Planning and Budgeting the Marketing Mix Part 1: Pages 287 - 295

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CHAPTER 11
Planning and Budgeting the Marketing MixPart 1
Pages 287 - 295
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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

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Core Marketing Strategy

• Six areas a marketing manager must analyze when
  developing the organizations core marketing
  strategy
• Target customers
• Probable changes in future environment
• Potential competition
• Organizational strength and weaknesses
• Organizational structure
• Organizational resources

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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.

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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

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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

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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.

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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.

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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.

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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.

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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.

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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.

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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)

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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

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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

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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.

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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

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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.