The new roles of marketing and selling in creating shareholder value

by Emeritus Professor Malcolm McDonald

GSSI 13th June 2014

• A brief history of marketing• The limited value of P and L statements and Balance

Sheets• How marketing and sales have changed forever• Why excellent marketing is an essential prerequisite for

successful selling• The roles and skills needed for excellent selling

2

A brief history of management

• Technology

• Production

• Sales

• Accountancy

• Fads

• Marketing

3

FADS (300)

• In Search of Excellence• Marketing Warfare• One Minute Manager• MBWA• Skunk Works• 7 Ss• Etc.

4

5

LOVE

Low

High

HATE

SalesPotential

Inter Tech’s 5 year performance

6

Performance (£million) Base Year 1 2 3 4 5

Sales Revenue- Cost of goods sold

£254135

£293152

£318167

£387201

£431224

£454236

Gross Contribution- Manufacturing overhead- Marketing & Sales- Research & Development

£119481822

£141582323

£151632423

£186822625

£207902724

£218952824

Net Profit £16 £22 £26 £37 £50 £55

Return on Sales (%) 6.3% 7.5% 8.2% 9.6% 11.6% 12.1%

AssetsAssets (% of sales)

£14156%

£16255%

£16753%

£19450%

£20548%

£20645%

Return on Assets (%) 11.3% 13.5% 15.6% 19.1% 24.4% 26.7%

From The Marketing Process Company

Performance (£million) Base Year 1 2 3 4 5

Market Growth 18.3% 23.4% 17.6% 34.4% 24.0% 17.9%

InterTech’s 5 Year Market-Based Performance

Customer Retention (%)New Customers (%)% Dissatisfied Customers

88.2%11.7%13.6%

87.1%12.9%14.3%

85.0%14.9%16.1%

82.2%24.1%17.3%

80.9%22.5%18.9%

80.0%29.2%19.6%

InterTech Sales Growth (%)Market Share(%)

12.8%20.3%

17.4%19.1%

11.2%18.4%

27.1%17.1%

16.5%16.3%

10.9%14.9%

Relative Product QualityRelative Service QualityRelative New Product Sales

+10%+0%+8%

+8%+0%+8%

+5%-20%+7%

+3%-3%+5%

+1%-5%+1%

0%-8%-4%

Why Market Growth Rates Are Important

7

From The Marketing Process Company

Percentage of marketrepresented by segment

Percentage of all profits intotal market produced bysegment

Ratio of profit produced bysegment to weight ofsegment in total population

Defection rate

TotalMarket

Segment1

Segment2

Segment3

Segment4

Segment5

Segment6

27.1

14.7

0.54

15%

18.8

21.8

1.16

28%

18.8

28.5

1.52

30%

11.0

23.0

2.09

35%

9.5

4.9

0.52

17%

14.8

7.1

0.48

20%

100.0

100.0

1.00

23%

Measurement of segment profitability

8

Balance sheet

9

Assets Liabilities

- Land- Buildings- Plant- Vehiclesetc.

- Shares- Loans- Overdraftsetc.

£100 million £100 million

© Professor Malcolm McDonald, Cranfield School of Management

Assets Liabilities

£100 million £900 million

© Professor Malcolm McDonald, Cranfield School of Management

- Land- Buildings- Plant- Vehiclesetc.

- Shares- Loans- Overdraftsetc.

Balance sheet

10

Assets Liabilities

£900 million £900 million

Goodwill £800m

© Professor Malcolm McDonald, Cranfield School of Management

- Land- Buildings- Plant- Vehicles

- Shares- Loans- Overdraftsetc.

Balance sheet

11

Asset Breakdown for the top 10 countries by Enterprise Value (US$ millions, 2011)

Intangibles

P and G paid £31 billion for Gillette, but bought only £4 billion of tangible assets

- Gillette brand £ 4.0 billion- Duracell brand £ 2.5

billion- Oral B £ 2.0 billion- Braun £ 1.5 billion- Retail and supplier network £10.0 billion- Gillette innovative capability £ 7.0 billion

TOTAL£27.0 billion

(David Haigh, Brand Finance, Marketing Magazine, 1st April 2005)13

• Marketing: existential malpractice and an etherised discipline; a soteriological comment

• JMM Vol 20. 3-4. April 2004 (pp 387-408)

14

15

The world of marketing and sales has changed forever and why we need excellent marketing

16

Embrionic markets Growing markets

Guerrillas

2nd tier

Leaders

Mature markets

New guerrillas

?

New global leaders

17

The customer portfolioCustomer Sales/Potential

Large

Small

CustomerRelationship/Service Requirements

Low High

KeyAccounts

Developers

Over-Demanders

Conventional

MiddleMarket

 MajorAccounts

DirectChannels

18

19

The widening rift between profitable and unprofitable customers:

t-15

1 2 3 4 5 6 7 8 9 10

15

1716

1312

10

76

4

1

1 2 3 4 5 6 7 8 9 10

% of total companyprofits

Largest 10%of clients

Smallest 10%of clients

customer decile groups

1 2 3 4 5 6 7 8 9 10

-3

26

29

2220

8

4

-3 -3

1 2 3 4 5 6 7 8 9 10

% of total company

profits

Largest 10%of clients

Smallest 10%of clients

customer decile groups

t.o

% of company profit by customer decile (each decile = 10% of client base)

Adapted from: ‘Profitable customers’ by Charles Wilson

20

Strategic Purchasing

Nurture accountExpand BusinessSeek New Opportunities

CoreCore

NuisanceNuisance

Give Low AttentionLose Without Pain

ExploitableExploitableDrive Premium PriceSeek Short Term Adv.Risk Losing account

SUPPLIER PREFERENCESUPPLIER PREFERENCE

VALUE OF BUSINESS

ATTRACTIVENESS

Based on: Kraljic P HBR 1st Sept 1983 adapted by PIMS )

DevelopmentDevelopment Cosset account

Defend VigorouslyHigh Level of ServiceHigh Responsiveness

21

Differentiation is at the heart of successful marketing

“For marketers, differentiation today is more challenging than at any time in history – yet it remains at the heart of successful marketing. More importantly, it remains the key to a company’s survival.”

22

YOU MUST BE ABLE TO PROVE THAT DEALING WITH YOU WILL CREATE ADVANTAGE FOR YOUR CUSTOMER, NOT MERELY  HELP THEM TO AVOID DISADVANTAGE.

23

Value proposition usage

• 60 – 70% of UK companies use the term within their companies

• Only 5% of UK companies have got clearly articulated written value propositions

Source: McKinsey

24

Customer value• Added value (e.g. revenue gains, service

enhancement, speed etc.)• Cost reduction• Cost avoidance• Emotional contribution (e.g. “feel-good factor",

trust, confidence self esteem, risk reduction etc. )

SKF quantified value proposition

25

Source: SKF

Many activities cross the boundaries - especially information based activities such as:Sales Forecasting, Capacity Planning, Resource Scheduling, Pricing, etc.

Support ActivitiesInfrastructure

Human ResourceManagement

Product & TechnologyDevelopment

Procurement Value Added - Cost= Profit

- Legal, Accounting, Financial Management

- Personnel, Pay, Recruitment, Training, Manpower Planning, etc

- Product and Process Design, Production Engineering, Market Testing, R&D, etc

- Supplier Management, Funding, Subcontracting, Specification

INBOUNDLOGISTICS

OPERATIONS OUTBOUNDLOGISTICS

SALES &MARKETING

SERVICING

eg.Quality ControlReceivingRaw Material Controletc

eg.ManufacturingPackagingProduction ControlQuality ControlMaintenanceetc

eg.Finishing GoodsOrder HandlingDespatchDeliveryInvoicingetc

eg.client mgmtOrder TakingPromotionSales AnalysisMarket Researchetc

eg.WarrantyMaintenanceEducation / TrainingUpgradeetc

Primary Activities

26

27

Tetra Pak is a multi-stage, multi-level partner

Determine food packaging and performance objectives:–Product quality–Liters of output

per hour–Sustainability

targets

Select machinery and packaging

Provide equipment financing

Management training–15 “Train the

Trainer” centers

Increase employee productivity and maximize availability of equipment–Human error

accounts for most equipment failure

Determine distribution requirements :–Shipping

frequency and method

–Wholesale and retail shelf space

–Weight constraints

Test machinery and factory process flow

Quality testing with distributors

Hone product quality

On-site ops. and maintenance training

Optimize parts inventory management–4 distribution

centers for parts

Optimize QC: Who does what to what equipment, when and how–Access to 65

tech service centers

Periodic factory review –Avoid “if it ain’t

broke, don’t fix it”-mentality

Source: http://www.fao.org/ag/AGS/publications/docs/AGST_WorkingDocuments/J7193_e.pdf

Wholesale and retail distribution process flow

Equipment maintenance and parts

Operational fine-tuning & process flow

Installation & start-up

Equipment selection & financing

Supply chain analysis

Channel selection

Periodically obtain feedback –Wholesaler

and retailers

Incorporate feedback into next iteration design

The customer is simply the fulcrum of the business and everything the company does, from supply chain, production, finance, people, risk management and the way it addresses the concerns of other stakeholder groups, all adapt to and converge on the business value proposition that is projected to the customer.

Professor Malcolm McDonald, 2007

28

29

Corporate objectives and strategies• Corporate Objective ( what ): Profit• Corporate Strategies ( how ):

− facilities ( operations, R & D, IT, distribution etc. )− people ( personnel ) − money ( finance )− products and markets ( marketing )− other ( CSR, image etc. )

Page 3030

The overall purpose of marketing is the identification and creation of sustainable competitive advantage.

Shareholder value-adding strategies

31

AssetBase

Define markets& understand

value

Determinevalue

Proposition

Delivervalue

Monitorvalue

Map of the marketing domain

32

Die(quickly)

EffectiveIneffective

Strategy

Tactics

Thrive

Die(slowly) SurviveInefficient

Efficient

33

StupidClever

A Salesperson

Hardworking

Lazy

34

The contents of a strategic marketing plan (T+3)

(less than 20 pages)

35

Financial summary

Market overview– how the market works– key segments and their needs

SWOT analyses

Portfolio summary– of SWOTs

Assumptions

Objectives and strategies

Budget for 3 years

Provider Customer Consumer

The value chain

36

© Professor Malcolm McDonald, Cranfield School of Management

Market Map - Office Equipment

37

Manufacturers

Other

Company’s Route to Market(red)

Final Users Route to Market(black)

Type BDealer Chain

Type BIndependent

Type CDealer Chain

Type CIndependent

VARs

BuyingConsortia

Retail

DirectResponse

Type AIndependent

Type ADealer Chain

Final Users

Direct Field Sales 7%

53%

9%

0%

1%

15%

4%

5%

4%

2%

0%

0%

3%

14%

3%

3%

8%

7%

18%

4%

10%

10%

8%

12%

ColoursRed Black

Leading

institutions

(owned)

Distributor

Sales force

Buying groups

Manufacturers

1300 units

1160 units 0%

Administration

Technicians

Final users

Total market - 1300 unitsCompany's share - 11%

140 units

100%

20 units

140

1300 units

0%200 units

240

160 units

10%

60 units140 units

0%140 units

0%

40 units0%

360 units 300

240 units17%

200 units

0%

620 units

0%

1300 units 460

160

7%300 units

0%

40 units

620 units20 units 0%

140 units

100%

7%300 units

420 units19%

0%60 units

(460) - Units decided on 460

38

Radiator market map

Radiator Manufacturer Distributor Installer Specification Decision

Primary Leverage Point

5455 5455 5455 3400

End User Segment

623

Stelrad227541.7%

1234

1830360

66Nil

70.217.311.2

Nil

Premier86015.8%

1234

555280

26Nil

21.312.8

4.3Nil

Supaline60511.1%

1234

125450

30Nil

4.820.5

5.1Nil

Barlo4808.8%

1234

90270120Nil

3.412.320.7

Nil

Warmastyle3005.5%

1234

5255

40Nil

Nil11.66.9Nil

Other Imports90517.1%

1234

Nil556300

80

Nil25.351.8

100.0

1. NationalMerchants260547.8%

2. LargeIndependents219040.1%

3. SmallIndependents56010.6%

4. Sheds801.4%

5. 1234

295170NilNil

British Gas4658.5%

6. 1234

10651360

360Nil

Installer275550.5%

7. 1234

1135540230Nil

Contractor190534.9%

8. 1234

NilNilNil80

Self Installer801.4%

9. 1234

120130NilNil

Direct Works2504.6%

Manufacturer250

1011121314

Nil250NilNilNil

31.3

Local Authority1350

1011121314

NilNil

105050

250

95.450.027.8

Housebuilder350

1011121314

Nil350NilNilNil

43.8

British Gas700

1011121314

500100

50Nil50

19.612.5

4.5

5.6

Contractor200

1011121314

Nil100NilNil

100

12.5

11.1

Consultant550

1011121314

NilNilNil50

50050.155.6

10. 56789

3852010

10080Nil

PrivateExitsting255546.8%

11. 56789

Nil50

750NilNil

Private New80014.7%

12. 56789

50395506Nil

150

Public Existing110020.2%

13. 56789

NilNilNilNil

100

Public New1001.8%

14. 56789

50300550NilNil

Commercial90016.5%

5455

Distribution SectorShare

39

40

Market segmentation

• Do we address real segments in our key target markets?

• Customer View• Advice• cutting costs• future technology

direction• Help• design & configuration• process engineering• electron commerce• Run• international network• disaster recovery

• Supplier View

• fast PAD family• multimedia FRADs• PIX firewall

• Solutions• Gigabit Ethernet• solutions

• high performance• LAN support

41

Listen to how customers talk about category need

Understand the different category buyers

42

Businessperfectionist

Radical thinkers

Profit engineer

Save mybudget

Businessgeneral

Save mycareer

Conservativetechnocrat

Technicalidealist

Radicalarchitect

“Reward” “Relief”

Technical

Business

STRENGTHS WEAKNESSES

OPPORTUNITIES THREATS

WRONG

43

Setting expectations of performance

44

P

GC

P

GC

P

GC

P

GCHigh Low

High

Low

Mkt/Segmentattractiveness

Supplier business strength with segment

high high/medium

medium low

Streamline

Manage for cash

Streamline

Manage for cash

Strategic

Strategic investment

Strategic

Strategic investment

Status

Pro-active maintenance

Status

Pro-active maintenance

Star

Selective investment

Star

Selective investment

-

key: p= profit c= costs g= growth

High

Low

Relative client Satisfaction

LowHigh

XKey Account Selection Matrix Tool - KA Selection Matrix

Chart

Display Spend:

Display Group: National

Spend with Us

client: College Group Relative client Satisfaction: 0.80 Account Attractiveness: 4.40 Spend

Show GroupsRedraw

Acc

ount

Att

ract

iveness

2

4 127

10

3

8

6

5

1

SupplementaryService Elements

1 Alexander Smith $14,000,0002 Ash & Williams $13,000,0003 College Group $12,000,0004 F T Group $9,900,0005 Harpers $7,600,0006 Parker $9,400,0007 Quality Insurers $16,200,0008 Randsome $14,500,0009 Royal & Co $6,400,00010 Thompson Group $32,000,00011 Tudor Rose $8,000,00012 Woods $11,500,000

clients on Chart X

ID Name Maximum Spend

SupplementaryService Elements

Relationship Stage X

Co-operative

Basic

Exploratory Integrated

Interdependent

11

9

http://www.TheMarketingProcessCo.com

_______________

45

Strategies suggested by portfolio matrix analysis

46

MA

RK

ET

SE

GM

EN

T A

TT

RA

CT

IVE

NE

SS

RELATIVE BUSINESS STRENGTH

INVEST FOR GROWTH:• Gain / Defend leadership• Accept moderate short-term profits and

negative cash flow• Geographic expansion, product line

expansion, product differentiation• Aggressive marketing posture - selling,

advertising, pricing, sales promotion, service levels etc.

Higher

Lower

Higher Lower

MAINTAIN / MANAGE FOR SUSTAINED EARNINGS:

• Manage key product lines, prune less successful product lines

• Differentiate products to maintain share

• Limit marketing expenditure

• Stabilize prices except where a temporary aggressive stance is needed

OPPORTUNISTIC:

• Move to left if resources are available

• Keep a low profile until resources are available

• Divest to a buyer able to exploit the opportunity

SELECTIVE / MANAGE FOR PROFIT & CASH:

• Acknowledge low growth

• Identify / exploit growth segments

• Emphasise quality, avoid commodity

• Improve productivity

• Prune product line aggressively, maximise cash flow, minimise marketing expenditure, maintain or raise prices at expense of volume.

The historic rift between marketers and the finance department, caused by marketing’s

reluctance to be accountable for what they do, is as marked as ever.

“Marketing in 3D”Deloitte

Tense relations between CFOs and Marketers are dividing boardrooms over the value of

marketing.One in three CFOs said they did not believe marketing to be crucial

in determining strategy.

“Marketers have constantly hidden behind a fog of measures that are based purely on tactical marketing activity, rather than solid financial

metrics that are relevant to the City”.

What is Marketing Due Diligence?

Marketing DueDiligence

Risk Assessment

Market Risk:Is the market

there?

Strategy risk:Will we get ourplanned share?

Implementation risk:Will we get ourplanned profit?

48

Profit improvement

Productivity improvement Sales growth

Existing assets Change asset base

Market penetration

Marketdevelopment

Productdevelopment

Increase usage

Takecompetitors’ customers

Newsegments

ConvertNon-users

Existing markets

Newmarkets

Costreduction

ImproveAssetUtilisation (eg more/ better sales calls)

IncreasePrice/Reducediscounts

ImproveProduct/Customermix

Cash and margin focus Growth focus

Investment• Acquisition• Joint ventures• etc

DivestmentRedevelopment of capital resources

Capital Utilisation focus

49

50

Over 40 years of research into the link between long run financial success and excellent marketing strategies reveal the following:

Excellent Strategies• Target needs based segments• Make a specific offer to each segment• Have clear differentiation, positioning

and branding• Leverage their strengths and minimise

their weaknesses• Anticipate the future

Weak Strategies• Target product categories• Make similar offers to all segments• Have no differentiation and poor

positioning and branding• Have little understanding of their

strengths and weaknesses• Plan using historical data

51

Key Elements of World Class Marketing

1. A deep understanding of the market place2. Correct needs-based segmentation and

prioritisation3. Segment-specific propositions4. Powerful differentiation, positioning and

branding5. Effective strategic marketing planning

processes6. Long-term integrated marketing strategies7. A deep understanding of the needs of major

customers8. Market/customer-driven organisation

structures9. Professionally-qualified marketing people10. Institutionalised creativity and innovation

Exploratory

Basic

Cooperative

Interdependent

Integrated

Strategic intent of seller

Strategic intent of buyer

Adapted from a model developed by Millman, A.F. and Wilson, K.J.

“From Key Account Selling to Key Account Management” (1994)

The relational development model

52

Supervisors

Clerks

Operators

Managers

Directors

PurchasingManager

Supervisors

Clerks

Operators

Managers Key AccountManager

SellingSellingCompanyCompany

BuyingBuyingCompanyCompany

Directors

Selling Company Buying CompanyMgrs Mgrs

Operations

Administration

Board

Operations

Administration

Board

Key AcctMgr

Maincontact

Selling CompanySelling Company Buying CompanyBuying CompanyOperationsFocus team

FinanceFocus team

EnvironmentFocus team Market research

Focus team

Key AcctMgr

Maincontact

R&DFocus team

JointBoard Meetings

Directors

Accounts

Marketing Marketing

Service Service

Directors

Accounts

Selling company Buying company

ProductionProduction

Purchasing Manager &Key Account Manager

Inbound logistics &Order processing/

client service?

Integrated

Exploratory Basic

Co-operative

Interdependent

Selling company Buying company

Boa

rd

Adm

in OpsK

AM

gr

Selling company Buying company

Boa

rd

Adm

in OpsK

AM

gr53

Business partnership process1

2

3

4

5

6

7

8

Market / segmentselection criteria

Defining and selectingtarget key accounts

Industry driving forcesanalysis

Client’s annual reportsummary and financialanalysis

Client’s internal valuechain analysis

Client’s buying process and information needsanalysis

Our sales history withthe client

Competitive analysis

Client’s objectivesanalysis

9

For each key account

Client’s

Basic

CSF

Analysis

Process

Ourobjectives,strategiesand planfor T + 3

The ApplicationsPortfolio Analysis

Strategic High Potential

Key Operational Support

GainingAdvantage

AvoidingDisadvantage

54

The market understanding process

55

KA A

KA B

KA C

KA D

Etc.

Marketing Sales Mfg. IT R & DEtc.

Finance &Accounting

HR Logistics

Th

e “

Mar

keti

ng

” D

irec

tor

4

3

2

1

0

MUTUALUNDERSTANDING

Current

In 2 Years

Performance Measurement

LEVEL OF RELATIONSHIP DEVELOPMENT

KA PERCEPTION OF SUPPLIER

Relationship Type

SUPPLIER APPROACH

Customer Interaction

Customisation in Offer

Competitive Position

Customer’s Value Perception

Understanding Customers Business

Solution Selling

Penetration into KA

56

Developing key account professionals

• Commercial awareness

• Interpreting business performance

• Advanced marketing techniques

• Business planning/strategy

• Finance

• Project management

• Interpersonal skills

57

Appendix

58

Marketing Plans 7e

59 59

NEW BOOK! Marketing and Finance

60

Marketing and Finance is a unique and essential addition to the library of senior marketing and finance professionals.

Includes forewords from Anne Godfrey, Chief Executive, CIM and Charles Tilley, Chief Executive, CIMA

Launched: August 2013.

The Updated and Revised 2nd Edition of Marketing Due Diligence

Stocked by:

Prof. Malcolm McDonald free videos and downloads

@www.oxlearn.com

61

Score out of 10Market structure and segmentation• Is there a clear and unambiguous definition of the market we

are interested in serving?• Is it clearly mapped, showing product/service flows,

volumes/values in total, our shares and critical conclusions for our organisation?

• Are the segments clearly described and quantified? These must be groups of customers with the same or similar needs, not sectors.

• Are the real needs of these segments properly quantified with the relative importance of these needs clearly identified?

Differentiation• Is there a clear and quantified analysis of how well our

company satisfies these needs compared to competitors?• Are the opportunities and threats clearly identified by

segment?62

“How good is your strategicmarketing plan ?"

Score out of 10Scope• Are all the segments classified according to their relative potential for

growth in profits over the next three years and according to our company’s relative competitive position in each?

• Are the objectives consistent with their position in the portfolio? (volume, value, market share, profit)

• Are the strategies (including products, services and solutions) consistent with the objectives?

• Are the measurement metrics proposed relevant to the objectives and strategies?

• Are the key issues for action for all departments clearly spelled out as key issues to be addressed?

Value capture• Do the objectives and strategies add up to the profit goals required by our

company?

• Does the budget follow on logically and clearly from all the above, or is it merely an add on?

63

“How good is your strategicmarketing plan ?"