Marketing and Finance

Professor Malcolm McDonald was recently cited as one of the top marketing gurus in the world, along with Philip Kotler and Michael Porter and, in a 2006 Times HE piece, he was named as one of the top ten consultants in the UK. He is now Emeritus Professor at Cranfield University School of Management where, until recently, he was Professor of Marketing and Deputy Director. Formerly Marketing Director of Canada Dry, he is Chairman of six companies and works with many of the operating boards of the world’s biggest multinationals on every continent. He is the author of over 40 books, many of which have been translated into several foreign languages and has published hundreds of articles and papers. Malcolm continues to research and teach at Cranfield and other universities around the world, in addition to speaking engagements, visiting lectures, and consultancy work. Professor Brian D. Smith is a world-recognised expert on competitive strategy in pharmaceutical and medical markets. He is Adjunct Professor at Bocconi SDA and Visiting Research Fellow at the Open University Business School, where his research interests include strategy making and implementation in medical markets. He is the editor of the Journal of Medical Marketing and the author of over 200 books, papers and articles in the field of marketing and competitive strategy. He also runs Pragmedic, a specialist strategy consultancy and works with many of the world’s leading pharma and medtech companies. Brian has over 30 years experience in medical technology and pharmaceutical markets in both R&D and commercial roles. He has been a member of the Chartered Institute of Marketing for over 20 years and is a former International Vice Chair of the Board of Trustees. He currently serves on the committees of two CIM groups, The Levitt Group and the Medical Marketing Group.Keith Ward studied economics at Cambridge and then qualified as both a chartered accountant and a chartered management accountant. He worked both in the City and abroad as a consultant and held senior management positions in manufacturing and trading companies (the last being as group financial director of Sterling International). In 1981 Keith joined Cranfield School of Management, where he progressed to become Professor of Financial Strategy, as well as being Head of the Finance and Accounting Group and Director of the Research Centre in Competitive Performance. In addition to his academic work, he developed his own international consultancy practice. He then moved to a Visiting Professorial role at the School, while continuing with his research and consultancy interests, until retiring at the end of 2009. He is the author of a number of books including Marketing Finance. He has also published numerous papers and articles, and contributed to several other books, including as editor.

• Foreword by Anne Godfrey, Chief Executive, CIM xiForeword by Charles Tilley, Chief Executive, CIMA xiiiForeword From the First Edition by Sir Michael Perry, GBE xvA Note for Busy People: How to Get the Best Out of This Book  xixList of Figures xxiList of Tables xxvPart 1 What is Marketing Due Diligence? 1Chapter 1 The lessons of experience 3Fast track 3Introduction 3Success stories 5Starbucks: A holistic offer based on insight and culture 5The Economist: Side stepping in time to the future 6Yamazaki Mazak: Matching itself to the market 7Essilor: Growing the pie 8Failure stories 9Blockbuster: Left behind 9Gateway: Playing a zero-sum game 10Microsoft’s Zune: So what’s better? 11Nortel: Playing the wrong game 12Woolworth’s: Failure to focus 13Seeing a pattern 14Financial smoke and mirrors 14Share and share alike 16Marketing accountability 16A new approach 18Chapter 2 A process of Marketing Due Diligence 21Fast track 21What is marketing? 22What is the connection between marketing and shareholder value? 23What is the Marketing Due Diligence diagnostic process? 25Explicating the strategy 27Assessing the risks 29Assessing shareholder value creation 34What is the Marketing Due Diligence therapeutic process? 39Implications of the Marketing Due Diligence process 41Chapter 3 The implications of implementing Marketing Due Diligence 43Fast track 43The linkage to shareholder value 44The risk and return relationship 45A focus on absolute returns rather than risk 48Using probability estimates to adjust for risk 51Alignment with capital markets 56Turning Marketing Due Diligence into a financial value 57Adjusting marketing planning outcomes 57Placing the adjusted financial return into context 58Allowing for ‘capital at risk’ 60Highlighting deficiencies and key risks 62Implications for users 63Part 2 The Marketing Due Diligence Diagnostic Process 65Chapter 4 Assessing market risk 67Fast track 67Some important background to what constitutes ‘success’ 68Short-term success 68Strategy and tactics 70The strategic marketing plan 71Market risk 71The meaning of ‘product’ and ‘market’ 72Combining product and market 77Product/market growth or decline 78Product and market combined 82Market risk assessment 86Conclusion 93Chapter 5 Assessing share risk 97Fast track 97What do we mean by share risk? 98How do we assess share risk? 100Assessing target market risk 101Assessing proposition risk 103Assessing SWOT risk 106Assessing uniqueness risk 108Assessing future risk 110Assessing other sources of share risk 113Aggregating and applying share risk 116Step 1: Explicate the marketing strategy 117Step 2: Assess the explicated strategy against the sub-components of share risk 117Step 3: Aggregate the sub-components into an overall assessment of share risk 119Step 4: Identify the growth component of the strategy 120Step 5: Moderate the growth component of the strategy to allow for risk 121Step 6: Allow for complex strategies 122The outcomes of share risk assessment 122Chapter 6 Assessing profit risk 125Fast track 125Introduction 126Profit pool risk 129Profit sources risk 135Competitor impact risk 138Internal gross margin risk 142Other costs risks 144Summary 148What do weak marketing strategies look like? 148Part 3 The Marketing Due Diligence Therapeutic Process 151Chapter 7 The key role of market definition and segmentation 153Fast track 153Introduction 154Correct market definition 155A crucial business discipline, not just a philosophical argument 155Market mapping 158Leverage points 162Market segmentation 165How customers vary: Needs-based segmentation 170Some final thoughts 178Chapter 8 Creating strategies that create shareholder value 181Fast track 181Starting from where we are 181Understanding and managing market risk 183Understanding and managing product category and market existence risk 183Understanding and managing sales volume, forecast and pricing risks 189Understanding and managing share risk 191Reducing target market risk 192Reducing proposition risk 192Reducing SWOT alignment risk 196Reducing uniqueness risk 198Reducing future risk 199Other components of share risk 200Understanding and managing profit risk 203Reducing profit pool risk 203Reducing profit source risk 205Reducing competitor impact risk 206Reducing internal gross margin risk 207Reducing other costs risk 209Summary and conclusions 210Chapter 9 Managing high-risk marketing strategies 211Fast track 211Allowing for risk 212Risk equals volatility 213Controllable versus uncontrollable volatility 214Using real option analysis 219Real option example 223Summary 228Chapter 10 Fast track: A summary and reminder of the marketing and finance interface 229The lessons of experience 229A process of Marketing Due Diligence 229The implications of implementing Marketing Due Diligence 231Assessing market risk 232Assessing share risk 233Assessing profit risk 234The key role of market definition and segmentation 236Creating strategies that create shareholder value 237Managing high-risk marketing strategies 238Afterword: What to do now 241References and further reading 243Index 245