Transcript The operational plan explains how the business is structured, what

Spring 2009
BUSINESS PLANNING
LECTURE 7 & 8
CH 11 & 13
MARKET ANALYSIS
Customer needs should be analysed with a view to
segmenting the market based on their needs. “From
this flows the targeting of particular segments with a
segment-specific marketing mix. This positions
products in the market, based on an understanding
of buyer needs, attitudes and behaviour.”
MARKETING PLAN
Marketing Plan includes
“This chapter covers the most
important aspects of market
analysis and strategy, which
should be sufficient for smaller
businesses. Readers who require
further information about
marketing are advised to consult
specialist marketing textbooks.”
Qualitative
Analysis
• Chapter 11
Quantitative
Analysis
• Chapter 13
MARKETING STRATEGY PROCESS
Marketing Mix:
(The 4 Ps)
•Product
•Price
•Promotion
•Place (Distribution)
SELLING VERSUS MARKETING CONCEPT
Traditional V.S. Current model
MARKETS AND CUSTOMERS
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To better understand the market and buyer behaviour,
marketers should answer the following questions:
What market need does the business address?
What products serve that need?
Who buys the products?
Why do customers buy?
Who makes the buying decision?
Where do customers buy?
A MODEL OF BUYER BEHAVIOUR1
a
model of buyer behaviour in consumer
markets that emphases the stimuli-response
mechanism where buyers react to marketing
and environmental stimuli. Depending on the
personal characteristics of the buyer, the
stimuli will result in a particular buying
decision.
1.Philip Kotler, professor of international marketing at Kellogg School of
Management.
PHILIP KOTLER’S BUYER BEHAVIOUR
MODEL OF BUYER BEHAVIOUR IN CONSUMER
MARKETS
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The value of the model of buyer behaviour is that it
provides an explanation for the demand of a
business’s products, not just as a function of
price, but also as a result of a host of other factors
that are specific to individual consumers or groups
of consumers.
i.e. In purchasing a cup of coffee, consumers are almost not concerned
with price at all and it is the “Buyers’ Characteristics” that points
them towards one or another coffee shop.
UNDERSTANDING CUSTOMERS ...
When selling to businesses or government, the
personal characteristics of a buyer are not entirely
irrelevant, but rational factors outweigh personal
factors. In business-to-business markets,
environmental (demand, pest) and organisational
factors are far more important.
an understanding of customer needs is more easily
achieved by establishing a relationship with the
decision-makers.
MARKET SEGMENTATION
Definition: A market segment is defined as a
sufficiently large group of buyers with a
differentiated set of needs and preferences
that can be targeted with a differentiated
marketing mix
 Goal: Fine-tuning the marketing mix to address
the segment needs will lead to increased sales
/ costs
 Benefit: higher market share in the targeted
segment or the ability to charge a higher price.
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BENEFITS OF MARKET SEGMENTATION,EXAMPLE
i.e. market research revealed that customers are
prepared to pay a substantial premium in terms
of the average per-minute price to have their
preferred tariff plan. By offering a range of tariff
plans aimed at segments with different
preferences, a mobile phone company will not
only win more customers but also reap a higher
average revenue per minute.
i.e. Air travellers
MARKET SEGMENTATION’S RED FLAG
Discrimination: Any discriminatory action by
businesses may cause public opposition and in
some cases boycotts of one’s products or services
Questionnaires: provide guidelines for market
segmentation; They includes the demographics,
questions relating to product attributes and their
relative importance, brand preferences, usage
patterns and willingness to buy, as well as
attitudinal and lifestyle questions
SEGMENTATION METHODS
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Geographic segmentation is increasingly used with geo-marketing
databases. Detailed information about the type of household in particular
postcodes is available to marketers. Often geography is a proxy for a host of
other variables (income, ethnicity, household size) because households with
common attributes tend to cluster in certain areas.
Demographic segmentation includes segmentation based on life-stage
analysis, age, gender, income and social class. In saturated consumer
markets, such traditional measures are often bad at explaining buyer
behaviour because demographics do not necessarily explain needs.
Psychographic segmentation is based on lifestyle, personal values and
attitudes. It is better at identifying clients’ needs or preferences than, for
example, social class, but measurement and tracking are problematic.
Behavioural segmentation is based on customers’ knowledge of the
product, point of purchase, purchase pattern and frequency, intensity of
use, benefits and trade-offs, loyalty and other buyer behaviour factors.
MARKET TARGETING
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In considering which segments to target, the attractiveness of
the segment and the resources available to target it must be
analysed. In general, if a segment can be served profitably it
represents a potential target.
An important aspect of market targeting is marketing
communication. Messages targeted to a particular segment
may not be fit to another segment and can negatively affect
one firm’s image
MARKET TARGETING - MARKET SHARE
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A key variable in any business plan is market
share. Target marketing could explain
convincingly why you hope to achieve a high
share in certain segments but obtain hardly any
sales in other segments
DEVELOPING THE MARKETING MIX
All elements of the marketing mix together
constitute the “offer”.
PRODUCT POSITIONING AND THE VALUE PROPOSITION
Goal: To occupy a distinctive place in the
market
 How: by positioning the product in such a way
that customers readily perceive it as different.
Any element of the marketing mix can be used.
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DIFFERENTIATION STRATEGY QUALIFICATIONS
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The difference must be of additional benefit to the
customer.
A sufficiently large demand must exist for the benefit.
The difference must be readily perceived.
It must be easy to communicate the difference and the
benefits associated with it.
The difference must be an improvement compared with
existing offers.
The incremental cost of producing the difference must
be lower than the incremental revenue.
DIFFERENTIATION STRATEGY
For some products differentiated positioning is
everything but the product
i.e.
 Mobile phone companies are selling essentially
the same service to all customers. However,
tariffs, distribution, bundling and options differ
depending on the segment the particular offer is
aimed at.
 Some manufacturers sell exactly the same
physical product under two different brands with
different packaging, distribution and pricing.
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PRODUCT POSITIONING MAP(CAR MANUF.)
To create the
diagram you
must carry out
a market
research
survey with a
sufficiently
large sample
PRODUCT POSITIONING MAP(3D)
Brand D
RESULTING MARKETING STRATEGY FORM PART
OF THE MARKETING PLAN
The marketing plan therefore contains a detailed description
of the marketing mix and guidelines for the
implementation of the business’s marketing programs.
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The product positioning against competitors should be explained.
The target market segments should be identified and sized.
Product specifications should be included and features should be
described in terms of customer needs and benefits.
If distribution involves wholesalers and retailers they should be
named, and, if possible, there should be confirmation from key
wholesalers and retailers that they are willing to carry the product.
Retail and wholesale margins and incentives should be detailed.
The advertising and promotions budget must be broken down into
programmes, and possibly a rudimentary media plan should be
included.
Customer service, guarantees, order fulfilment and after-sales
service must be addressed.
The operational plan explains how the business is
structured, what resources are required and how
these resources are employed to achieve the
strategic objectives. It explains how investors’
money is spent. In financial terms, it provides
most operational expenditure items and all
capital expenditure items as inputs into the
business planning model.
OP contains: A description of the organisational structure,
including an organisation chart, human resources as one of
the most important resources of a business, and payroll and
related costs account for a large part of operational
expenditure.
THE OPERATIONAL PLAN
CHAPTER 13
Why do we need an O.P: To explain how the business will
actually carry out its activity, an operational plan is required.
 The operational plan drives capital expenditure (capex) and
operational expenditure (opex). The business plan modelling
of these is discussed in Chapter 14
What does it deliver: OP is central to the allocation of resources.
It uses inputs from the marketing plan to scale operations in
order to deliver what is set out in the marketing plan, and it
includes information about all stages of primary value chain
activities as well as support activities.
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LEGAL FORMS OF BUSINESS
One of the first steps is to decide the legal form of the
business: sole trader, partnership, limited liability
partnership, limited company, or another corporate
form that may be available in different jurisdictions.
in some countries, such as the UK and the United States, a business can be
set up quickly (often in one day) and cheaply, but in others the process
can take up to two months
FORMALITIES
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Company formation (registration)
Location of registered office
Appointment of accountant and auditor
Appointment of company secretary (Corporate Secretary)
Registration of business in commercial register or chamber
of commerce
Membership of industry associations
Registration with the tax authorities
VAT registration (Value Added Tax)
Registration of internet domain name
Establishment of company bank account and payment
facilities
Registration of trade marks
FORMALITIES
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Corporate Secretary: The company secretary
ensures that an organisation complies with relevant
legislation and regulation, and keeps board
members informed of their legal responsibilities.
Company Secretaries are the company’s named
representative on legal documents, and it is their
responsibility to ensure that the company and its
directors operate within the law. It is also their
responsibility to register and communicate
with shareholders, to ensure that dividends are paid
and to maintain company records, such as lists
of directors and shareholders, and annual accounts.
ORGANISATIONAL STRUCTURE
The organisational structure itself should be consistent
with the vision and objectives of the business and can
be a source of competitive advantage.
Organization Chart: It identifies the departments, lines of
reporting, span of control and staff numbers.
Departments reflect the specialist skills that are necessary
to deliver value to the customer.
Reporting lines identify responsibilities, power and
information flow. The number of subordinates directly
controlled by a manager or supervisor is referred to as
span of control
ORGANISATIONAL STRUCTURE
The organisational structure itself should be
consistent with the vision and objectives of the
business and can be a source of competitive
advantage. The structure of an organisation will
depend on size, geographic scope and type of
 industry.
Organization Chart: It identifies the departments,
lines of reporting, span of control and staff
numbers.
Departments reflect the specialist skills that are
necessary to deliver value to the customer.
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ORGANISATIONAL STRUCTURE
The organisational structure itself should be
consistent with the vision and objectives of the
business and can be a source of competitive
advantage. The structure of an organisation will
depend on size, geographic scope and type of
industry.
Organization Chart: It identifies the departments,
lines of reporting, span of control and staff
numbers.
Departments reflect the specialist skills that are
necessary to deliver value to the customer.
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FUNCTIONAL STRUCTURE
divides the business along the main value
chain activities, with each function reporting to
the top management. This type of structure is
simple and provides clear reporting lines.
 suitable for small companies because people
can communicate easily and are usually aware
of what other departments are doing
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DIVISIONAL STRUCTURE
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A divisional structure may be particularly
appropriate where the SBUs are also physically
separate, for example located at different sites
or even in different countries. some functions,
such as R&D, may still be centralised.
DIVISIONAL STRUCTURE
The divisions may be strategic business units
(SBUs), which can be extremely diverse with
very different products and markets. The
structure must be tailored to meet the needs of
each SBU
 functions, notably support functions of the
value chain such as finance, human resources,
and research and development, may be located
at head-office level
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CENTRALIZED V.S. DECENTRALIZED DIVISIONAL
STRUCTURE
The more decentralised an organisation is, the
easier it is to apply a product-portfolio
approach to strategy development.
The product portfolio approach
assigns
strategic
roles
for each
 Decentralisation
may
also
imply
duplication
product based on the product’s market growth rate and market share
and
inabilityThese
to exploit
cross-divisional
relativethe
to competitors.
individual roles
are then
integrated into a strategy for the whole portfolio of products,
synergies.
taking into consideration the product portfolios of the main
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competitors. The objective is to optimize the performance of
the entire portfolio of products, while maintaining cash flow
in balance.
HOLDING COMPANY STRUCTURE
A holding company is a small unit controlling a
collection of independent companies which
may not even be wholly owned subsidiaries.
 The holding-company functions are reduced to
a few support functions such as finance and
overall strategic planning.
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MATRIX STRUCTURE
The matrix structure combines elements of the
functional and divisional structure
 The dichotomy of the product-management,
(product portfolio), approach and functional
organisation is resolved by adopting a matrix
organisational structure.
 Conflicts can arise if reporting structures or
responsibilities are not clear. Therefore effective
communication plays a very important role in this
model.
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MATRIX STRUCTURE – CONFLICT
i.e. In the case of the telephony company, the quality
of service the business product manager
(Functional) requires may be different from what
the consumer product manager (Divisional)
requires, but this cannot be provided because the
network is the same.
There has to be a final arbiter who is by rank above
the product managers, but the responsibility of
delivering margin for a product always stays with
the product managers
FUNCTIONAL STRUCTURE
DIVISIONAL STRUCTURE
MATRIX STRUCTURE
THE MANAGEMENT TEAM AND CORPORATE
GOVERNANCE
Importance: A new investment is a bet on the
future where the odds are substantially improved if
the business is run by managers who can not only
execute the plan but also respond flexibly to
changes in the environment as they arise
 Board of directors (including non-executive
directors), top management and key functional
managers must be identified by name. Their CVs
should be in the appendix to the business plan.
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HUMAN RESOURCE MANAGEMENT
Includes: staff numbers, recruitment, retention,
training and redundancy or layoffs
 Importance: they are a major driver of
operational costs which consist of salary and
related costs such as employer’s contribution
to insurance, pensions and training, also office
space, workstations and other items
HUMAN RESOURCE ISSUES TO BE ADDRESSED
Human resource issues to be addressed in the business
plan include:
 Appropriate staffing to cover shifts, holidays, illness.
 Span of control, that is, how many managers per staff.
 Salary levels.
 Are trained staff available or do staff have to be trained.
 Continuing training.
 Recruitment costs.
 Staff turnover.
 Employment legislation (working hours, work
environment, health and safety,pensions, redundancy).
PHYSICAL INFRASTRUCTURE
Importance: Investors want to know what their
money is being spent on
 Consists of: The infrastructure comprises all
major assets, new assets that have to be
acquired, and their function and physical
location. Such assets include office space,
production facilities, it and support systems,
vehicles and any other facility used by the
organisation.
CAPITAL AND OPERATIONAL EXPENDITURE
The operational plan drives capital expenditure
(capex) and operational expenditure(opex). The
business plan modelling of these is discussed in
Chapter 14
 The manner in which opex and capex are modelled
should reflect the organisational structure. This
will make it easier to understand the link between
the financials and operations
 The linkage between organisational structure and
financials makes it possible to identify the cost of
particular activities. As a result...
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CAPITAL AND OPERATIONAL EXPENDITURE
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As a result, the profitability of SBUs or products
can be substantiated not just at gross margin
level (see Chapter 11) but also at EBIT
(earnings before interest and tax) level.