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STUDY GUIDE FOR MODULE NO. 2

Marketing Planning
MODULE OVERVIEW

In most organizations, “strategic planning” is a yearly process, typically covering just the year
ahead. Occasionally, a few organizations may look at a practical plan which gives three or more
years ahead. To be effective, the plan has to be formalized, by making a “marketing plan.” The core
of the process is that it moves from the general to the specific; from the overall objectives of the
organization down to the individual action plan for a part of one marketing program. It is also a
collaborating process, so that the draft output of each stage is checked to see what effect it has on
the earlier stages - and is corrected.

MODULE LEARNING OBJECTIVES

At the end of this module, you should have:

1. Discuss the various components of marketing plan

2. Define the competitive set
3. Identify the levels of market competition
4. Explain the methods for determining competitors
5. Discuss the category attractiveness analysis
6. Describe the aggregate market factors
7. Explain category factors and environmental analysis

LEARNING CONTENTS ( Components of Marketing Plan)

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

Marketing plans vary by industry, by size of company and by stage of growth. The form isn’t as
important as the process of preparing it. Preparing a marketing plan is a process that makes you
think about your business goals and what your marketing strategy will be to attain those goals. This
is a framework of a typical marketing plan. Your marketing plan may comprise all or just some of
these components, depending on your company type, stage of growth, and goals.

1. Executive Summary: The executive summary introduces your company and explains the
major points of your plan

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(a) Define the nature of your business briefly and the products or services you offer.
(b) State your mission and company objectives.
(c) Define your management and marketing team, and the structure of your
organization.
(d) Review and summarize the marketing objectives and strategies contained in the plan.

2. Current Situation: This segment offers information on your location, target market
and competitive environment. Also, identifies key issues your company faces such as

(a) Describe your current or planned business location.

(b) Describe you target market.
(c) Include a brief competitor and issues analysis.

3. Competitor and Issues Analysis: This section includes the details of the competitor and
issue analysis.

(a) Contain information about other individuals or companies (competitors) who offer similar
products and services as you.
(b) List key business issues that are probable challenges, such as new legislation or the effect of an
imminent technological advance in your industry.

Be as objective as
possible in this
section.

5. Marketing Strategy: The segment including marketing strategy defines how you plan on
realizing your marketing objectives.
Product: Defines your product or service in detail, including product features and benefits.
Price: Describes your pricing strategy and payment policies.
Promotion: Describes the promotional tools or tactics you will use to achieve your
marketing objectives.
Place: Describes how and where you will place your product so customers have access to it
and how you will make the sale.

6. Action Programs: Defines what will be done, when it will begin or be completed, and
who will accomplish the tasks

7. Budget: Lists the cost of the marketing activities you are describing in the marketing plan.

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

9. Supporting Documents: Include any supportive documents referenced in other plan sections
here, such as resumes of key personnel, databases, and market research results.

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EARNING ACTIVITY
LEARNING ACTI

LEARNING CONTENTS (Defining the Competitive Set)

Your possible competitors are vital to the successful positioning of your property. Data has to be
gathered on each step before the analysis can be headed further.

1. One has to define one’s competitors in terms of primary and secondary importance.

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

2. List the bases of competition and key success features for industry success—in downward
order of importance. Then define competitive features in terms of:
(a) Market segments
(b) Products offered
(c) Prices/rates
(d) Advertising programs
(e) Distribution Channels

What are the bases of Competition?

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

LEARNING CONTENTS (Levels of Market Competition)

)

Levels of competition can be in:

1. Product form
2. Category
3. Generic
4. Budget

Let us understand each of them one by one.

Product form: In this level one has to convince the customers his brand is better than others.
Category: This level involves one to convince customers that his product form (like small
refrigerator) is best in a particular category (of refrigeration).
Generic: Generic level of competition involves the marketers to convince customers that a
particular category (refrigeration) is best way to satisfy needs (of providing safe food).
Budget: Under this level of competition, the customers are convinced that generic benefits (of
refrigeration) are best use of income compared to TV, washing machine, etc.

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Factors Determining Competition

1. Price: It is so easy to understand the concept the relationship between price of a

product and the competition it can generate in the market. If the prices of the product of a
specific firm are considerably high, it is to generate a price war among
competitors. The competitors in such a case would very easily come up with similar
products (that may even be low quality goods) with low or comparatively very low prices.
This would result in a very aggressive competition.

2. Cost of Production: Cost of production per unit is the costs associated with production
divided by the number of units produced. Is a case, where the factors of production are low
priced, it would mean the cost of production is also low. This might give growth to a possibility
of the determination of price level at a high level and then remarkable profit.
This would in turn lead to entice a higher number of competitors in the market.
The competitors would adjust and do all means to lessen their costs of production to a level as
low as possible.

3. Demand in the Market: Demand comes out as a very important factor of determining
competition. It is a quite well understood fact that the higher the demand of a product in the market,
the higher is the willingness of the customers to pay for it. For a product with an inelastic or near
inelastic demand, the customers most often than not pay even high prices. Again, the higher the
prices that can be charge from the customers, the higher are the chances of the profit being huge in
such transactions.

4. Availability of Substitutes: There is a likeliness of having a smaller number of competitors

in the market if a particular product has a large number of substitutes. Visibly, the moment a seller
would attempt to increase his profit margins, the consumers would change to a more acceptable
substitute.

5. Number of existing Players in Market: If the market of a specific product has a

huge number of players in the market, it is not very likely to entice more competitors. But the
situation may be differing if each or most of the market players are making good
profits. On the contrary, if the number of market players in a particular industry is low and the
product is a new introduction with good potential, it would always attract a strong competition.
Similarly, if the product is an old and well accepted in market with a low number of players, the
competition will be strong. The competition can also be strong if the number of existing players in
the market is high but the product comes up with a huge possibility of innovation.

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

Example: Patents: Giving the firm the legal protection to produce a patented product for
a number of years.
Limit Pricing: Firms may adopt predatory pricing policies by lowering prices to a level
that would force any new entrants to operate at a loss.
Cost advantages: A lower cost, perhaps through experience of being in the market for
some time, allows the existing monopolist to cut prices and win price wars.
Advertising and Marketing: Developing consumer loyalty by creating branded
products can make successful entry into the market by new firms much more expensive.
This is important in markets such as cosmetics, confectionery and the motor

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car industry.
Research and Development expenditure: Substantial spending on research and development
can act as a strong warning to potential entrants to an industry. Clearly much R&D
spending goes on developing new products but there are also important spill-over effects
which allow firms to improve their production processes and reduce unit costs. This
makes the existing firms more competitive in the market and gives them an operational
advantage over potential rival firms.
Presence of Sunk Costs: Some industries have very high start-up costs or a high ratio of
fixed to variable costs. Some of these costs might be irrecoverable if an entrant selects to
leave the market. This acts as a deterrent to enter the industry.
International Trade Restrictions: Trade restrictions such as tariffs and quotas should also
be measured as a barrier to the entry of international competition in protected domestic
markets.
Sunk Costs: Sunk Costs are costs that cannot be recovered if a business decides to leave an
industry.

Methods for Determining Competitors

Substitution in Uses: This focus group exercise emphases on making substitute uses for the
target use. Then product/service substitutes can be suggested for the identified uses. Produces
a lot of potential competitors.
Perceptual Mapping: This method does a pair wise comparison of two brands. They are then
rated on being similar or dissimilar. This leads to a mapping of brands along identified paths.
Brands close together are similar. Brands far apart are deemed dissimilar.
Levels of Competition: Looks at identifying competition at four levels: Product form, Product
category, Generic and Budget. Within each level appropriate competitors are known. This is to
determine how many levels to examine. To few, means missing competitors. To
many, means having an overwhelming number to analyze.
Brand Switching: Looks at actual consumer buying patterns over time. It shows the percentage
of consumers who purchase the same or different products after purchasing the current product.
Customers who do not switch to other products will be identified with low or zero percentages
(not competitors). Larger percentages indicate competitors.
Managerial Judgment: Brainstorming by managers who know the product category. It is outlined
along two axis: same or different markets, and same or different products.
Geographic: Looking at the geographic reach of competition. Those firms with a sales reach into
where we are located is our competition.
Porter’s 5 forces: This method looks at five potential sources of competition. Potential entrants,
Buyers, Suppliers, Substitutes, and current Competition. This method recognizes value chain
competition along with more common competition. It can produce a large amount of competitors
including potential competitors.

LEARNING CONTENTS (Category Attractiveness Analysis)

An essential component of the marketing planning process is an analysis of a product’s potential

to achieve a desired level of return on the company’s investment. Thus, the category analysis is
done to define the set of competitors against which one most often strives on a daily basis.

This type assesses financial opportunities but also provides ideas about how
to compete better under the given structural characteristics of the category.

Example: In automobile industry, most observers think that the luxury car segment is

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over populated because of the presence of so many cars with so small a group of customers to
buy them. However, Ford still chose to purchase Jaguar because of the brand equity in the name
and because the Ford Management believed the brand gave the company an instant entry into
the luxury car field.
Also, as we know, more channel members mostly retailers are interested in category
management. They give more space and/or selling time to those categories that are attractive
which means faster inventory turnover, greater total profits, and less space for categories that
are unappealing.
Category attractiveness analysis examines the main areas of inquiry including business aggregate
factors related to the major participants and environmental factors. Let us see each of them one
by one.

Aggregate Market Factors

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

Category Size: Category Size is an important factor of the likelihood that a product will
generate revenues to support a given investment. At large, larger markets are better than smaller
ones. Besides, having More market potential large categories usually offer
more opportunities for segmentation than smaller ones. Equally large firms and
entrepreneurial organizations might find large markets attractive. Large markets yet tend
to draw competitors with considerable resources thus making them unattractive for small firms.

Category Growth:
The faster the growth the category has, the higher is number of the competitors the category is
likely to attract.

Stage in Product Life Cycle:

In the introductory phase, both the growth rate and the size of the market are low, thus
making it unattractive for most potential participants. When market growth and sales start to
launch, the market becomes more attractive. In the maturity phase the assessment is unclear;
while the growth rate is low, the market size could be at its peak. This is a standard pattern for
many consumer package goods (esp. eatables).

Though, the phases do not guarantee the category attractiveness. While the introductory phase
despite having low growth rate can be attractive for a participant with long-term perspective,
the growth stage can very easily witness failure.

Example: AT&T had a big problem in the home segment of the personal computer
market even though it was at its growth stage. (products like wireless devices)

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

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

Agricultural goods vary in accordance with the rainfall and similar natural phenomena. Such a
category would obviously not be considered to be attractive.

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

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Category Factors

Although the aggregate (cumulative) factors are important determinants of the category
attractiveness, they
do not show the underlying structural factors affecting the category. Porter developed a five
force model to assess the structure of the industries.
1. Threat of New Entrants
2. Bargaining Power of Buyers
3. Bargaining Power of Suppliers
4. Current Category Rivalry
5. Pressure from Substitutes

Let us understand each of them one by one.

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

The risk of new entries will depend on the extent to which there are barriers to entry. These are
characteristically:
1. Economies of scale (minimum size requirements for profitable operations), a proportionate saving
in costs gained by an increased level of production. "mergers may lead to economies of scale"
2. High initial investments and fixed costs, (is a cost that does not change with an increase or
decrease in the amount of goods or services produced or sold. Fixed costs are expenses that
have to be paid by a company, independent of any specific business activities)
3. Cost advantages of existing players due to experience curve effects of operation with fully
depreciated assets, (Depreciating assets helps companies earn revenue from an asset while
expensing a portion of its cost each year the asset is in use. If not taken into account, it can greatly
affect profits.)
4. Brand loyalty of customers,

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5. Protected intellectual property like patents, licenses, etc.
6. Scarcity of important resources, e.g. qualified expert staff,
7. Access to raw materials is controlled by existing players,
8. Distribution channels are controlled by existing players,
9. Existing players have close customer relations, e.g. from long-term service contracts,
10. High switching costs for customers,
11. Legislation and government acts.

Bargaining Power of Buyers: Similarly, the bargaining power of customers determines how
much customers can impose pressure on margins and volumes. ( less price sensitivity, uneducated
consumers, consumers that purchase specialized products, and the absence of substitute products
all indicate that buyer power is low)
Customers bargaining power is likely to be high when:
1. They buy large volumes, there is a concentration of buyers,
2. The supplying industry comprises a large number of small operators,
3. The supplying industry operates with high fixed costs,
4. The product is undifferentiated and can be replaces by substitutes,
5. Switching to an alternative product is relatively simple and is not related to high costs,
6. Customers have low margins and are price-sensitive, (A low profit margin means that your
business isn't efficiently converting revenue into profit. This scenario could result from, prices that
are too low, or excessively high costs of goods sold or operating expenses)
7. Customers could produce the product themselves,
8. The product is not of strategic (it was not plan) importance for the customer,
9. The customer knows about the production costs of the product,
10. There is the possibility for the customer integrating backwards. In this case,
companies/customer try to control over their supply chains and try to obtain raw materials directly;
eliminating the suppliers. Such an upstream movement in the supply chain is termed as Backward
Integration. The term “Backward” is because the company moves backward in the value chain.) It
can be beneficial for the company/customer as it gets the raw materials at reduced costs.

Bargaining Power of Suppliers: The term ‘suppliers’ comprises all sources for inputs that are
needed in order to provide goods or services.
Supplier bargaining power is likely to be high when:
1. The market is dominated by a few large suppliers rather than a fragmented (uneven) source of
supply,
2. There are no substitutes for the particular input,
3. The supplier’s customers are fragmented, so their bargaining power is low,
4. The switching costs from one supplier to another are high,
5. There is the possibility of the supplier integrating forwards ("cutting out the middleman," forward
integration is an operational strategy implemented by a company that wants to increase control
over its suppliers, manufacturers, or distributors, so it can increase its market power.) in order to
obtain higher prices and margins. This threat is especially high when the buying industry has a
higher profitability than the supplying industry,
6. Forward integration provides economies of scale for the supplier, (by acquiring or merging with
business entities that were its customers, while still maintaining control over its initial business)

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

8. The buying industry has low barriers to entry.

In such situations, the buying industry often faces a high pressure on margins from their suppliers.

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The relationship to powerful suppliers can potentially reduce strategic options for the
organization.

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

Competition between existing players is likely to be high when:

1. There are many players of about the same size,

2. Players have similar strategies,
3. There is not much differentiation between players and their products, hence, there is much
price competition,
4. Low market growth rates (growth of a particular company is possible only at the expense
of a competitor),
5. Barriers for exit are high (e.g. expensive and highly specialized equipment).

Pressure from Substitutes: A threat from substitutes exists if there are alternative products with
lower prices of better performance strictures, limitation for the same purpose. They could potentially
attract a significant proportion of market volume and hence reduce the potential sales volume
for existing players. This category also relates to complementary products.
Similarly, to the threat of new entrants, the treat of substitutes is determined by factors like
1. Brand loyalty of customers,
2. Close customer relationships,
3. Switching costs for customers,
4. The relative price for performance of substitutes,
5. Current trends.
To the above five factors as given by Porter, one more factor is added, that is the factor of
category capacity.

Category Capacity: Continuing overcapacity of a category is not a positive sign for profitability.
When a category is operating at capacity, its costs stay low and their bargaining power with
buyers are normally high. Thus, a key indicator of the health of a category is whether there is a
consistent tendency toward operating at or under capacity. (“Capacity” refers to the amount of
business you can do over a set period of time)

Environmental Analysis

Environmental factors include those factors that are outside the control of the firm and its
industry. These factors can be divided into five categories viz.:
1. Technological
2. Political
3. Economic
4. Regulatory
5. Social

Let us understand each of them one by one:

1. Technological: Product categories that are weaker on the technology dimension are
particularly weak to competition both from new products and from foreign

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competitors that have ventured the industry and the category. It is a process to identify all the
external and internal elements, which can affect the organization's performance.
The analysis entails assessing the level of threat or opportunity the factors might present
It follows from above that attractive product categories are strong in invention,
innovation, or circulation of new products and services.
2. Political: The political/legal system creates the rules and frameworks within which
business operates. Government policy supports and encourages some business activities
e.g. enterprise, while discouraging others.
3. Economic: The monetary system facilitates business exchange. Monetary activity is based
around earning, spending, saving and borrowing. Money has been likened to the oil that
lubricates the wheels of commerce. Monetary activity involves businesses in a web of
relationships involving financial institutions (e.g. banks and building societies), creditors,
debtors, customers and suppliers. A key monetary influence for business is the interest
rate. Higher interest rates increase business costs and act as a break on spending in the
economy. Almost all capital goods industries are sensitive to interest rate fluctuations
since their high costs to buyers are often financed at short-term interest rates.
4. Regulatory: Government and other agencies have an impact on category attractiveness
through regulations. Some product categories might become less attractive over time
because of laws that restrict product manager’s abilities to market certain categories in
certain markets.

5. Social: The social system is the fabric of ideas, attitudes and behavior patterns that are
involved in human relationships. In businesses are influenced by consumer
attitudes and behaviors which depend on such factors as the age structure of the population,
and the nature of work and leisure.
For consumer products, a key question is whether the product category under consideration is
well positioned to take advantage of current trends. Moreover, the social trends also determine
the attractiveness of a category.

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

LEARNING ACTIVITY 2
LEARNING ACTIVITY 2

Self-Assessment

Answer the following questions.

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

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

3. In your opinion, what should a marketing plan address?

4. In your opinion, which environmental variables shows effect on marketing plan? Justify

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your answer with reasons.

5. According to you, what are the qualities necessary for a marketing planner?

6. In which situations, the bargaining power of customers is low? Is it always useful for the
producers?

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

8. Evaluate the role of Porter’s analysis in the category attractiveness analysis.

9. What would be the main factors on which you would base your decisions of choosing a
category to enter as a new marketer and why?

SUMMARY

 To be most effective, the plan has to be formalized, usually in written form, as a formal
“marketing plan.”
 The essence of the process is that it moves from the general to the specific; from the overall
objectives of the organization down to the individual action plan for a part of one marketing
program.
 Marketing plans vary by industry, by size of company and by stage of growth.
 The form isn’t as important as the process of preparing it.
 A thorough study of your potential competitors is essential to the successful positioning
of your property.
 Choosing your “competitive set,” is a step-by-step task.
 The level of competition can also vary. At various levels, competition can be in Product
form, Category, Generic and Budget.
 Out of the many methods for determining the competitors, the most important and prevalent
ones are Substitution in Uses, Perceptual Mapping, Levels of Competition, Brand Switching,
Managerial Judgment, Geographic and Porter’s 5 forces.
 An essential component of the marketing planning process is an analysis of a product’s
potential to achieve a desired level of return on the company’s investment.
 Thus, the category analysis is done to define the set of competitors against which one most
often competes on a daily basis.
 Category attractiveness analysis examines the main areas of enquiry including business
aggregate factors related to the major participants and environmental factors.

REFERENCES

Aswin Pranam, Product Management Essentials. Springer Science+Business Media New York, 233
Spring Street, 6th Floor, New York, NY 10013.2018

C. Todd Lombardo , Bruce McCarthy , Evan Ryan , and Michael Connors, Product Roadmaps
Relaunched. O’Reilly Media, Inc. 2017

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Angelo Kinicki, Brian Williams, Management: A Practical Introduction, McGraw-

Hill/Irwin.

Jessie Paul, No Money Marketing, McGraw Hill.

Marc Gobe, Emotional Branding, Allworth.

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

Irwin.

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