can use the web to

then you can use the web to

Foundations of Marketing – BSAD 231Module 17: Marketing Internationally

This Module developed for the BSAD 231 course by Denton Anthony. The Module will be distributed during October.

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Foundations of Marketing -- BSAD 231Module 18: On Being Analytical - Constructing an Argument

This module elaborates the process of being analytical introduced briefly in Module 1, Marketing and the Marketer and expanded upon in Module 2, Marketing Planning and Analysis. The primary focus in Modules 1 and 2 was conceptual -- to define analysis and give you an idea of the critical role analysis plays in the marketing planning process. Module 18 is a skill builder. It focuses on how to be analytical; that is, how to conduct the many size-ups outlined in Modules 4-7. Most of the material in Module 18 relates to The Riverside Motor Inn, a short marketing case found on the next three pages.

18.1 Introducing Selected Tools of Analysis

Of course, "being analytical" requires a lot more than acquiring an intellectual understanding of the notion of evidence and process of analysis. You need tools and you need practice. You have already been introduced to two skills of analysis in Module 1, Marketing and the Marketer:

• the ability to visualize your marketplace with your eyes closed and your mind open, • the ability to employ "if… then…" reasoning to extend your evidence base into areas where limited hard evidence exists but where some evidence is needed.

Your ability to visualize and employ "if… then…" reasoning are re-introduced and elaborated in this module. The module also introduces five new skills of analysis you may add to your marketing tool box:

• Using percentages to compare numbers,• Breaking down numbers to make them more concrete ("per" and "by"),• Using weighted averages,• Constructing frequency distribution,• Distinguishing between percentage and percentage point changes

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18.2 The Riverside Motor Inn – Chapters Lounge

The Riverside Motor Inn case is presented as an October 1, 1997 memo from Ronald Veinot, General Manager of The Riverside Motor Inn in Bridgewater Nova Scotia [a disguised name and location but otherwise a real situation] to a new employee, Heidi Smith. Heidi has just been hired as senior hostess/bartender for Chapters Lounge, one of the Inn's three profit centres. The Inn's 34 guest rooms and its dining room are the others. Chapters Lounge has had a poor year and Ronald has asked Heidi (the student analyst … you) to size up the situation -- a typical marketing planning task -- and recommend actions to rejuvenate the lounge. The memo is filled with factual information on recent results and strategies, comparisons with other lounges in the area, an overview of the marketplace and several observations (opinions) from Ronald. Please read The Riverside Motor Inn case before moving on.

Bridgewater, Nova ScotiaOFFICE OF THE GENERAL MANAGER

MEMORANDUM

October 1, 1997

TO: Heidi SmithSenior Lounge Hostess

FROM: Ronald VeinotGeneral Manager

SUBJECT: Chapters Lounge

Welcome to the staff of the Riverside Motor Inn. Your six years experience at The Little Brown Jug lounge in Lunenburg, your infectious enthusiasm and your strong customer/service orientation all suggest great promise for success. I am looking forward to working with you. By the way, I just moved to Bridgewater myself so the whole operation is new to me as well.

As we discussed at your interview, in time I want you to regard Chapters Lounge as your own business. For at least the first nine months however I’d like to work closely with you and review and approve your plans. If everything goes well, independence, profit sharing and promotion to manager could be just around the corner. To assist you in understanding Chapters’ situation, I

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have assembled the following summary of operations, recent results and recent strategies. I hope you don’t mind point form.

The Riverside Motor Inn was built in 1975 and has 34 rooms on two floors all within one building. For the fiscal year ended November 30, 1996 occupancy totalled 7,800 room nights at an average rate of $55.00. The Inn operates at capacity (almost) during July, August and September. Our 50 seat diningroom, The Sou’Wester, is open daily from 7:00 a.m. to 2:00 p.m. and 5:00 to 9:00 p.m. Sales last year were $175,000 and will be about the same this year. The Sou’Wester, you'll recall, is across the lobby from Chapters Lounge.

This summer the owners invested over $250,000 creating a new front entrance and lobby area and dramatically renovating both Chapters and The Sou’Wester. Unfortunately, as I think I mentioned, Chapters had to close for almost all of May and June to accommodate the renovations.

Chapters Lounge contains 30 seats and is open Monday to Saturday from 4:00 p.m. to 12:30 a.m. During the past three fiscal years, sales have been $63,300 (1994), $75,700 (1995) and $66,700 (1996). Cost of goods sold has been constant at 36% of sales and direct labour has been constant at about $18,000.

Chapters Lounge offers a quiet, comfortable, relaxing alternative to “the bar scene”. The seating is padded bar stools, armchairs, loveseats and a couch. The lounge’s seven square tables are solid wood. The colour scheme is burgundy and forest green with pastel accent colours dusty rose and pale green. This summer we began using the slogan, “Conversation Without Shouting” to promote Chapters Lounge to guests of the Riverside Inn (signs in the lobby and notices in guests’ rooms) and to residents of the community (three ads in the local weekly paper). By virtue of its name, décor, size, rich colour scheme and overall ambience, Chapters Lounge is unique in the area.

In fiscal 1996, sales from drinks were beer 69%, liquor 30% and wine 1%. Gross profit margins (markups) were beer 60%, liquor 73% and wine 50%. Average retail prices were beer $3.00, liquor (including cocktails) $3.75 and wine $3.25. Sales from drinks was 95% of total revenue. The other 5% was packaged food items (peanuts, chips, etc.), prepared food items (from our kitchen) and cigarettes. I expect these figures are much the same this year.

Happy Hour at Chapters now runs from 4:30-8:00 p.m. (it used to run from 5-7 p.m.). Beer is $2.80 per bottle and liquor (excluding cocktails) is $3.25 per 1½ oz. shot. The three largest bars/taverns in the area also have Happy Hours:

• Len’s Place – A country and western bar/lounge (seating for 125); 4:00-7:30 p.m., beer $2.75, liquor $2.75.

• Chevy’s – A rock ‘n’ roll (50s-60s) bar/lounge (seating for 200); 4:00-9:30 p.m., beer $2.75, liquor $2.75.

• Pirate’s Pub – Turn of the century pirate theme, German cuisine (seating for 400); 4:00-7:00 p.m., beer $2.75, liquor $2.75.

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All have dance floors, “pub food” type meals, and feature live entertainment on a regular basis.

Chapters’ revenue by month in calendar 1996 was:Jan.Feb.Mar.

$ 5,0555,1335,146

Apr.MayJun

$ 6,3456,4867,405

Jul.Aug.Sept.

$ 6,0714,8435,273

Oct.Nov.Dec.

$ 4,9024,6735,327

1st Qtr. $15,334 2nd Qtr. $20,236 3rd Qtr. $16,187 4th Qtr. $14,902

Revenue in 1997 has been disappointing. During the seven months Chapters was open everyday (January to April and July to September) revenue averaged $3,140 per month. I think most of the decrease can be traced to the departure of “D.J.” a longtime bartender who moved to Calgary in December, 1996 and to the hype surrounding the opening of Pirate’s Pub in January, 1997.

Volume improved modestly in August ($3,708) and September ($4,350) but is still well below the same months in 1996. Recently newspaper ads have urged the public to re-discover Chapters Lounge by featuring free hor d’oeuvres (value $3-5 per table), the new 210 minute happy hour and the new slogan. As well, we sent out about 200 flyers to local groups suggesting they consider Chapters Lounge for group outings.

I must confess I haven’t had a chance to examine the lounge in any detail given the renovations and the need to adapt to new systems and people. It seems to me though that patrons will tend to be:

• Overnight guests at the Riverside Inn • The 50 or so local groups which rented our meeting room (capacity 20).• Residents who work in or near Bridgewater (about 4,000 people) who may

want to go out for a drink – usually in groups – after work.• Couples, or groups of couples, who want a social drink or two prior to or after

some event in the community (banquet, concert, play, movie, sporting event). Bridgewater seems to be a very active community. I estimate that at least twice a week there’s something going on with audiences typically from 100-400 but occasionally as large as 2,000 for major sporting events.

• Members of area organizations, clubs and groups (there must be 300-400 of them) who want to go out for a drink after a meeting or special event.

• Anybody else who might want a quiet drink (a poorly defined group I admit).

Some additional numbers you may find helpful are:• The population of Bridgewater is about 7,500 (2600 households); Lunenburg County

(including Bridgewater) about 48,000 (13,900 households); and, the Bridgewater trading area about 60,000 (20,700 households).

• About 500,000 tourists pass by or through Bridgewater every May to October.

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• Across Canada in 1996 average annual household spending on alcoholic beverages served on licensed premises was:

Average Expenditure Per Household

Percentage Reporting Any Such Spending

Beer...................................................Liquor...............................................Wine and Cider.................................

$1183835

36%1825

Total........................................... $191 49%

Heidi, I believe we can rebuild volume with good strategies and good implementation. But, I’m realistic. The ambience of Chapters Lounge, the availability of several acceptable alternatives and the fact that a high percentage of social drinking is ‘party oriented’ suggests a ceiling on revenue. During the next week or so could you please spend some time thinking about what we might do to rebuild volume. I’d be willing to invest the full contribution (after labour) from October 1997 to June 1998 if you think that would be necessary and appropriate. Do you think we could hit $100,000 in the year 2000? I look forward to your size up of the situation, your insights and your recommended objectives and plans.

18.3 Using Percentages to Compare Numbers

A core ability of every marketer is calculating relevant percentages. Relevant percentages permit you to compare two or more bits of evidence and make the task of generating conclusions much easier. Armed with several conclusions (inferences, supported assertions) about the situation, you are better able to recommend possible actions (strategies, tactics, "thrusts").

At first you may wonder what the relevant percentage comparisons are. The answer is any calculation which may help you understand the organization and its marketplace better (results over time, market sizes, competitor successes and so on). Remember: you conduct size ups as input to the creation of effective marketing strategies including the selection of target markets, the identification of competitive advantage, the development of a positioning statement and the development of a marketing mix (the 4Ps). Thus, any comparisons which would help you understand the organization or its marketplace better would be relevant. Here are a couple of examples using information from The Riverside Motor Inn.

• To determine how steep the sales climb must be to reach $100,000 in the year 2000, Ronald Veinot wants to estimate sales for fiscal 1997 but October and November haven't happened yet. Should that stop him? Certainly not.

• Ronald has 1996 and 1997 actuals for August and September. These facts allow him to calculate estimated sales for October and November with some confidence. Here are the percentage calculations: ∙ August 1997 sales were $3,708 and August 1996 sales were $4,843. The 1997 figure is

77% of 1996. ∙ Similarly, September 1997 sales were $4,350 and September 1996 sales were $5,273. The

1997 figure is 82% of 1996.

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• These percentages (newly calculated factual evidence) suggest that, barring any significant changes, sales for October and November 1997 also should be about 80% of 1996 sales (reasonable reasoning).

• Actual sales for October and November 1996 were $4,902 and $4,673 respectively. Thus (calculation and conclusion), reasonable estimates for 1997 are $3,922 and $3,738 -- each 80% of 1996.

• Ronald now has an estimate of sales for the fiscal year ending November 30, 1997. December 1996 sales were $5,327 (given), January to September 1997 sales were $21,980

(given), October sales were estimated above to be $3,922 and November's $3,738. Adding these figures generates estimated fiscal 1997 sales of $34,967.

• Of course, this is for a 10 month year since the lounge was closed all of May and June. Had the lounge been open for 12 months, sales for fiscal 1997 would have been about $43,000.

• Ronald probably would use this estimate to calculate that 1997 sales will be about 64% ($43,000 ÷ $66,700) of 1996 sales. This calculation would give him a better sense of the magnitude of the decrease and thus the magnitude of the rejuvenation effort needed to turn things around.

• He might then tentatively estimate sales necessary to reach $100,000 in 2000 as 1998 ≈ $60,000, 1999 ≈ $80,000 and 2000 ≈ $100,000.

18.4 Breaking Down Numbers ‘Per’ and ‘By’ to make Results more Concrete

Percentages compare numbers using base 100. In marketing, many other bases are used to compare numbers or break them down (disaggregate results) to make them more concrete, easier to interpret and therefore easier to employ to craft strategy. Here are 10 common bases for breaking down aggregate results:

• per capita, per household, per store, per square meter, or per sales territory, and • by month, by day, by hour, by employee or by province.

Now, here are some examples from The Riverside Motor Inn. The examples employ disaggregation of results and reasonable "if… then…" reasoning to extend the analysis as needed:

• Ronald Veinot knows Chapters Lounge sales in 1996 were $66,700. But what does $66,700 mean? It's just a big number expressing aggregate sales for one year.

• Two relevant ways to break down these results are by time period and per seat. Those calculations will help Ronald understand the reality behind the aggregate results … and then permit him to use this new understanding to help craft strategy.

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• Chapters Lounge is open 6 days a week, 8½ hours per day, 52 weeks of the year. This equals a maximum of 2652 hours. But, a few days would be statutory holidays. If Chapters Lounge was closed for 6 days at 8½ hours per day (a reasonable estimate), then the revised annual hours would be about 2600. Note: it is important to use "about" when the evidence base includes your reasoning.

• Thus, lounge sales per hour for the year would have been about $25.65 ($66,700 ÷ 2600 hrs). This is about 8 drinks per hour. Revenue per seat per hour would have been about $.86 ($25.65 ÷ 30 seats).

• A drink averages about $3.25 (new calculation, see below). If two drinks per hour is a reasonable estimate of consumption when a seat is occupied, then Chapters Lounge may have been running at about 13% capacity (roughly $.86/seat per hour actual ÷ $6.50/seat per hour potential). Thus, Chapters Lounge has a lot of potential to grow. It was no where near capacity in 1996. In fact, capacity is well above the tentative target of $100,000 in 2000.

• Such disaggregation of results also would permit Ronald to compare hour to hour, day to day and week to week results over time to help spot relative opportunities and problems.

18.5 Using Weighted Averages

If 10 contractors submitted bids on a job, it would be easy to determine the average bid. You'd add up the 10 bids and divide by 10. The arithmetic average is calculated easily because each contractor has the same importance as each other contractor. In this instance each contractor is equal to one tenth of all contractors (or, a contractor is a contractor, is a contractor). The contractors' bids may have been different, but each contractor's weight or importance or worth to the calculation of the arithmetic average is the same.

In many instances however the sub-groups which provide data for the calculation of averages do not have the same weight or importance or value. In such instances weighted averages must be calculated instead of simple arithmetic averages. Here is an example from The Riverside Motor Inn, calculating the weighted average price of a drink as the example:

Average Price Weight/Importance/ Weighted AverageDrink Type Per Drink Worth (% of sales) Selling PriceBeer $3.00 x .69 = $2.070Liquor 3.75 x .30 = 1.125Wine 3.25 x .01 = 0.033

1.00 $3.228

Notice the sum of the weights is, and must always be, 1.00. Notice also the simple arithmetic average, $3.33 [($3.00+3.75+3.25) ÷ 3], is incorrect. The (weighted) average selling price is $3.23 (rounded) because the three types of drinks sell at different rates.

18.6 Constructing Frequency Distributions

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In 1996 Chapters Lounge served about 19,630 drinks (beer, wine and liquor sales of $63,365 -- 95% of total sales -- at an average price of $3.228 per drink). If the average drinking occasion generated 2 drinks per person, then in 1996 Chapters Lounge served a total of about 9,800 "customer drinking occasions".

This could have been as many as 9,800 people each coming only once or it could have been the same 33 people coming every day (sigh). Most likely it was a combination of a small number of customers coming many times, a larger number of customers coming a few times and some customers -- mostly tourists -- coming only once.

Frequency distributions -- typically as derived from surveys -- are able to tell us how many customers engaged in certain behaviours to satisfy what needs how many times in a given period of time. They are important to marketers because they identify the heavy, medium and light users or patrons. Marketers can then profile each type of user and make informed judgments about changes to marketing strategy.

At present Ronald and Heidi do not have customer frequency distribution information. But, they could get it via periodic customer surveys. These surveys might help Ronald and Heidi identify, say, the 50 or so customers who frequented Chapters Lounge at least 50 times in the past year. These 50 customers might have constituted only 3% of all customers but accounted for 33% of all "customer drinking occasions."

Ronald and Heidi could combine patronage data with demographic data and benefits sought data for these 50 customers to maintain long-term relationships with them. Conversely, they could identify the, say, 500 locals who frequented Chapters Lounge two or three times in the previous year, try to understand their purchase processes and criteria and then develop ways to appeal to them so they would frequent the lounge more often.

Even if you do not have frequency distribution information, you can still think about what the distribution might look like and how you would go about obtaining this information.

18.7 Distinguishing Between Percentage and Percentage Point Changes

Smart marketers never get fooled by mistaking percentage and percentage point changes over time or across sub-groups. This little note explains the difference.

The total market for any product is comprised of 100 share points or 100 percentage points. These 100 share points (share of market points) are allocated to the companies or brands making up the market according to their size or importance. The base is the whole market.

For example, in the Lunenburg County lounge, bar and tavern market Chapters Lounge is believed to have, or own, 2 share points and all other lounges, bars and taverns the other 98 share points. If Ronald and Heidi are successful in achieving sales of $100,000 by the year 2000, Chapters Lounge would have, or own, about 3 share points and all other lounges, bars and taverns the other 97 share points:

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• It would be correct to say that Chapters Lounge gained 1 share point or 1 percentage point.

• It also would be correct to say Chapters Lounge achieved a 50 percent gain (assuming the overall market remained fairly constant during this time period).

• It would be incorrect to say Chapters Lounge achieved a 1 percent gain … though the temptation to do so by many is irresistible.

In this example, Chapters Lounge achieved both a 50 percent gain in sales (base = company sales) and a 1 percentage point gain (base = the total market). It is true Chapters Lounge sales increased from 2 percent to 3 percent of the market, but this is not a 1 percent gain. It is a 50 percent gain. And, it is a gain of 1 percentage point.

You can save yourself a lot of embarrassment if you understand the difference between percentage and percentage point changes.

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18.8 Visualizing Marketplaces

You have to be able to close your eyes and construct a fairly accurate, detailed picture of the reality of your marketplace from only a few details. You have to be able to "see" Chapters Lounge. You have to be able to "see" patrons from each market segment and reason how they came to choose Chapters Lounge. You have to be able to "see" the patrons of the other bars/lounges and understand their choice processes. And then you have to be able to answer the tough, "So what?" question … how does such visualizing, or projecting, have an impact on the crafting of strategy. In other words, you need the ability to "see" the marketplace and then "use" this picture to help decide what to do (craft strategy).

The case provides no information on the reasons why people may seek a quiet lounge to have a drink. You have to think like a customer and visualize their purchase processes and criteria. A dozen possible reasons (developed simply by reasoning, visualizing and thinking like a customer) are:

∙ to celebrate a special occasion∙ to socialize .. just be with friends or relatives∙ to transact business .. have a meeting∙ to escape∙ to relieve tension and stress .. unwind∙ to enjoy conversation (without shouting)∙ to stay in love∙ to fall in love∙ to do something different (change, variety)∙ to entertain oneself (board games, computer games)∙ to learn about something (wine tasting, debate, skill development)∙ to be entertained (but quietly by background music or a soloist in the corner)

Can Chapters Lounge be all things to all people? Likely not. Can it provide some of the above benefits (solutions to problems) better than anyone else? Likely yes. Of course, a lot more analysis would be necessary to make judgments about exactly what Chapters Lounge would offer on which evenings attempting to reach and satisfy which customer groups.

The point is, you do not have to have been to Chapters Lounge to help Heidi and Ronald. You just have to close your eyes, open your mind, and begin to visualize the operation, its customers and the Bridgewater licensed lounge/bar/tavern marketplace.

18.9 Using ‘If… then…’ Reasoning to Fill Information Gaps

You have to be willing to generate reasonable estimates -- or, a range of reasonable estimates -- of the unknown and then use those estimates to help create marketing strategies. Such reasoning is not the same as making "I assume" statements about reality (a bad approach). Such reasoning is much more cautious and helpful. It says "if" reality is such and such "then" some additional reality follows (a good approach). The key of course is to generate "ifs" and "thens" which are

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both reasonable and linked to action.

Sensitivity analysis -- a specific type of "if… then…" reasoning -- deserves mention. Frequently the unknown you are speculating about is quantifiable. Whenever the result you are reasoning about is quantifiable, it is better to present a range of reasonable numbers than to merely pick one number. This is particularly true if the unknown you are reasoning about is important from a marketing perspective and the numbers you employ have a major impact on some key result. Thus, sensitivity analysis is specifying a range of reasonable values for some unknown.

In the section above we reasoned that an occupied seat would generate 2 drinks per hour. This seems reasonable but it is not a fact substantiated by Chapters Lounge. If estimating the precise number of "customer drinking occasions" would have mattered in illustrating frequency distributions (and, it didn't seem to) we would have been wiser to present a reasonable range of estimated drinks per hour such as:

Estimated Drinks Consumed Estimated Number ofPer Hour at an Occupied Seat Customer Drinking Occasions

1.50 13,100 1.75 11,200 2.00 9,800 2.25 8,700 2.50 7,900

Using "if… then…" reasoning provides new evidence and conclusions and adds value to your analyses. Here is an example.

• Ronald Veinot says he thinks (opinion evidence) one group of Chapters Lounge patrons is guests of The Riverside Motor Inn.

• Capacity of The Riverside Motor Inn is 12,400 room nights (34 rooms x 365 nights).

• Actual occupancy in fiscal 1996 was 7,800 room nights.

• Thus (new calculation and conclusion), the Inn operated at 63% capacity for 1996 (7,800 rooms rented ÷ 12,400 rooms available).

• Ronald Veinot says (an opinion, but probably a fact as well) the Inn was almost at capacity during July, August and September.

• If 'almost at capacity' is 33 rooms per night (reasonable) then these three months accounted for about 3,036 room nights (33 rooms x 92 nights).

• If so (another new calculation and conclusion), then the other nine months accounted for about 4,764 room nights (7,800 - 3,036). Thus, the average October to June occupancy was only 17-18 rooms per night (4,764 room nights ÷ 273 nights) or about 50% occupancy.

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• In other words (conclusion), on a typical night in July-September there were almost twice as many guests at The Riverside Motor Inn as on a typical night from October-June.

• If guests of the Inn constituted a large percentage of Chapters Lounge customers, then there should have been a noticeable increase in sales during the July-September period (reasonable).

• A check of fiscal 1996 results (fact) indicates no such increase took place. August and September were below average and July was a few hundred dollars above average.

• It seems (tentative conclusion) guests of the Inn do not constitute a large percentage of Chapters Lounge business. [Of course, another possibility is that the 'twice as many' summer guests are only half as likely to purchase a drink at the lounge as non-summer guests. This would have to be confirmed through research, starting likely with an examination of bar bills charged to rooms.]

• Ronald Veinot would thank you for these insights as they hint at finding a way (strategy, tactics, "thrusts") to increase overnight guests' propensity to frequent Chapters Lounge.

You might even continue the "reasonable reasoning" analysis to get a better feel for the possible size of the overnight guest market segment. Trying to quantify market segments is useful new information. Here is one analyst's effort.

• If the average visitor party contained 1.75 persons (using a range from 1.5 to 2.0 would have been preferable … sensitivity analysis) then the Inn hosted 13,650 people in fiscal 1996 (7,800 room nights x 1.75 persons/room).

• If 3% of all guests (using a range from 1% to 9% would have been preferable … sensitivity analysis) went to Chapters Lounge and each consumed 2 drinks (using a range from 1.0 to 2.5 drinks would have been preferable … sensitivity analysis), then collectively they would have consumed 820 drinks (3% x 13,650 x 2 drinks each).

• In fiscal 1996, Chapters Lounge poured about 20,000 drinks (just over $63,000 in sales from drinks and $3.23 weighted average sales per drink).

• Thus, it seems (a tentative conclusion) the overnight guest segment of Chapters Lounge business is fairly small. In this analyst's view overnight guests might have accounted for about 4% of drinks served (820 drinks ÷ 20,000 drinks).

• Ron Veinot would thank this analyst as well because her insights add value. She has tentatively confirmed his suspicion that Chapters Lounge overnight guest segment is not all that large. He would probably see the potential of this segment…they are already in the building and there are more than 1,000 of them in an average month. Then he'd make a judgment about the means and resources necessary to penetrate (or not) this segment further.

Different analysts might have come up with different numbers but their conclusions likely would have been similar. That is because they had a common fact base to work from and their

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estimates of important unknowns, if reasonable, should have been similar (in this instance: 1.75 persons/room, a patronage level of 3% and average consumption of 2 alcoholic drinks per hour).

18.10 Constructing and Interpreting Exhibits

This section of Module 6 concerns constructing and interpreting exhibits that present your evidence base. The module also introduces the construction of indices (the plural of index) to assist your reader in comparing results among several groups.

Constructing Exhibits

• Consider your reader, the purpose of the report or memo and how the information in each exhibit relates to one or more objectives or decisions. That should help you determine what information to present in each column and row.

• Your reader is not as interested in how you calculated each number ("then I divided sales each month by the number of …"). Your reader is more interested in the results themselves. So, concentrate on results and relegate the calculation of results to the footnotes.

• Exhibits should be numbered.

• Exhibits should contain accurate, descriptive titles.

• Exhibits may contain accurate, descriptive sub-titles to clarify context (timeframe, source of the data, location, scope).

• Each column and each row should contain an accurate, descriptive label. The whole exhibit should have a unified rows x columns look.

• To compare two or more numbers, consider calculating and including percentages. Percentages increase both your ability to interpret the results and their relevance to your readers.

• Similar rows and similar columns should be grouped. For instance, if two adjacent columns are labelled "females" and "males" a common group label "gender of respondent" above them should be created. Or, if several rows present estimates of the number of beer, wine and liquor drinks sold, a common heading such as "Estimates of Beer, Wine and Liquor Sales in Units" should be created.

• Use footnotes to help your reader. Footnotes may be created: ∙ to indicate how a particular result should be interpreted, ∙ to indicate how a particular calculation was made, ∙ to specify any constraints on, or limitations to, the interpretation of results, ∙ to indicate what assumptions ("givens") underlie the results or, ∙ to indicate the source(s) of the information.

[The above list is a good example of point form using parallel grammatical structure … each point begins with the infinitive of an active verb.]

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Interpreting Exhibits

• Look at the words in the title, column and row headings and footnotes before you look at the numbers. The words provide the context, clarify what has been summarized, and sometimes offer guidance on correct interpretation.

• Determine how the exhibit is constructed. Is it by year? By question? What are the relevant sub-groups? What are the units of measurement (e.g. dollars, kilograms)? Does the exhibit contain absolute numbers (dollars, kilograms), relative numbers (percentages), or both? Frequently the number in the lower right hand corner of the exhibit is the key to understanding all other results.

• Determine what summary measures are provided (averages, indices, totals). Normally summary measures help guide the interpretation of the exhibit and permit comparison among various sub-groups.

• Determine what explicit comparisons (usually percentages, sometimes indices) have been made among sub-groups (months, regions, demographic groups, end users, products).

• Determine whether it is more important to make comparisons across rows or up and down columns.

• Draft a sentence to express your interpretation of one of the key numbers -- or one of the key columns or rows if that is more appropriate. Then see how this number might be compared meaningfully to other numbers (sub-groups) in the exhibit. Always try to tell your reader what the exhibit means, not merely what is says. Here is an example from Chapters Lounge monthly sales results for 1996:

In 1996 sales were $66,659. Month to month sales fluctuations were modest. They ranged from a low of $4,673 in November to a high of $7,405 in June. This suggests the lounge may have had a fairly stable, though modest, base of loyal customers. The second quarter (April to June) generated just over 30% of annual sales. It was the lounge's strongest quarter. This may suggest growth potential in the "end of year" get-together market.

• Think about the (marketing) decisions which need to be made and the decision maker. What are the key bits of information each exhibit provides … the research objectives … and then try to link the findings and your tentative conclusions both to management's objectives and any pending marketing decisions. The best way to be relevant is to address a specific objective and link your findings and conclusions directly to a pending decision.

• Interpreting exhibits presents a good opportunity to employ point form, as in the following hypothetical exhibit:

The key findings in Exhibit 2 on patronage of lounges, bars and taverns in the Lunenburg County area in general, and Chapters Lounge in particular, were:

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1. 2. - be sure to use parallel grammatical structure (all points

3. starting with the same parts of speech and all sentences 4. employing the same subject:verb structure) - 5.

These findings seem to support to the following conclusions/inferences: 1. 2. - [thus, therefore, the evidence suggests 3. what the results mean] - 4. 5.

Remember Goldilocks who felt everything had to be "just right"? Interpreting an exhibit is no different. Readers do not want too much porridge … that might be boring and confusing. Readers do not want too little porridge … that might be frustrating and force readers to have to go the to exhibit itself to determine what was really found. Your porridge (interpretation) has to be "just right". Unfortunately, there is no correct answer to the question, "How much should I say about each exhibit?" The answer depends upon:

• the purpose of your report or memo, • the audience for whom it is being written,• the amount of information in the exhibit, and • the importance of the information in the exhibit.

Indexing Results for Greater Clarity

A common, helpful presentation tool in marketing is the creation of an index to highlight the differences among sub-groups. The sub-groups may be different time periods, different provinces, different users of a product, different companies or whatever relevant sub-groups exist.

When the sub-groups are different time periods an index usually is created by:

• establishing one time period as the base period or start point• setting the base period equal to 100 (Note: not 100%. Indices use base 100. The

percent sign disappears.)• determining the percentage differences between the base period and each of the time

periods• expressing the percentage differences relative to base 100, the start point.

The Consumer Price Index (CPI) is probably the best known example of an index employing time periods as the base. In The Riverside Motor Inn we have set 1994 ($63,300) equal to 100 (the base year) and then created an index:

1994 = 100 (Base year = $63,300) 1997 = 68 2000 = 158

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1995 = 120 1998 = 951996 = 105 1999 = 126

When the sub-groups are different provinces, stores, end users, countries or whatever base is used for grouping, an index is usually created by:

• calculating the average for all groups (summing their individual results and dividing by the number of sub-groups in the sample,

• setting the average for all sub-groups equal to 100 … the base for all comparisons,• determining what percentage each sub-group is compared to the overall average

(dividing the sub-group figure by the average for all sub-groups), • expressing each percentage relative to base 100 … the overall average.

Here is an example of an index created to express the different levels of brand development (market penetration) for Sunlight Liquid in each of the regions of Canada. Typically, only the index and the Canada-wide average share of 14.5% would be revealed to increase clarity and reduce confusion.

Share of Market Share of MarketRegion (in litres) Indexed

Canada 14.5% 100

Atlantic 17.4 120Quebec 7.2 50Ontario 15.7 108Prairies 13.9 96British Columbia 14.5 101

Indices can make a big difference when your report requires comparing several different groups. They allow the reader to see differences more clearly than using absolute numbers alone.

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18.11 Core Concepts, Processes and Tools

This module has introduced or re-introduced about a dozen concepts you should understand and be able to use:

• being analytical • linking conclusions backwards and forwards• evidence • weighted average• factual evidence • frequency distribution• opinion evidence • percentage cf percentage point change• calculation based evidence • index, indices• reasonable reasoning evidence• "if… then…" reasoning• sensitivity analysis

As well, the module introduced the following processes and analytical tools:

• the process of being analytical• the process of drawing conclusions from evidence• the process of constructing an exhibit• the ability to use percentages to compare numbers• the ability to break down aggregate results "per" and "by" to make them more concrete• the ability to calculate and use weighted averages• the ability to construct and use frequency distributions• the ability to distinguish between and use percentage and percentage point chnages• the ability to employ "if… then…" reasoning• the ability to employ sensitivity analysis• the ability to interpret information contained in exhibits• the ability to construct indices to permit comparing numbers

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Foundations of Marketing -- BSAD 231Module 19: Keeping Score: A Marketer's Use of Financial Data

Module 19, Keeping Score: A Marketer's Use of Financial Data, contains introductory notes and exercises on three important financial statements: the income statement, the balance sheet, the cash flow statement. It also introduces the concept and calculation of markup and break even. Understanding these concepts and their calculation are important building blocks in your marketing education.

19.1 The Income Statement

The income statement reveals sales, expenses and profits (or losses) for a period of time, usually one year. The time period may be the past (results) or the future (expectations, projections). Income statements are prepared by accountants according to agreed upon rules (accounting principles) so the statements have some uniformity and consistency.

Fortunately, we do not need to worry about the agreed upon accounting rules for this course. But, we do need to consider uniformity and consistency. Uniformity and consistency make it possible to compare income statements from two or more companies or two or more years. Calculating percentages is the typical method of comparison. But first, let's see what an income statement looks like:

The Creative Fish Cake Manufacturing Company Ltd.Income Statement

For the year ended December 31, 1997

Sales.............................................................................Cost of goods sold........................................................

$500,000100,000

Gross profit..................................................................Operating expenses......................................................

400,000350,000

Net profit ..................................................................... 50,000

Or , expressed in percentage terms:

Sales.............................................................................Cost of goods manufactured.........................................

100% 20

Gross profit..................................................................Operating expenses......................................................

80 70

Net profit...................................................................... 10%

In 1997 The Creative Fish Cake Manufacturing Company Ltd. of Amherst, Nova Scotia, sold $500,000 worth of its unique fish cakes (shapes, ingredients, packages) to specialty stores and other

customers throughout the Maritimes. To generate $500,000 in sales, the company spent $100,000 on ingredients, packaging and transportation. Expenses associated directly with making something are referred to as the "cost of goods sold". The other expenses of running the business, in this instance $350,000, are referred to as "operating expenses" and include wages, salaries, employee benefits, utilities, office expenses, travel and accommodations, advertising, special promotions, insurance. In 1997 the company had $400,000 gross profit after it covered the cost of ingredients, packaging and transportation and $50,000 net profit after it paid its operating expenses.

Are these results, either in dollars or percentages, good? It is difficult to tell with only one statement from one company. However, suppose the company's results for 1995 and 1996 were:

1995 1996

$ % $ %

Net sales......................................Cost of goods sold.......................

$300,00075,000

100% 25

$400,000100,000

100% 25

Gross profit.................................Operating expenses.....................

225,000225,000

75 75

300,000292,000

75 73

Net profit .................................... $ - 0% $ 8,000 2%

Now we're getting somewhere. Relative to 1995 and 1996, the 1997 results are good. Sales were up by $100,000. The cost of goods sold dropped from 25% to 20% of sales. Operating expenses dropped to 70% of sales and net profit rose from 2% in 1996 to 10% in 1997. All of these comparisons suggest the firm performed well.

Another measure of performance would be to compare these results to information on the specialty fish cake market in the Maritimes or in Canada. We won't attempt these comparisons here but if we had the data we could calculate percentages and use them to draw conclusions about how The Creative Fish Cake Manufacturing Company is doing relative to the markets in which it competes.

Here is another example of an income statement – this time for a retailer instead of a manufacturer:

The Granola Health Food StoreIncome Statement

For the year ended December 31, 1996

Net sales.......................................................................Cost of goods sold........................................................

$350,000250,000

100% 71

Gross profit..................................................................Operating expenses......................................................

100,000 85,000

29 24

Net profit on operations................................................ 15,000 5%

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Note that the health food store has only 29¢ (29%) of each dollar of sales remaining ("gross profit") after it buys and pays for all of the products. This compares with 80¢ (80%) for the fish cake manufacturer. Different types of firms have different percentages because the types and size of their expenses may differ markedly. You need to know the cost structure of a business as one important element of planning.

When the business being analyzed is a service such as a health club or a mini golf operation, “sales" is replaced by "revenue". As well, since nothing is being manufactured or purchased for resale, there are no "cost of goods sold". All expenses are treated as "operating expenses."

Vertical and Horizontal Analyses of Results

The sales or revenue figure on the income statement is the base for calculating many operating ratios. It is common practice to convert the dollar amounts on income statements into percentages letting sales equal 100%. This is called the vertical analysis of an income statement.

Vertical analysis may be performed on the income statement for a single period or for several different periods. When performed on a single income statement, vertical analysis permits comparing company performance to industry averages and sometimes to specific competitors to help spot differences that may indicate relative strengths and weaknesses. When performed on several different income statements (usually consecutive years), vertical analysis permits identifying trends in performance and helps diagnose possible problems.

When you perform a vertical analysis, remember to state any conclusions with a certain amount of caution, humility and tentativeness. Seldom can you be certain about the meaning of the results you are studying because seldom do you have all of the background information and thinking. For instance, if the income statements you are analyzing and comparing reveal the following "advertising as a percentage of sales" results for a given year:

* the company under study 6.4%* its major competitor 2.3%* the industry average 2.9%

resist the temptation to conclude, with confidence, that the advertising budget of the company under study is far too high. Instead, conclude with a certain amount of tentativeness the advertising budget “seems to be rather high”. You don't know for sure that it is high because many other factors could explain the apparent differences; for instance, different definitions of what constitutes advertising, different competitive situations, or different marketing strategies.

Vertical analysis is a useful diagnostic tool—particularly when data are available for comparison from competitors, from the industry, or from the company itself from prior years. Remember though, vertical analysis typically is only a "first cut" at understanding results. Use vertical analysis often in your size-ups and analyses. But use it with due caution.

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Another helpful diagnostic tool used by marketing managers is the horizontal analysis of financial statements (or other results presented over time). Horizontal analysis requires financial statements for at least two—and normally three or more—periods (usually consecutive years) and requires the identification of one period (usually the earliest year) as the base year or the starting point. Once the starting point has been established, the percentage increase or decrease in each item of interest for each consecutive period is calculated and the trend in percentages is studied for possible clues or inferences about performance. Like vertical analysis, horizontal analysis typically is only a "first cut" at understanding results. Note: horizontal analysis is appropriate whenever you have a time series of results, whether they come from a financial statement or a marketing research report.

Here is an example of a partial horizontal analysis of net sales for a small business ...

1994 1995 1996 1997

Sales ($,000) $425 $445 $480 $595Change in Sales ($,000) - +20 +35 +115Percentage Change in Sales - + 5% + 8% +24%

Notice that when calculating the percentage change in an income statement account, the absolute dollar change is expressed as a percentage of the earlier year. For instance, from 1996 to 1997 the absolute dollar gain of $115,000 is expressed as a percentage of the 1996 sales of $480,000 not the 1997 sales of $595,000. In the above example, the partial horizontal analysis reveals that sales are increasing at an increasing rate (from 5% to 8% to 24%). Once the results are available from other financial statement accounts, comparisons can be made and tentative conclusions reached about performance.

Vertical and horizontal analyses are specific examples of the power of percentages as a tool for comparing results over time. Direct comparisons of results using percentages (base 100) allows you to draw many direct, appropriate conclusions with confidence.

The Relationship Between Cost of Goods Sold and Gross Profit

The relationship between the cost of goods sold and gross profit is of particular interest to marketers, both in aggregate for the whole organization and disaggregated by product, by sales area, by time period and/or by department. Marketers need to know where, and when, their profit is being generated.

First, note that the sum of cost of goods sold expressed as a percent of sales and gross profit expressed as a percent of sales equals 100%. On the income statement, an organization's net sales is split between cost of goods sold (the more-or-less direct costs of making a product for manufacturers or the direct costs of purchasing products for retailers and wholesalers) and the amount left over (the gross profit) after allowing for the direct costs of making or buying goods. Second, note that the income statement presents an aggregation of all transactions for a given period of time, usually one year.

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When you conduct a vertical analysis of two or more income statements and you observe a change -- up or down -- in the percentage relationship between cost of goods sold and gross profit, one or more of three underlying causes may have been at work:

• Costs of producing or purchasing goods have gone up (or down) and the changes were not passed on thus increasing (or decreasing) the cost of goods sold as a percentage of sales. Frequently suppliers' invoices reflect changes in the per unit cost of items or ingredients. Sharp cost accountants spot such changes and notify marketing immediately.• The competitive marketplace forced some prices to be reduced (or allowed some to be raised) thus decreasing (or increasing) the overall gross profit percentage. The extent and magnitude of markdowns, inventory clearance sales and across the board decreases, or increases in selling prices will affect the overall gross profit percentage. Smart marketers have a sales information system that calculates gross profit percentages by item.• The mix of products sold has shifted toward products with higher (or lower) gross profit percentages thus altering the overall average gross profit up (or down). Again, smart marketers have a sales information system that calculates both sales and gross profit by item.

In general, the smart marketer needs to monitor, and understand, the behaviour of costs and selling prices to be able to interpret the changing percentage relationship between cost of goods sold and gross profit.

19.2 Break Even Analysis and Markup

Nobody goes into business with the hope of just breaking even on operations. Everyone wants some kind of return ("profit") on their investment of time and money and their willingness to assume risk. However, determining the break even point is a useful business planning tool. Calculating break even is also referred to as cost-volume-profit analysis, contribution analysis or sensitivity analysis. Break even analysis is sometimes referred to as cost-volume-profit analysis because these are three key elements, or variables, in the calculation. It is sometimes called contribution analysis because break even requires determining how many contributions (selling price per unit minus variable costs per unit) are necessary to cover, or pay for, the product's or project's expected annualized operating costs (fixed costs). It is sometimes referred to as sensitivity analysis because often the marketing manager changes one of the input variables to see what difference the change makes on break even volume; that is, how sensitive break even is to changes in the numbers used to calculate it.

The break even point occurs when sales (revenue) equals expenses or costs. Costs are either variable or fixed. Variable costs tend to vary directly with the number of units made or sold. Examples include ingredients and packaging, sometimes labour (piece rate work) and sometimes sales commissions. Fixed costs tend to be relatively constant no matter how many units are made or sold. Examples include rent, management salaries and advertising. Unit contribution is the amount of money remaining after the variable costs of producing or purchasing one unit is subtracted from the selling price of one unit. Total contribution is determined by multiplying unit contribution times the number of units sold. For retailers and wholesalers (middlemen), unit contribution is also referred to as markup or gross margin or gross profit.

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Here is an example. A store sells tee shirts. The average selling price is $15 and the average variable cost (cost price) is $9. Thus, every time the store sells a shirt it has $6 remaining after it pays the manufacturer. This $6 is referred to as the "unit contribution". The word contribution is appropriate since the $6 "contributes" to cover fixed costs and, once the fixed costs are covered, the $6 "contributes" to profit. Suppose the fixed costs of operating the store are $100,000 per year. The question then becomes how many "contributions" of $6 are necessary to cover all fixed costs. Here's the calculation:

Total Fixed CostsBreak even Point =

(in units) Selling price/ – Variable costs/unit unit

or, Total Fixed CostsB.E.P. =

Unit Contribution

$100,000or, B.E.P. =

$15 – $9

or, $100,000B.E.P. =

$6

or, B.E.P. = 16,667 units (tee shirts)

Thus, the store has to sell 16,667 tee shirts to reach break even. A sentence similar to, "The store will reach break even when it sells 16,667 tee shirts" is common. Changing any of the fixed costs, the average selling price per tee shirt or the average variable cost per tee shirt (sensitivity analysis) would change the break even point. If the owner/manager desired a profit of, say, $25,000, this would be added to the store's anticipated fixed costs of $100,000 to determine the number of tee shirts (volume) necessary not only to break even but to make a profit of $25,000. In this instance the volume would rise to 20,833 tee shirts. Frequently owners/managers contemplate making such changes. Calculating break even is one tool available to help them make decisions on such changes.

Break even is a helpful start at determining the feasibility of launching a new venture or adding a new product but it is not a particularly sophisticated tool. It assumes "a year is a year is a year". In other words it assumes that fixed costs, selling prices per unit and variable costs per unit will be the same each year until the break even point is reached. This is rarely the case. A somewhat more powerful tool is payout analysis. Payout analysis allows year 2 to differ from year 1 and year 3 to differ from year 2. In effect, payout analysis involves creating pro forma income statements for two or more years using expected operating expenses (fixed costs), expected selling prices and revenues and expected cost of goods sold (variable costs) on a year by year basis. The point at which cumulative losses are eliminated -- typically expressed in numbers of months since the launch -- is

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the point of payout. A sentence similar to, "The new product will reach payout in 18 months" is common.

For a retailer or a wholesaler, note that break even analysis parallels the income statement. Continuing the example above...

Sales ($15 16,667 shirts)Cost of Goods Sold ($9 16,667 shirts)

==

$250,000 150,000

Gross profitOperating expenses (costs)

==

$100,000 100,000

Net profit on operations = $ 0 ("Break even")

So, at sales of $250,000, the store neither makes a profit nor incurs a loss. It just breaks even.

Another word for "unit contribution" is "markup". In the tee shirt example ...

The Selling Price (S.P.) is …………………. $15.00The Cost Price (C.P.) is …………………… 9.00 The Markup (M) is ………………………. $ 6.00

A product’s markup may be expressed in dollar terms (“dollar markup”) or in percentage terms (“percentage markup”). As well, a product’s markup may be expressed as a percentage of the selling price ("markup on selling price") or as a percentage of the cost price ("markup on cost”). In this instance ...

Markup M $6 Selling Price = S.P. = $15 = 40%

Markup M $6 = = = 67% Cost Price C.P. $9

Normally the markups on individual products are expressed as a percentage of their selling prices. The logic of this is to be consistent with vertical analysis of the income statement where sales = 100%. For example:

One Full Year One Tee Shirt

Sales............................................Cost of goods sold.......................

$250,000 150,000

100% 60

S.P.C.P.

$15.00 9.00

100% 60

Gross profit................................... $100,000 40% M $ 6.00 40%

Whenever you see a percentage markup, be sure to determine whether it is based on the selling price or the cost price. Know your base ... or face disgrace!

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A common situation in marketing is calculating the selling price of a product when its cost price and the desired markup on selling price (for the word "on", read: “markup expressed as a percentage of the”) are known. Here is an example: the StFX Bookstore buys a weekly planner-calendar for $6.00 and prices it to achieve a markup (expressed as a percentage of the ultimate selling price) of 40%. What would a student have to pay for the weekly planner-calendar? The answer is $10.00. [Note: if you thought it was $8.40 you incorrectly expressed the 40% markup as a percentage of the cost price. Remember: markups normally are expressed as a percentage of the selling price.]

Here is one way the correct calculation may be made:

• Remember S.P. = C.P. + M (Selling Price = Cost Price + Markup)• So if the desired markup (M) is 40% of the selling price (S.P.) – as it is – then the cost price (C.P.) must be the remaining 60% of the selling price (S.P.)or S.P. = C.P. + Mor 100% = 60% + 40%• But, the cost price (C.P.) is $6.00• And, the cost price (C.P.) is also 60% of the selling price (S.P.)• Thus, 60% of S.P. = $6.00or, (converting to a decimal) .6 S.P. = $6.00then, dividing each side by .6 you end up with S.P. = $6.00 ÷ .6or S.P. = $10.00

This little calculation works every time you have to determine the selling price when you know only the cost price and the desired markup. With practice it becomes quite routine.

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19.3 The Balance Sheet

The balance sheet reveals what a business owns (assets), what it owes (liabilities) and the difference between the two (assets – liabilities = net worth or shareholders' equity) at a point in time.

The assets of a business are classified as current assets and capital assets. Current assets are "liquid" meaning actual cash or assets expected to be converted into cash within one year. The two most common non-cash current assets are accounts receivable (money owed to the business by its customers) and inventory (finished product, partly finished product and raw materials or components). Capital assets–sometimes called fixed assets or long-term assets–are not expected to be converted into cash within one year. Common capital assets are land, buildings, vehicles, plant equipment, office equipment, furniture and fixtures. Every business needs money (capital). A business has two ways of obtaining capital. It can borrow money (debt) or it can obtain investment money (equity). Debt capital usually has to be repaid with interest. Borrowing money incurs a liability. Equity capital usually does not have to be repaid but investors expect to achieve a return on their money. In incorporated businesses this return is achieved via (1) a distribution of some of the business' profits to its investors (dividends) or, (2) increases in the value of the investment owned so they may be sold for more than the investor paid for them. A typical balance sheet is reproduced overleaf.

As with the income statement it is difficult to say a lot about this company from one balance sheet. We'd need comparative data from prior years or from industry averages to put this information in perspective. We can, however, make some observations. These are the types of observations a smart marketer would make when first analyzing a firm's balance sheet.

1. The firm has about $1,000,000 in assets. Thus, in the world of manufacturing, it is a rather small operation. A better comparison with respect to assets would be other fish cake manufacturing companies.2. Most of its assets are fixed and reasonably new. They are not fully depreciated. They likely still have value. By acquiring capital (fixed) assets, this firm has invested in its future.3. The business is financed by debt ($735,000) more so than equity ($340,000). Thus, its debt:equity ratio is 68:32 or 68% of capital is debt and 32% is equity. This may also be expressed as a debt to equity ratio of 2.16 to 1 ($735,000 ÷ $340,000). This means the firm needs to generate a decent profit because the loan and mortgage -- including interest -- will have to be paid off bit by bit each year. Marketers need to have a sense of the magnitude and timing of such corporate financial obligations and to appreciate the pressures other company departments may face.

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The Creative Fish Cake Manufacturing Company Ltd.Balance Sheet

As at December 31, 1997

ASSETS

Current Assets:Cash.........................................................................Accounts receivable.................................................Inventory..................................................................

$ 25,000100,00050,000

Total Current Assets................................................. $ 175,000

Capital Assets:Land.........................................................................Building................................................................... less accumulated depreciation................................

750,000 (250,000)

100,000

500,000

Equipment................................................................ less accumulated depreciation................................

500,000 (200,000) 300,000

Total Capital Assets................................................. 900,000

Total Assets................................................................... $1,075,000

LIABILITIES AND OWNER'S EQUITY

Current Liabilities:Accounts payable.....................................................Wages payable.........................................................Taxes payable..........................................................

$100,00025,00010,000

Total current liabilities............................................. $ 135,000

Long-term Liabilities:Bank loan.................................................................Mortgage on building...............................................

$100,000500,000

Total long-term liabilities......................................... 600,000

Total Liabilities.............................................................. $ 735,000

Owners' Equity:Common stock.........................................................Retained earnings.....................................................

$200,000140,000

Total Owners' Equity............................................... 340,000

Total Liabilities and Owners' Equity.............................. $1,075,000

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19.4 The Cash Flow Statement

The Cash Flow Statement or Cash Flow Forecast presents the amount and timing—usually monthly— of cash receipts (money obtained from all sources) and cash disbursements (money paid out). The difference between the two (cash receipts minus cash disbursements) is the cash a surplus or cash deficit in a given month. If the business has a cash flow deficit in any month, additional capital must be obtained. Normally this additional money is found by establishing a "line of credit" with a financial institution. The cash flow forecast helps a business plan for seasonal, or monthly fluctuations in receipts and disbursements.

The cash flow statement for each month is structured: estimated cash receipts from all sources minus all estimated cash disbursements equals estimated net cash (monthly surplus or deficit). Expected monthly cash surpluses or deficits are cumulative (added) to determine in which month or months the cumulative deficit is the greatest and how large the deficit is. An accurate cash forecast tells the manager when a line of credit will be needed and how large the request will be.

Normally disbursements are reasonably easy to estimate (by obtaining quotations from suppliers) and anticipate (when money is to be paid). For instance, rent may have to be paid a month in advance on the first day of each month. Or wages may have to be paid every second Friday. It is fairly straight forward to take such estimates and anticipations and merely plug them into the forecast worksheet.

Cash receipts present a much greater challenge. Both their magnitude (sales, revenue) and their timing (how much each month) are difficult to determine. If a business has done its marketing homework (buyer and market analyses and marketing research studies) it may have fairly good estimates but there will always be some doubt. Sometimes industry statistics are published which help new businesses estimate monthly cash receipts more accurately. Sometimes new businesses have to rely heavily on reasonable reasoning and consensus building to develop these estimates.

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Foundations of Marketing -- BSAD 231Module 8: Communicating Your Ideas Effectively

Module 8, Communicating Your Ideas Effectively, contains four short notes:

1. Some Tips on Doing a Marketing Case Analysis2. A Memo on Crafting an Effective Memo3. Crafting an Effective Business Report 4. Some Thoughts on Making a Presentation

Because each note concerns the process of constructing and presenting an argument (an analysis), there is some overlap in content. The four notes provide an extensive set of "how to" guidelines to accompany course assignments.

This module is all about process learning. It should be clear you cannot memorize your way to greatness in marketing. You have to be an effective communicator. You have to know how to be analytical, be persuasive and present your ideas in a clear, concise, compelling, correct manner. Reading -- and using -- these notes will help.

1. Some Tips on Doing a Marketing Case Analysis

Usually a case is an accurate description of a real life situation a marketing manager faced at a particular point in time. Based on this definition, note that "doing a case" means that you are either actually making a marketing management decision or, recommending that certain decisions be made. This manager/decision-maker/consultant perspective is very important. It is a necessary ingredient for getting the most out of "doing a case" by yourself, in a study group, or in class.

This note provides a variety of suggestions and guidelines to help you become a more effective and efficient analyst. The note covers five aspects of case analysis:

1. Understanding the process of analysis 2. Doing your own marketing case analysis 3. Dealing with the frustrations of case analysis 4. Working in groups 5. Getting the most out of a class discussion

1. Understanding the Process of Analysis

Cases which describe marketing situations are written as learning tools. The primary objective of "doing cases" is the development of your analytical skills. Most cases also provide exposure to one or more new concepts (terms) and some cases provide exposure to specific new analytical

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tools (e.g., break-even analysis, or payout analysis). Since most cases also present data from real situations, you end up learning something new about a specific company, industry, country, or city as well. To repeat though, the primary learning objective of cases is to develop your skills of analysis.

Briefly, the skills of analysis are:

1. learning to identify and define the primary issue,2. learning to identify and define the important sub-issues, questions, topics or variables that will

have an impact on the resolution of the primary issue,3. learning to identify, and marshall evidence to help resolve the issue,4. learning to draw appropriate conclusions from the evidence presented,5. learning to make appropriate recommendations from the evidence presented,6. learning to identify the implications of accepting and implementing your action plan.

Primary issue - sub-issues - evidence - conclusions - recommendations - implications; these are the essentials of the analytical, or problem-solving process. Virtually every marketing case we employ presents the opportunity for you to practice using this basic model of analysis.

To illustrate the process, you might identify the primary issue in a case to be: should the company launch the new product and, if so, using what marketing strategy? Key sub-issues in this instance then would include: does the company have the resources to add the product? who would buy it? could the product achieve break-even volume easily? are there any competitors? and so on. Two key pieces of factual evidence (as contrasted with opinions, reasoning or guesses) could be that there are 11.0 million people in Ontario and in 1999 per capita spending on the type of product the company hopes to launch was 26 cents. You could then combine these two pieces of evidence to generate (or calculate) important new evidence: the relevant Ontario market at 1999 prices was $2.86 million dollars (11.0 million people 26 cents per person). If you had also calculated a reasonable break-even volume to be, say, $600,000 at 1999 prices and costs you could conclude that you need a rather large 21 percent share of market ($600,000 ÷ $2,600,000) to break even. You might then recommend against a launch as being too risky which in turn would have implications for coming up with other ways for the company to grow.

And that, in highly simplified form, is analysis. Identifying the main issue and sub-issues. Finding the right evidence. Creating new evidence. Drawing conclusions that flow from the evidence. Making recommendations that are consistent with your conclusions. Considering what would happen if your recommendations were adopted (or not adopted).

2. Doing Your Own Marketing Case Analysis

This section of the note provides guidance on what to do and how to do it when conducting your own case analysis.

• Set Aside A Block of Time

Set a time limit of from 2 to 3 hours. Make up your mind that you are going to get the case done in that 2 to 3 hour block of time.

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• Do A Quick Overview

Start by getting a feel for the company, the decision maker's position and the problem to be solved (the decision to be made or the issue to be examined). Read the first and last paragraph of the case first. Then, take a good look at the exhibits and the major headings in the case. You want to find out what the particular case is about and get an overview of the situation. Like a journalist you should seek to answer the questions who (is the decision-maker, are the key players); when (does the situation occur, and have to be resolved by); where (does the situation occur); what (is the product/service and the primary issue); and why (has the issue, or need for help, arisen). The answer to the question how will spring from your analysis.

• Do A Thorough Reading

Do a thorough reading with a pen in hand and at least one sheet of paper nearby. As you read make notes on the case or on the paper. (Having an idea of the decision to be made will allow you to sift the information as you go along.) Use circles, boxes, arrows, stars, (anything!) to highlight the important information. Make summary or evaluative notes in the margins. Do at least a few simple calculations as you go along.

• Get Involved.... It's Your Company and Your Issue

Make no mistake about it: you are an active participant in resolving the issue. Once you have read the case there is no "case" anymore. Just reality. Your company. Your problem. Your --- on the line. Not they, but we. Not her (or him), but I. Get involved in the situation. Try to empathize. Remember though that often you will have one big advantage—the opportunity to adopt the role of a consultant hired by the company and thus, the opportunity to disagree with management's impressions or plans. The important thing is to get involved in the situation. Take the whole thing personally. Care.

• The Evidence (Facts and Opinions) Presented in the Case is Your Bread and Butter ... Digest It

To produce a good analysis you absolutely must understand and distinguish among the facts and opinions presented in the case. Here are three not-equally-recommended ways in which you can approach this task.

• One approach is to assume that, having read the case, you understand all the facts and opinions, their relationship to one another and their relationship to the primary issue. This is probably a rather naive assumption which would generate half-right results and considerable "fuzziness" should someone ask you to communicate your understanding of the situation.

• A second approach is to take a checklist of typical topics in marketing cases such as in Part 6 of this note and fill in the important facts and opinions as given under the appropriate headings. This is marginally better but rather mechanical. It fails to consider the issue at hand and the relevance of the specific fact or opinion to the resolution of that issue.

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• A third approach to understanding the facts and opinions of the case is to ask yourself what the most important sub-issues (questions or topics) are that must be considered and then relate the relevant facts and opinions from the case to each of these sub-issues. This is not easy and may require you to resort to the checklist mentioned above—at least until you feel comfortable that you know what is relevant and important. The advantage of this approach is that the identification and marshalling of evidence starts by considering those sub-issues which will directly affect the primary issue.

• If You Don't Know Where You're Going … How Will You Know When You're There?

The primary output of a case analysis is one or more specific action steps recommended to resolve the primary issue. Thus, early in the analysis it is wise to write down and begin to think through some of the different courses of action or alternatives that may be employed. Your frame of mind should be: What is being done, what can (or could) be done, and what are the implications of doing it? This thinking should lead you to begin to consider such topics as current strategy, current resources, current goals and objectives, environmental constraints, risk, time (timing) and the financial and human resources needed to implement the actions being considered.

A Few Words of Caution: Be careful not to get yourself totally locked into the following type of analysis - "here are the three (or two or four) alternatives and the pros and cons of each." This is naive and will almost guarantee that, in complex marketing situations which contain several interdependent variables, you will produce an unrealistically simple analysis. As noted above, it is almost always preferable to build your analysis around the key sub-issues than around possible alternatives. Let the better alternatives fall out of your consideration of the issues, not vice-versa. An exception to this suggestion would be when the alternatives are at a very high level of aggregation such as a go:no go decision or an add product A or product B decision.

• Push Your Pencil Meaningfully

Usually numbers are included throughout marketing cases either standing alone or in tables or exhibits. Seek out and be sure you understand the meaning and importance of the numbers presented. Of all the facts (or alleged facts) presented in a case, numbers often are the closest to incontestable. Thus, when used properly, numbers can form a very convincing base for accepting one conclusion or one recommendation over another. Numbers in a case will probably turn out to be your best friends. So don't panic or say nasty things if a case is filled with numbers. Marketing reality is filled with numbers too.

One approach to using the numbers in a case is to seek out in an organized manner all of the important absolute numbers (e.g., dollar sales, total market size, cost/unit, number of salesmen and so on). Then, ask yourself what important numbers are missing. Can they be inferred from other data? Are they available outside the case? Would it help to use sensitivity analysis: that is, to a high, medium and low value for any of them and see what the implications would be on sales or profits on some other dependent variable?

After working through some of the absolute numbers consider relative numbers; that is, one number as it relates to another number or series of numbers. Now you are into trend data (sales trends, cost trends, consumer awareness trends, etc.) and almost always you are also into percentages. Percentages are wonderful for comparing numbers. Use lots of percentages,

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provided of course they have relevance to the issue. Percentages allow you to draw conclusions quite easily.

When properly combined, numbers and percentages can tell a lot in a short space and they make great tables. Managers like to learn a lot in a short space. So, for written memoranda and reports, use tables to summarize key numerical data.

• So What? So What? So What?

A fact, opinion, number, or statement which tells you nothing about the primary issue is of little use. The converse of this is of course equally true and the best way to find out about the relevance of a point is to ask, "So what? What does this fact or opinion or number imply? What may I tentatively conclude from it?" How might this inform strategy? How might this help in crafting strategy?" The purpose of knowing the data and of digging into the numbers is to draw conclusions about the particular topic. And the purpose of drawing conclusions is to get a bunch of them which are consistent and thus lead to a supported recommendation. And, a supported recommendation is precisely what you're after.

• Jump Outside the Case ... The Real World Exists

If you want an unrealistically simple analysis, base it solely on the data in the file provided (the case). If you want greater breadth, depth and perspective, jump outside the case. The company and its situation are real. Real people. Real products. Real customers. A real country. You have a wealth of information and ideas to help the company. Often you can add factual data and offer your opinions or hypotheses or hunches. Just make sure you support your reasoning as best you can. Once you have expanded the analysis by bringing in your own real-world observations, again ask yourself, "So what?" in order to make clear the relevance or implications of the new data.

• Dig, and Ye Shall Have a Whole

Secondary data sources also may provide a wealth of relevant information. If the case does not provide certain needed data and you do not have it, don't stop digging, the library may well have the answer. As always, make sure you indicate the relevance of the new data to the issue at hand.

• A Pot Pourri of Observations

Often when you have thoroughly analyzed a case there are some topics or issues which have come to mind and bear consideration but which don't quite fit in or are not as complete as you would like. Don't ignore these topics. Show the listener or reader that you've thought about them and how they are or may be relevant. You are just being more creative and more complete.Recommendations are Specific Action Steps

The goal of a case is to generate a series of recommendations that are supported by the evidence and the conclusions derived from the evidence and which relate to the resolution of the main issue. So, when making recommendations be sure they not only have been adequately considered in the analysis but also that they are consistent with that analysis. Also, because recommendations are specific action steps, it is wise to use action verbs (e.g., launch, drop, initiate) to express your recommendations.

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3. Dealing With The Frustrations of Case Analysis

When you develop your own case analyses you will probably experience the following three frustrations:

Shortage of time: If you can honestly say to yourself that you "worked" on the case for 2-3 hours, take heart in the law of diminishing returns. The case was assigned for study group and class discussion, as well. See what you can pick up along the way. A good idea is to try to pinpoint where you had problems or where there seem to be gaps in your analysis.

Lack of good information: Sorry, there is not much that can be done. Managers often have to make decisions with much less information than you have in a case and they also have to put considerable effort into getting the information which has already been gathered for you. Lack of information can be handled by making reasonable assumptions, doing sensitivity analysis, or doing some research.

Uncertainty about results: Again, this frustration is true to life. If there was a clear-cut "answer" to a problem which would provide obvious results, there would be no need for management decision-making. There is always risk, uncertainty, and ambiguity surrounding decisions. Refining your decision-making skills will allow you to reduce the level of these three elements, but not eliminate them entirely.

4. Working in Groups

Group study meetings should be no longer than 45 minutes per case. The objectives of a group meeting should be to try out some of your ideas, to get help with some aspects of the analysis, and to practice participating in decision making. Resist the temptation to focus on what management actually decided or on what happened in last year's class.

5. Getting the Most out of Class Discussions

You should arrive at class with recommendations and a summary of your rationale for your recommendations. The rationale should be multi-dimensional and touch on several qualitative and quantitative factors related to the decision situation. No matter how uncertain you feel about your preparation it is important that you go through the process of making recommendations and rallying support for them.

There will be varying views presented in class—the more, the merrier. Listen to what others are saying. Is there anything you can learn from them? Can you build on previous comments to build the analysis, draw conclusions, etc.

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If you feel nervous or shy about speaking, get started by making a minor point or by asking a question. Try planning how you will participate in class.

Focus on the ideas, not the person presenting them, particularly when criticizing—and please, criticize constructively. Practice speaking to each other, rather than to (or through) the instructor.

As an overall strategy, look for the frameworks used in the analysis. Try to pull out the critical factors. Be selective with note taking. Remind yourself that what you are learning is a process—a decision-making process. This process goes beyond learning concepts and theory. It requires learning through practice and experience (as in sports) and it takes some effort on your part. Take the cases one at a time and build on your decision-making skills.

Learning to analyze a marketing case, discuss the analysis in small groups, present and defend your analysis in class and sometimes write up the analysis as a memo or report build important life skills. But, like the acquisition of any new skills, you cannot learn them by watching others. You have to make the commitment to invest the time necessary to build your analytical skills day by day.

2. A Memo on Crafting An Effective Memo

St. Francis Xavier University -- Business Administration DepartmentMEMORANDUM

September, 2001

To: Foundations of Marketing Participants

From: Your instructors

Subject: Crafting Memos: Getting Results

This note presents guidelines on the format, purpose and structure of the memos you create for this course. The guidelines are fairly general and should be suitable for the memos you prepare for other courses or in business. By employing these guidelines you should be able to craft memos that are compelling … and get results.

The Format of A Memo

The format employed above for the “greeting” portion of a memo is fairly standard:

• The company name (You may create a name for your “firm”)• The word MEMORANDUM• The date

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• To:• From:• Subject: A clear, accurate descriptive titleIf the memo is longer than, say, one page, consider using descriptive headings, at the left margin, not centered, to help your reader understand how you organized it.

The Purpose of A Memo

The memo is a somewhat informal communication tool commonly employed in business. In many firms the memo format is used only for communication within the organization. In some firms the memo is used to communicate externally as well. A memo may be as short as a sentence or two or as long as several pages, though typically it is not longer than a page or perhaps two. If a memo exceeds a few pages it is often converted to report format. [Note: the content of the two documents would be the same. Only the format would change…a title page would replace the “greeting” portion of the memo.] Your memos in the BSAD 231 course will be somewhat longer than average and will be employed to communicate externally – typically with clients of your management consulting firm.

Memos serve many purposes:

• To inform or remind – such memos essentially provide information (e.g. the date, time and place of a meeting).

• To describe or report – such memos tend to summarize, classify and categorize…what I did, saw, heard, read, or discovered as the result of some action. If the actions included multiple observations, the memo may compare and contrast results in addition to merely describing them.

• To analyze, evaluate, assess, render an opinion, present a rationale, construct an argument – such memos attempt to persuade. They present information (as in the descriptive memo) but then they use that information as evidence to draw conclusions about the issues under discussion.

• To recommend – often such memos are “action heavy” and “analysis light” in that they concentrate on what should be done more so than why.

The memos you create for BSAD 231 will tend to require a combination of description, comparison and analysis. Be sure you understand the overall purpose and specific objectives of each memo and communicate that understanding to your reader.

The Structure of A Memo

Each memo you create for this course will contain an introduction and a body. The body may contain tables or figures to summarize detailed results or clarify ideas. If the memo is relatively long and complex, it also may contain a summary to enhance clarity and exhibits to present detailed information. Next, the five elements of a memo are described briefly.

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1. The IntroductionEach memo should begin with an introductory paragraph or two to orient the reader. It is unnecessary to use a heading such as “Introduction” as this is the first bit of text your reader will encounter. Depending upon the length, purpose and scope of the memo, the introduction may indicate all – but more likely only some – of the following:

• The reason the memo is being written…its overall purpose…or, its specific objectives.

• The value or importance to the reader (or others) of the issues discussed.

• The context … who, when, where, what…of the issue/memo.

• The scope of the memo…what was done (or not done) to generate information.

• The agenda, or sentence-like table of contents, for the memo.

• The key findings (results), conclusions or recommendations (action steps).

• The details of implementation (who has to do what, with whom, by when).

The introduction contains no analysis or argumentation. If the memo contains analysis, the analysis would be presented in the body of the memo.

2. The BodyThe body contains an organized description and analysis of each topic or issue. There is no single best way to organize the body of a memo. Sometimes chronologically (first activity/event to last) or reverse chronologically (last event/activity to first) is appropriate…sometimes from most important to least important…and sometimes by activity undertaken. Each situation is unique. One of the creative communication challenges you face in constructing an effective memo is determining, and then communicating clearly, the arrangement of topics in the body.

Here are a few suggestions:

• Remember, you are not writing an essay or a term paper. You are conveying information to assist in decision making. Everything you include should focus on addressing the request made of you (i.e. helping to resolve a business challenge):

∙ Evidence – what facts, calculations, opinions and reasoning do you need or want to include?∙ Conclusions – what tentative or definite conclusions are supported, or at least hinted at, by the evidence and how do these conclusions link to the decisions at hand?∙ Recommendations – what tentative recommendations are you prepared to make based on your analysis (evidence and conclusions)?∙ Implications – if your recommendations were adopted, what would be the implications of implementing them (money, time, talent, results)?

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• If you gathered information, describe what you did and, if necessary, how you did it [your research (data collection) approach, research design or methodology].

• Organize and summarize your findings. To save space and enhance clarity, this is a great place to employ point form. For example, “First, I spoke to the plant manager who indicated:

∙ Point 1 (opinion evidence 1)∙ Point 2 (opinion evidence 2)∙ etc.”

• If the purpose of the memo is to persuade, you also need to organize your conclusions…what you think the findings tentatively (or definitely) mean, why you reason this way and how this “analysis” is linked to the issue at hand. Again, this is a great place to employ point form. For example, “In light of the plant manager’s observations, it would seem (thus, therefore, the evidence suggests…):∙ Conclusion 1 … ∙ Conclusion 2 …∙ etc.”

• As the memo increases in length and complexity, use transition sentences to keep the reader informed where the memo has been and where it is going. Such asides to the busy reader are a courtesy and enhance understanding greatly.

3. Tables and Figures (optional)Tables in the body of a memo typically summarize numerical results in a rows x columns format. Here’s a ‘dummy table’ (a table without the numbers included):

Table 1Knacky Marjorie’s Christmas Decorations

Pro Forma Income StatementsFor the Calendar Years 2002-06

2002 2003 2004 2005 2006Net salesCost of goods soldGross profitOperating expensesNet profit

Figures in the body tend to present information graphically (a pie or bar chart, a map, an illustration, a graph, a picture). The important thing is that the information in the table or figure be directly relevant to the business challenge at hand. If the information is interesting but not essential it should be relegated to an appendix or not included at all.

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Tables and figures in the body really help the busy reader grasp key details and are efficient tools for communicating parts of your analysis.

4. The Summary (optional)Long, complex memos may benefit from a short summary following the body. The summary should present no new information or analysis. It should re-state the key findings, conclusions, recommendations and/or implications often in point form. It also may suggest the need for additional research or present ideas for future consideration or exploration.

5. The Exhibits (optional)Long, complex memos also may benefit from the inclusion of exhibits. Here are a few guidelines on preparing exhibits:

Referring to Exhibits in the Body …• Exhibits should be referred to in the body of the memo in the order in which they appear at the end of the memo.

• Use sentences to refer to exhibits (e.g. “Exhibit 1 presents library patronage information for the past five years and reveals average annual growth of 5%.”).

• Do not use “(see Exhibit 1)”. This approach forces the reader to go the exhibit and figure it out for herself. That’s not fair.

The Exhibits Themselves …• The purpose of an exhibit – whether it is essentially numbers, words or graphics (pictures,

maps, charts, graphs) – is to support the memo. Your reader should be able to interpret each exhibit fully without having to refer to the body for clarification. The cases used in BSAD 231 provide many examples of well-constructed exhibits.

• Exhibits should be numbered and contain an accurate descriptive title. A sub-title may be created to clarify the context (timeframe, location, scope).

• Numerical exhibits should concentrate on the results of calculations, not on the process of calculation and be presented as a matrix of well-labeled rows x columns.

• Footnotes should be employed to add clarity (how a particular result should be interpreted…how a particular calculation was made…what the constraints are on the interpretation of the information…what assumptions underlie the results…or, what sources the information came from).

This note should help you craft well-structured and well-reasoned memos that get results. We provide a self evaluation checklist for memos on the next page. It contains many of the evaluative criteria employed by managers in assessing both communication and content.

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For additional information on structuring a memo and creating exhibits see the course hand out on Crafting an Effective Business Report. The two documents go hand-in-hand.

Foundations of Marketing – BSAD 231Following Directions in Crafting A Memo

You are asked to use this evaluation form to assess the extent to which you follow directions in preparing memos. Please complete the evaluation form and submit it to your instructor along with the final copy of your memo. Scores between the maximum and the minimum are possible for partially meeting some of the evaluative criteria. You will have to make some judgments about your performance for these criteria.

-------- Scoring --------- Max. Min. My

Evaluative Criteria [True] [False] Score1. I created a name for my consulting company +2 –22. I included the word Memorandum at the top of page 1 +2 –23. I included the date +2 –24. I sent the memo to the decision-maker not my instructor +3 –35. I created an accurate, powerful, specific, descriptive title +5 –5

6. 'Page 1' did not appear on page 1 +2 –27. All pages other than the first were numbered +2 –28. I created headings within the memo to aid clarity +5 –59. I created specific, descriptive headings not mere labels +5 –510. My memo stayed within the 900 word, 3-4 pages guide +5 –5

11. I created an appropriate introductory paragraph to guide my reader +5 –512. I consciously thought about creating 'topic sentences' +5 –513. As appropriate, I included tables, figures and exhibits +5 –514. I never used the decision-maker's name in the memo itself +5 –515. I never inferred that the decision-maker is stupid +5 –5

16. I avoided using the words 'assume' or 'assuming' +5 –517. I avoided using the word 'very' as a modifier +3 –318. I avoided using 'from/for/to you .. from/for/to me ..' +3 –319. I consciously minimized use of the word 'that' +3 –320. As appropriate, I correctly distinguished between 'then' and 'than' +3 –3

21. I drew several relevant conclusions +5 –522. The evidence supporting each conclusion was clearly presented +5 –523. I used "if … then …" reasoning in my analysis +5 –524. I made appropriate, tentative recommendations +5 –525. All topics examined fit within the scope of the assignment +5 –5

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+100 –100 ____Total Score

Name _____________________________

3. Crafting An Effective Business Report

This note describes and explains several aspects of effective report writing. The note contains three parts. Part one covers structural issues. Part two covers communication issues. Part three covers report evaluative criteria. We believe passionately in every suggestion, guideline, and rule in this note. We expect you to review and embrace them whenever you submit reports in any business administration program course.

The Structure of A Report

The reports you create in the BBA Program are project-based, field-based or case-based. Regardless of the base, each report you prepare will be analytical and at least somewhat action-oriented in nature. Your role will be either an assistant within an organization or, more typically, a consultant to the organization and your task will be to present your analysis of the situation and persuade the reader, usually your boss or your client, of the soundness of your recommendations and reasoning. We think of reports as containing five parts: a title page, an introduction, a body, a summary and exhibits.

1. The Title Page

The title page contains four elements: the title; the name and position of the recipient; the name and position of the sender; and the date. An example is presented below. Notice that the title is both descriptive and specific.

The Feasibility of EstablishingA Peat Moss Harvesting Operation

atSequinces Meadow, Guysborough County

Submitted to:Mr. Fred Davis

The Atlantic Canada Opportunities Agency

Submitted by:Neil Oxner –Spencer

Professor of Business AdministrationSt. Francis Xavier University

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September, 2001

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The page following the title page ...

• re-states the title of the report, centered, at the top;• is not numbered;• contains a brief introduction to the report.• begins the body of the report (if the introduction leaves enough space to do so)

2. The Introduction

The introduction to your report has no separate heading. By definition it is the introduction since it is the first bit of text your reader will encounter. The objective of the introduction is to orient your reader and establish your agenda. It is process oriented (about the report) to a much greater extent than it is content oriented (about the issue). The topics normally covered in the introduction are:

• what the report is about...the nature of the issue and its context (recent history, current reality)• why the report has been written...the importance of the issue...the purpose and value of the

report• which topics or issues or factors or questions the report examines and, often, which ones it

doesn't...the scope, breadth, depth and coverage of the report and your agenda• what you have discovered (findings, results), concluded and recommended--usually at a fairly

aggregate level and not at a highly detailed level and sometimes,• selected details of implementation (who has to do what with whom by when).

3. The Body of the Report

The body of the report follows the introduction. It contains an organized examination (analysis) of each relevant topic or sub-issue or factor or question. There is no "best way" to organize a report. Each situation is unique. One of the creative challenges you face is determining, justifying to yourself, and then communicating clearly to your reader, the arrangement of topics in the body. The body of a report is the same as the body of a memo except reports are longer.

Introduce each topic with a descriptive heading. Avoid mere labels (e.g., The Market) as headings. Attempt to create headings which are more descriptive (e.g., The Market for Canadian Horticultural Peat Moss: Domestic and Export) or which state a conclusion (e.g., Demand Strong for Canadian Peat: Domestic and Export). Descriptive headings and sentence conclusion headings help to orient your reader and help you complete your agenda.

Be sure the content within each section of the body mirrors the heading. Don't lead the reader to expect an analysis of the market when, in fact, most of the discussion is about the competition. Determine the order in which you plan to present your points or argument or analysis. Be conscious of the nature and purpose of each sentence:

• Is the sentence essentially evidence to support a conclusion? • Is it essentially an explanation of your reasoning required to clarify some evidence? • Is it essentially a conclusion?

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• Is it essentially an example to illustrate a point? • Is it essentially a transition sentence .. a helpful aside to the reader? • Is it essentially a tentative call for action or a recommendation? • Is it essentially the details of implementation or the implications of implementing your

recommendations?

You need to know the purpose and logical ordering of all sentences. If you don't your reader is likely to wonder: What's the point? Where is this leading? If I'm confused, isn’t it possible the writer is confused too?

Structure the analysis of each topic around your conclusions and the evidence supporting those conclusions. Do not be timid about starting each section with a conclusion (the topic sentence if you wish) then supporting and explaining the conclusion with evidence (facts, opinions, calculations, reasoning) in succeeding sentences.

Practice using point form style to construct your arguments as in:

“Here is the evidence:1 … a fact2 … an opinion3 … a new calculation4 … your own reasoningand here are the conclusions flowing from that evidence:5 … it would seem6 … the evidence suggests7 … therefore … ”

Few communication skills are more highly valued than the ability to present an argument clearly and succinctly.

Tables in the body of a report help the busy reader. Typically they summarize numerical results in a rows x columns format. Quite often the summary numbers in a table come directly from one or more exhibits at the end of the report. Here is a ‘dummy table’ (a table without the numbers included):

Table 1Knacky Marjorie’s Christmas Decorations

Pro Forma Income StatementsFor the Calendar Years 2002-06

2002 2003 2004 2005 2006 Net sales

Cost of goods sold Gross profit Operating expenses Net profit

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Figures in the body tend to present information graphically (a pie or bar chart, a map, an illustration, a graph, a picture). The important thing is that the information in the table or figure be directly relevant to the business challenge at hand. If the information is interesting but not essential it should be relegated to an appendix or not included at all.

Transition sentences act as bridges between topics and really help keep the reader focused on your agenda--particularly in longer reports. Transition sentences are a courtesy to your reader. In effect they act as asides to your busy reader (here is what we've just covered, here is where we are going next). Use transition sentences as needed – you will have to determine the need – not necessarily at the end of every section merely to impress the reader.

4. The Summary

The body of a report typically ends with a summary. The summary reviews the key conclusions and the key recommendations made earlier in the body. Sometimes, if recommendations have not been made previously, the summary becomes Recommendations and Implications. Again, there is no clearly right answer. Sometimes reports can be written with recommendations included (and supported) throughout. Sometimes a separate section is needed at the end to lay out and comment on the recommendations.

5. The Exhibits

You include exhibits to support your analysis. Each exhibit should be numbered, contain a descriptive title and, often, contain a clarifying sub-title. For example:

Exhibit 5Windsor Miniature Golf

Pro Forma Operating Statements for Years 1 to 5- At The Devonshire Mall Location -

Exhibits should be referred to in the body in the order in which they appear at the end of the report. When referring to exhibits in the body, do not use "(see Exhibit 5)". Instead, use sentences that summarize results: "Exhibit 5 presents pro forma operating statements for years one to five and reveals cumulative profits of $75,000 on cumulative revenue of $150,000." Your reader should be able to read the body without having to refer to the exhibits and should be able to interpret each exhibit without having to refer to the body.

Usually an exhibit is essentially numbers, words or graphics (maps, illustrations, photo-reproductions, graphs). Numerical exhibits seem to be the most difficult for students to organize:

• Think of a numerical table as a matrix of rows and columns.• Identify each row and column with a heading.• As necessary, cite the source or sources of the information contained in an exhibit• Concentrate the exhibit on the results of calculations, not on the process of calculation. Use

footnotes to explain calculations which may not be understood easily.• Use footnotes to explain your assumptions.

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• Use footnotes (as necessary) to explain the numbers in the exhibit (e.g. "this should be interpreted as 20% of the dollar value of peat moss exported from Canada in 1997 was imported by Japan").

Here is an example of a reasonably well organized exhibit:

EXHIBIT 2Pictou-Antigonish Regional Library

Usage of The Pictou-Antigonish Regional LibraryBy Antigonish Town and County Residents

- May-July, 2001 -

May June July Total

Antigonish County ResidentsBookmobile

Antigonish BranchOther Branches

Sub-total

271372 2645

150403 6559

87381 2 470

5081156 101674

Antigonish Town ResidentsBookmobile

Antigonish BranchOther Branches

Sub-total

10505 6521

5507 5517

3508 8519

181520 191557

Antigonish Town & County ResidentsBookmobile

Antigonish BranchOther Branches

Antigonish Totals

281877

81166

155 910

111076

90 889

10 989

5262676 29 3231

All Library BorrowersBookmobile

All 7 BranchesLibrary Totals

56951545723

50549985503

17646764852

12501482816078

Antigonish County Residents ... - As a %age of Bookmobile Borrowers - As a %age of Antigonish Branch Borrowers - As a %age of All Borrowers

48% 42 11

30% 44 10

49% 43 10

41% 43 10

Source: Pictou-Antigonish Regional Library records.

1. To be interpreted: there were 271 person-visits to the Bookmobile by Antigonish County residents (excluding Town residents) during May of 2001.

Effective Communication

We are not experts on grammar and style but we are sensitive to, and can easily distinguish between, effective and ineffective written communication. Here are six elements of style -- the 6Cs of communication -- we focus on.

1. Consideration

Showing consideration for the reader means understanding your relationship with the reader and the nature of the assignment. If the reader is your boss or your client for goodness sake don't call him/her stupid. This seems obvious but it is amazing how often – particularly in case-based reports – we read observations such as:

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• The research conducted so far is totally inadequate. • The sales projections are unrealistic. • The company is away behind the times.

These observations may be true but the tone is all wrong. You have to be sensitive to your reader. Here are three better approaches:

• It may be necessary to conduct additional research.• We project sales of (whatever). You’ll note our projections are somewhat below your original

estimates. Our reasoning for lower projections is (whatever).• All five competitors we studied have implemented computer-based customer relationship

management programs.

You have to create and maintain an appropriate tone. Normally folksy (“Hi guys …” or “next week Bob you should …”) and slang (“you’ll lose your shirt” or “they got their clocks cleaned”) are out. An objective, professional tone is in.

2. Control

Showing control means being organized. It means having a logical structure. It means knowing the main topics to be covered, the sub-topics within each main topic, and the order in which the topics will be presented. Lack of control signals confusion and a lack of organization. Some aspects of control were dealt with in the section on the body of a report because demonstrating control is both a structural issue and a communication issue.

3. Coherence

Coherence means flow. A coherent report is one in which the sentences within a topic are organized logically. The reader can see the linkages between conclusions and evidence clearly in a coherent report. Sometimes point form presentation aids coherence. If you use point form be sure you also use parallel structure (i.e., use the same basic sentence structure for each point).

4. Conciseness

A concise report has no extra words, phrases, or sentences. Unnecessary words clutter up reports and reduce their compellingness. Before you hand in a report edit it to eliminate padding, empty phrases and sentences which contribute nothing to the argument. Here is one example:

Wordy: One of the main things the company seemed to be doing was underpaying its sales representatives.

Better: The company seemed to underpay its sales representatives.

Or, if you're quite confident of the conclusion: The company's sales representatives were underpaid.

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5. Clarity

A clear report is precise and simple. A clear report avoids jargon, slang and vague generalizations. Clear reports are dominated by concrete specifics. Vague generalities are minimal. Long, awkward sentences are replaced by two or three shorter sentences. In a clear report the words chosen correctly convey the points you wish to make. Doubt and confusion about your intent are minimal.

6. Correctness

A good report demonstrates correctness on a number of dimensions:

• It is free of spelling errors.• It is free of typographical errors.• It is free of grammatical errors.• It is neat.• It conforms to assigned format and length guidelines

To produce reports which score high on correctness, proof read – or have a colleague proof read – a draft version of the final document.

Report Evaluation Criteria

Reports are evaluated on content and communications dimensions. The three forms we use are reproduced below. They should help you understand what we look for – and hope for – in your reports. As you can appreciate it is not possible to separate all content and communication issues. Often they interact. Thus, we normally provide one overall grade for each report and make comments on both types of issues as part of the feedback.

Itemized below is an extended list of the criteria we employ to evaluate the content of case-based reports. Although the evaluative criteria listed are for case-based reports most are applicable to project-based reports and field-based reports as well. Given some constraints on our time, we could never make comments on all hand-ins on all of these criteria, but these are the things we look for when judging the quality of report content.

1. Understanding the Overall Context of The Situation

• You understood and interpreted the situation correctly:∙ The organization∙ The product∙ The decision-maker(s)∙ The location∙ The time∙ The time frame

• In effect you were able to answer the journalist's who, when, where, what and why.

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2. Understanding the Primary Issue

• You identified the primary issue correctly.• You understood what had to be done, why (the context), and by whom.• You understood your assignment.

3. Identifying Relevant Sub-Issues

• You gave explicit recognition to the sub-issues that (will) affect the primary issue.• The sub-issues you raised were linked clearly to the main issue and revealed why you

considered them.• The sub-issues you raised were comprehensive, diverse, exhaustive--no major sub-

issues were omitted.

4. Analyzing the Sub-Issues

• Generating Evidence∙ You went beyond the data (facts and opinions) presented.∙ You calculated significant new evidence.∙ You used your reasoning power to generate new evidence.∙ The evidence base you generated was linked to the primary issue. ∙ The evidence base you generated was comprehensive.∙ The evidence base you generated was creative, innovative.

• Using Evidence ∙ You drew conclusions (therefore, thus, the evidence indicates ...) ∙ Your conclusions were evidence based. ∙ Your conclusions were stated with the appropriate degree of confidence. ∙ Your conclusions were stated clearly. ∙ Your conclusions were linked to the primary issue. ∙ You employed "if ... then ..." reasoning to deal with uncertainty. ∙ Your assumptions (as necessary) were adequately explained.

5. Considering Alternatives

• Identifying Alternatives ∙ You identified alternatives. ∙ The alternatives you identified were thorough/comprehensive/exhaustive. ∙ The alternatives you identified were imaginative/creative.

∙ The alternatives were stated with sensitivity to the inter-action among variables.

∙ The alternatives were linked to the primary issue. ∙ The alternatives were mutually exclusive (or if not, overlap was recognized.)

• Evaluating Alternatives

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∙ Where clear alternatives existed you attempted to generate evaluative criteria to choose among them.

∙ The criteria you used were appropriate. ∙ The criteria you used were exhaustive. ∙ The criteria you used were imaginative, creative.

6. Developing an Action Plan/Specifying Recommendations

• You made recommendations.• The recommendations flowed logically from your analysis.• Your recommendations addressed the primary issue.• Your recommendations were internally consistent.• Your recommendations were comprehensive.• Your recommendations were specific enough for the evidence base provided.• If you deemed that more research was necessary, your research proposal was in

sufficient detail and included a cost:benefit assessment.

7. Considering the Implications of Implementation

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• You considered the implications of implementing your action plan (time, money, talent, resources, "do-ability").

• Your implications were thorough/comprehensive.• Your implications were appropriate/logical.

8. Overall: "The Bottom Line" is…

• Your report was compelling and would be helpful to its recipient.

Criteria For Evaluating Effective Communication In A Business Report

CRITERIA COMMENTS

Consideration-The tone reflects an understanding of the reader:writer

relationship, the purpose (importance) of the report, the context of the report.

Control-Well organized report, logical structure.-Headings and sub-headings are employed and

appropriate.

Coherence-Flow exists within each topic.-Discussion of each issue is organized logically.-The order of the sentences makes sense.

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-The evidence conclusions recommendations linkages are clear.

Conciseness-Extra words, phrases, sentences eliminated.-Style is "tight" not "wordy".-As necessary tables and exhibits are used to enhance

conciseness.

Clarity- Report avoids jargon, slang, and vague generalities.- Concrete specifics dominate vague abstractions.- Report is precise and simple.- Word choice minimizes ambiguity, doubt and

confusion.

Correctness- Minimal spelling errors and typos.- Minimal grammatical errors.- Neat in appearance.- Correct title page.- Correct introduction.- Correct use of headings.- Correct reference to and construction of exhibits.

4. Some Thoughts on Making a Presentation

This short section contains some thoughts on making a presentation. It was first prepared as a handout for participants in the Case Competition. However, it should be helpful whenever you are called upon to prepare and deliver a presentation.

Presentation Delivery

• Do not slavishly follow anyone's advice.• There are no time-tested recipes for success but there are some guidelines to reflect upon.• You are not giving a speech or doing a presentation. You are engaging your client. You need to understand their goals, their frame of reference, their needs. Along the client's think -- feel -- do continuum, what specific objectives (desired outcomes) do you want to accomplish in your presentation.• Your tone should be predominantly 'share with' not 'talk at'. • Do not confuse raising your voice with persuasion. • You want your client to follow, and agree with, your analysis and recommendations because they are logical, reasonable, persuasive and evidence-based.

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• You want to minimize 'we feel', 'we think', and 'we believe' and maximize 'the evidence suggests' and 'our reasoning is as follows'. Objectivity is more persuasive than subjectivity.• Overall the presentation should balance relational (high touch) and informational (high tech).• Do not say you have done an 'in depth analysis' or engaged in 'reasonable reasoning' or 'thoroughly analyzed' anything. That would be incredibly self-serving.• There is no need to rush. You control the pace. You control the agenda.• Be enthusiastic but do not confuse speed with enthusiasm.• Work really hard on the content of your analysis/assignment (Issues → Evidence → Conclusions → Recommendations → Implications of Implementation). That is the best way to overcome nervousness. You really do have something to say. The client is all ears. You are compelling because you have done your homework and you know what you are talking about. You can't be stumped. You really are helpful.• Great power point slides cannot overcome a mediocre, whim-driven analysis.• If a slide or overhead is worth creating, it is worth taking the audience through it. Never display a visual without either providing time for the audience to interpret it or for you to take them through it. Audiences hate to be confused by not knowing where to focus or not being able to understand what is being presented.• Remember, the audience was not there when you crafted your analysis and presentation. They do not know where you're coming from. You have to lead them through the analysis carefully and deliberately.

Presentation Structure

• Don't start by introducing your group. Start with a content-relevant visual or verbal grabber. No, not a Jay Leno-type monologue or a funny comment. Rather a declarative statement or series of facts or an authoritative quote or a powerful question or a scenerio ("picture this …") or a brief anecdote. This is not an invitation to be cutesy or coy. This is an invitation to grab the listener's attention in a way that is immediately comprehensible and directly moving. The reaction you seek is a gentle, "Wow, this team has it bang on. I'm interested in learning more."• The old army adage, "Tell 'em what you're gonna tell 'em, then tell 'em, then tell 'em what you told 'em," is good advice. It translates into (1) set the agenda, (2) present the topics or issues indicated in the agenda and (3) provide a short summary of the key points raised. • This is a business presentation. So, use the language of business verbally and in writing on your power point slides or overheads. Here are several suggestions:

Objectives Conclusions (definite and tentative)Evidence Recommendations (tentative)Results (findings) Implications of implementationHighlights Resources requiredInsights Responsibilities

• Transitions between topics and between speakers matter. They are critical in helping the audience follow the flow. First of all, create transitions [here is where we have been (are) and here is where we are going]. Never introduce the next presenter, "Now I'm going to call on ___ who will talk to you (tell you) about …". Create content relevant transitions, "Thus, the analysis of the overall market supports the following 4 conclusions: __ __ __ __. Now __ will examine

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how these 4 conclusions may affect your marketing strategy and the strategies of your 2 nearest direct competitors." Specific. Concrete. Content-relevant. That's a good transition.• Create a powerful close. Don't just tail off, "Well I guess that's just about it .. any questions?" Link the close to your client's goals and needs. Link it to the objective (desired outcome) of the presentation.

Enjoy yourself. Let your audience know you are enjoying yourself. Say so with a smile. Say so with rapport. Connect. Go for it. You're up next!

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