CHAPTER 11 Planning and Budgeting the Marketing Mix Part 1: Pages

Introduction The introductory material presented a case study of sorts explaining how an organization, population services international (PSI), analyzed statistical databases and used the results of this analysis to direct their decision-making processes

Core Marketing Strategy Six areas a marketing manager must analyze when developing the organization’s core marketing strategy: Target customers Probable changes in future environment Potential competition Organizational strength and weaknesses Organizational structure Organizational resources

Decision-making In order to properly analyze these critical areas, the manager must depend upon planning and budgeting tools. There are two types of decisions that a manager will have to make: structural and programmatic. While structural support is critical to programmatic activities, the information in this chapter is primarily devoted to the programmatic vice the structural.

Measuring Current Market Demand Planning should properly start with determining what the current market is for whatever the organization has to offer be it products, services, or opportunities to change behavior. To do this the organization has three types of estimates they can conduct: Total market demand Total industry demand Organization market share

Program Budgeting Before developing program budgets, the manager must have a fundamental understanding of where the organization stands in regard to the following issues: Size of current market demand Forecasts for future demand Internal competition with other programs Overall budget allocation for marketing

Estimating Total Market Demand Total market demand is defined by Andreason and Kotler (pg 289) as: “…the total volume of exchanges with all marketers that would be made by a defined consumer group in a defined geographical area in a defined time period in a defined marketing environment under a set of defined marketing programs.”

Market Demand The authors are careful to point out that the total market demand is not a fixed number but is rather a function of a number of conditions and their inter-relationships. The altering of one condition can be expected to stimulate change in one or more other conditions. The two graphs featured in Figure 11-1 on page 290 demonstrate the relationships between marketing efforts (as expenditures) on the horizontal axis and market demand on the vertical axis under varying conditions such as time and economic environment. The curvilinear results of these functional relationships provide graphic representations what the expected market minimums and maximums are and helps the market analyst predict what level of demand might be expected as a result of a certain level of “effort.” The distance between the market minimum and the market maximum is the marketing sensitivity of demand, the area where the marketer can target marketing resources in an effort to increase market share.

Market Demand (Cont) The marketing sensitivity of demand can also be thought of as a margin between a low end, where the market is at its minimum, and a high end, where the market is near its potential. This is also called the market. Now consider that this market margin could be either expansible or non-expansible; that is, fixed or capable of growth. This is an important consideration for the marketing manager because; If the market is fixed (non-expansible), the organization must concentrate its resources on increasing its share of the market If the market is expansible, the organization must concentrate resources on not only increasing its share of the market, but also on growing the overall size, or margin, of the market. It may even benefit the organization to team with other entities in the same market area to grow the entire market.

Market Demand Forecast Despite the many possible outcomes of market behavior in response to marketing expenditures, only one outcome will turn out to be the case. This is called the market forecast. Whenever any of the environmental conditions change, it can be assumed that the market demands will change too and so a new market demand function would need to be estimated. The marketer must be careful to define the situation for which the market demand is being estimated. The marketer can use the chain ratio method by which a base number can be multiplied by a succession of percentage leading to an estimated level of demand.

Estimating Current Total Industry Demand Another approach to estimating demand. Calls for compiling aggregate sales volume, donations, numbers of volunteers, etc. for all an organizations market competitors Information can be gathered in different ways: government mandated reporting, organization Web sites, even asking the other organizations for the information The resultant data can be used to do comparative analysis to determine (a) the overall size of the market, and (b) their share of that market.

Forecasting Future Market Demand Total market demand and specific organization demand are not stable from one year to the next. Poor forecasting can lead to excess or insufficient personnel and supplies. The more unstable the demand, the more critical forecast accuracy becomes and, hence, the more elaborate the forecasting procedures become.

Forecasting Procedures Any forecasting procedure should take in to consideration the following factors that affect future demand: Non-controllable macro-environmental factors (economy, technology, the law, for example) Competitive factors (competitors’ products and pricing, for example) Controllable organizational factors (products, pricing, marketing expenditures, for example)

Forecasting Procedures There are three main information sources (or bases) analysts use for building forecasts: what people do, what people say, and what people have done. There are five primary methods by which researchers gather this information: Target Intention Surveys Expert Forecasts Market Tests Time-Series Analysis Statistical Demand Analysis

Target Intention Surveys A sampling of members of the target market either individually or in focus groups to determine their intention regarding the product, service or behavior. Reliability depends upon: The individual having clear intentions The individual is likely to carry out that intended behavior The individuals are willing to describe their intentions (and be honest about them) How much time elapses between the statement of intention and the actual behavior

Expert Forecasts Basically entails asking experts to make predictions. Especially suited for long-term forecasting where surveys and focus groups may lack perspective, experience and wisdom. Might consist of: Contracting with a “think tank” Conducting “scenario analysis” where past and present developments are projected into one or more future paths, then use probability estimates to select the most likely future. Using the Delphi Method, which uses a forecast – feedback – reforecast methodology.

Market Tests Usually highly accurate and reliable when conducted on a small-scale Time – Series Analysis Based on statistical analysis of past data looking for causal relationships. Four major components: Trend – basic level and rate of change Cycle – up and down trends over time Season – any consistent pattern of movement within the year Erratic events – also called “acts of God”

Statistical Demand Analysis A set of statistical procedures designed to reveal the most important factors affecting behaviors and determining their relative influence. The factors most commonly analyzed are: economic conditions, household composition and income, population, and promotion. Expresses relevant behaviors as dependant variables and tries to explain variations as a result of variations in one or more independent variables.