Building a Marketing Plan: Chapter Five: Marketing Objectives and Strategy Formulation
BEP119
January 31, 2011
CHAPTER FIVE
Marketing Objectives and
Strategy Formulation
From Building a Marketing Plan
By Ho Yin Wong, Kylie Radel, and Roshnee Ramsaran-Fowda
© 2011 by Business Expert Press. All rights reserved.
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CHAPTER 5
Marketing Objectives and
Strategy Formulation
Now that we have completed the situation analysis, we’ll develop the
marking plan itself. A marketing plan by defi nition means developing
ways and means of achieving the corporate goals through utilization of
the available resources and satisfying our target markets.
Th is chapter discusses setting marketing objectives in the market
planning process. Th e objectives developed for the marketing plan need
to be consistent with the business plan, the overall corporate strategic
plans, or both. First, this chapter provides an overview of the nature of
marketing objectives. Second, it discusses formulating marketing objec-
tives, then introduces the diff erent types of marketing objectives. Finally,
the chapter covers the stating of marketing objectives.
The Nature of Marketing Objectives
Many authors agree that few steps are as critical in marketing planning
as setting objectives. Objectives are designed to ensure the organization
Learning Objectives
After reading this chapter, you should be able to
• understand why it is crucial to set marketing objectives,
• develop and understand the Boston Consulting Group
product- portfolio matrix,
• develop and understand the Ansoff product- market matrix,
• develop specifi c, measurable, achievable, realistic, and time-
ound (SMART) marketing objectives.
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60 BUILDING A MARKETING PLAN
knows what its strategies are expected to achieve and when a strategy
has achieved its purpose.1 Corporate objectives set the overall direction
for the organization, while marketing objectives provide direction for
the organization’s marketing eff orts. As the corporate objectives provide
direction for the organization, these objectives need to be considered or
adhered to when formulating the marketing objectives. Th e relationships
etween corporate objectives and strategies and departmental objectives
and strategies are represented in Figure 5.1.
In simpler terms, corporate objectives are what the business wants to
achieve, and they describe a destination or a result. Corporate objectives
are often expressed in terms of profi t. Profi t satisfi es shareholders and
owners and is an accepted measure of effi ciency. Corporate- level objec-
tives, however, are essentially meaningless unless all departments work
together to achieve these goals.
Marketing objectives are concerned with what products are to be sold
to which markets. Marketing objectives may address desired growth,
market share, or profi ts for products in specifi c markets. While there are
no universally accepted standards or procedures for setting or measuring
marketing objectives, as a guide, marketing objectives should2
Figure 5.1. Relationships between corporate- and marketing- level
objectives and strategies.
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MARKETING OBJECTIVES AND STRATEGY FORMULATION 61
• provide a tangible guide for action;
• provide specifi c actions to follow;
• suggest tools to measure and control eff ectiveness;
• be ambitious enough to be challenging;
• take account of the company’s strengths and weaknesses,
capitalize on opportunities, and avoid or minimize potential
threats;
• be well matched with corporate objectives and individual prod-
uct line objectives.
Th erefore, marketing objectives should provide specifi c, quantita-
tive guides to what you will achieve and how it will be done. It is good
practice to set short- term (up to one- year) and longer- term (two- to
three- year) marketing objectives. Even if you do not have long- term
planning, developing long- term objectives forces you to think about the
future and consider the long- term implications of your short- term mar-
keting objectives.
Formulating Marketing Objectives
When formulating marketing objectives, start with
oad objectives and
then concentrate on setting na
ow and more specifi c strategies and tasks.
Organizations may start with three sets of
oad objectives:
1. Th ose that are easily attainable
2. Th ose that are most desirable
3. Th ose that are optimistic3
Th e easily attainable objectives will almost certainly be achieved; how-
ever, the organization should strive for those that are most desirable or
even optimistic.
The Boston Consulting Group (BCG)
Product Portfolio Matrix
A useful tool when developing marketing objectives is the Boston Con-
sulting Group (BCG) product portfolio matrix. While profi ts do not
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62 BUILDING A MARKETING PLAN
always indicate product portfolio performance well— since they only
efl ect changes in the liquid assets of the organization, such as capital
equipment, stocks, and receivables— cash fl ow is a more appropriate
indicator of a organization’s ability to develop its product portfolio.4 Th e
BCG matrix provides a graphic representation for diversifi ed organiza-
tions to make decisions about their use of resources to support specifi c
usiness units. Th e BCG matrix classifi es an organization’s business units
according to its cash usage and its cash generation using market growth
and relative market share.5
You can decide to plot business units, product lines,
ands, or indi-
vidual products. In our case, we will use the BCG matrix to examine
ands or product lines, but the principles are the same for the other
areas. Remember, though, the BCG matrix has limitations. It is not par-
ticularly relevant for public sector organizations, as market share and
growth are not useful measures in these industries.6 Th e BCG matrix may
e drawn as shown in Figure 5.2.
An organization may have several products or product lines across a
number of the matrix quadrants and would benefi t from understanding
the impact of their positions:
Figure 5.2. Boston Consulting Group product portfolio matrix.
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MARKETING OBJECTIVES AND STRATEGY FORMULATION 63
• Brands or product lines classifi ed as stars have great potential to
generate cash; however, they are often expensive to maintain in
this position. Stars often require a great deal of investment in
promotion, research and development, and fi xed and operating
costs to maintain their market leadership.
• Cash cow
ands or product lines have an established market
and good cash generation. Th ey are typically market lead-
ers where there is little additional growth and do not require
signifi cant cash to maintain that position.
• Question marks have not yet achieved a dominant market
position and may use a great deal of cash to push them into a
star category, but they have high growth potential. Question
marks are often refe
ed to as “wildcats” or “problem children,”
as these
ands or lines may be unpredictable in the market.
• Dogs often have little future. Th ey have low relative market
share with low growth potential. Th ey represent a drain on
cash reserves. If positioned closer to the cash cow quadrant,
these
ands or lines may be known as “cash dogs” and can
usually be harvested— that is, they are allowed to generate as
much profi t as possible for no investment. If they are a “true
dog,” these
ands or lines should be divested7— deleted from
the product portfolio.
Relative Market Share Decisions
Diff erent products and
ands have to be managed diff erently. Like com-
panies, products have strengths and weaknesses, and these strengths and
weaknesses need to be balanced carefully to ensure that companies main-
tain market leadership, profi tability, cash fl ow, and growth. Th e BCG
matrix provides a powerful tool to visually assess the company’s prod-
uct portfolio position, which then provides indicators of the policies and
objectives for each product or
and. An example of the BCG matrix as it
may be used is provided in Figure 5.3.
In terms of market share, when plotted on the matrix, the relative
size of the circle indicates the relative size of your company’s sales volume
in relation to your largest competitor’s sales. You can also indicate the
profi t contribution of the product by including a segment in the circle.8
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64 BUILDING A MARKETING PLAN
As you can see in Figure 5.3, the cash cow products’ profi t contributions
are much higher than the star product.
Determining the relative market share— the position on the matrix
for each product or
and— is a critical decision. For a simple calculation
of the relative market share, divide your share by your largest competitor’s
share (volume of sales). A ratio greater than one indicates your product is
the market leader.9 Greater market share often (but not always) indicates
a greater return on investment (ROI). For example, see Table 5.1.
Market Growth Decisions
Market growth decisions may refl ect the stage of the product life cycle
(PLC).10 For example, star products are often in the growth stage of the
Figure 5.3. BCG product portfolio matrix example.
Table 5.1. Calculation for Market Share Decisions
Product Your market
share
(volume of sales)
Largest
competitor’s
market share
(volume of sales)
Ratio
Product A XXXXXXXXXX ÷ 10 = 2.00
Product B XXXXXXXXXX ÷ 60 = 0.67
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MARKETING OBJECTIVES AND STRATEGY FORMULATION 65
PLC, while cash cow products are usually in the maturity stage. Dogs are
often in the decline stage, and question marks may be in the introductory
or early growth stages (the stage of signifi cant competitive tu
ulence).
A further consideration here is the relative cash fl ow generated by each
product or
and.11 Stars have high cash generation but also have high
cash usage. Question marks have low cash generation but high cash
usage. Cash cows have high cash generation and low cash usage, and dogs
generally have low cash generation and low cash usage.
To position your products or
ands along the horizontal axis, you
usually consider up to four criteria: (a) the size of the market, (b) the
growth rate of the market, (c) the ease of entry into the market, and
the (d) life- cycle position. Estimate which of these is the most to least
important to your organization, awarding each a percentage value (out
of 100%), and rate each of your products according to these criteria. For
example, assume you have assigned weightings to each criterion as rep-
esented in the following table. For each product, the weightings don’t
change, but now assign a rating out of four against each criterion for
each product. So for product A, the calculation of the