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C H A P T E R 1

Foundations of StrategicMarketing Management

The primary purpose of marketing is to create long-term and mutuallybeneficial exchange relationships between an entity and the publics(individuals and organizations) with which it interacts. Though this fun-damental purpose of marketing is timeless, the manner in which organi-

zations undertake it continues to evolve. No longer do marketing managers functionsolely to direct day-to-day operations; they must make strategic decisions as well. Thiselevation of marketing perspectives to a strategic position in organizations hasresulted in expanded responsibilities for marketing managers. Increasingly, they findthemselves involved in charting the direction of the organization and contributing todecisions that will create and sustain a competitive advantage and affect long-termorganizational performance.

The transition of the marketing manager from being only an implementer tobeing a maker of organization strategy has resulted in (1) the creation of the chiefmarketing officer (CMO) position in many organizations and (2) the popularity ofstrategic marketing management as a course of study and practice. Today, almost one-half of Fortune 1000 companies have a CMO. Although responsibilities vary acrosscompanies, a common expectation is that a CMO will assume a leadership role indefining the mission of the business; analysis of environmental, competitive, and busi-ness situations;developing business objectives and goals;and defining customer valuepropositions and the marketing strategies that deliver on these propositions. The skillset required of CMOs includes an analytical ability to interpret extensive market andoperational information, an intuitive sense of customer and competitor motivations,and creativity in framing strategic marketing initiatives in light of implementationconsiderations and financial targets and results.1 Strategic marketing managementconsists of five complex and interrelated processes.

1. Defining the organization’s business, mission, and goals

2. Identifying and framing organizational growth opportunities

3. Formulating product-market strategies

4. Budgeting marketing, financial, and production resources

5. Developing reformulation and recovery strategies

The remainder of this chapter discusses each of these processes and their relation-ships to one another.

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■ DEFINING THE ORGANIZATION’S BUSINESS, MISSION, AND GOALS

The practice of strategic marketing management begins with a clearly stated businessdefinition, mission, and set of goals or objectives. A business definition outlines thescope of a particular organization’s operations. Its mission is a written statement oforganizational purpose. Goals or objectives specify what an organization intends toachieve. Each plays an important role in describing the character of an organizationand what it seeks to accomplish.

Business Definition

Determining what business an organization is in is neither obvious nor easy. In manyinstances, a single organization may operate several businesses, as is the case withlarge Fortune 500 companies. Defining each of these businesses is a necessary firststep in strategic marketing management.

Contemporary strategic marketing perspectives indicate that an organizationshould define a business by the type of customers it wishes to serve, the particularneeds of those customer groups it wishes to satisfy, and the means or technology bywhich the organization will satisfy these customer needs.2 By defining a businessfrom a customer or market perspective, an organization is appropriately viewed as acustomer-satisfying endeavor, not a product-producing or service-delivery enterprise.Products and services are transient, as is often the technology or means used to pro-duce or deliver them. Basic customer needs and customer groups are more enduring.For example, the means for delivering prerecorded music has undergone significantchange over the past 30 years. During this period, the dominant prerecorded musictechnologies and products evolved from plastic records, to eight-track tapes, to cas-settes, to compact discs. Today, digital downloading of music is growing. By compari-son, the principal consumer buying segment(s) and needs satisfied have varied little.

Much of the recent corporate restructuring and refocusing has resulted fromsenior company executives asking the question,“What business are we in?” The expe-rience of Encyclopaedia Britannica is a case in point.3 The venerable publishing com-pany is best known for its comprehensive and authoritative 32-volume, leather-boundbook reference series first printed in 1768. In the late 1990s, however, the companyfound itself in a precarious competitive environment. CD-ROMs and the Internet hadbecome the study tools of choice for students, and Microsoft’s Encarta CD-ROM andIBM’s CD-ROM joint venture with World Book were attracting Britannica’s corecustomers. The result? Book sales fell 83 percent between 1990 and 1997. Britannica’ssenior management was confident that the need for dependable and trustworthy infor-mation among curious and intelligent customers remained. However, the technologyfor satisfying these needs had changed. This realization prompted Britannica to rede-fine its business. According to a company official: “We’re reinventing our business.We’re not in the book business. We’re in the information business.” By early 2006, thecompany had become a premier information site on the Internet. Britannica’s sub-scription service (eb.com) markets archival information to schools and public andbusiness libraries. Its consumer Web site (britannica.com) is a source of information forabout 200,000 subscribers and its search engine provides some 150,000 Web sitesselected by expert Britannica staffers for information quality and accuracy.

Business Mission

An organization’s business mission complements its business definition. As a writtenstatement, a mission underscores the scope of an organization’s operations apparentin its business definition and reflects management’s vision of what the organization

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seeks to do. Although there is no overall definition for all mission statements, moststatements describe an organization’s purpose with reference to its customers, prod-ucts or services, markets, philosophy, and technology. Some mission statements aregenerally stated, such as that for Xerox Corporation:

Our strategic intent is to help people find better ways to do great work—by con-stantly leading in document technologies, products and services that improve our cus-tomers’work processes and business results.

Others are more specifically written, like that for Hendison Electronics Corporation.Hendison Electronics Corporation aspires

to serve the discriminating purchasers of home entertainment products whoapproach their purchase in a deliberate manner with heavy consideration of long-term benefits.We will emphasize home entertainment products with superior perfor-mance, style, reliability, and value that require representative display, professionalselling, trained service, and brand acceptance—retailed through reputable electronicspecialists to those consumers whom the company can most effectively service.

Mission statements also apply to not-for-profit organizations. For instance, themission of the American Red Cross is

to improve the quality of human life; to enhance self-reliance and concern for others;and to help people avoid, prepare for, and cope with emergencies.

A carefully crafted mission statement that succinctly conveys organizational pur-pose can provide numerous benefits to an organization, including focus to its market-ing effort. It can (1) crystallize management’s vision of the organization’s long-termdirection and character; (2) provide guidance in identifying, pursuing, and evaluatingmarket and product opportunities; and (3) inspire and challenge employees to dothose things that are valued by the organization and its customers. It also providesdirection for setting business goals or objectives.

Business Goals

Goals or objectives convert the organization’s mission into tangible actions andresults that are to be achieved, often within a specific time frame. For example, the 3MCompany emphasizes research and development and innovation in its business mis-sion. This view is made tangible in one of the company’s goals: 30 percent of 3M’sannual revenues must come from company products that are less than four years old.4

Goals or objectives divide into three major categories: production, financial, andmarketing. Production goals or objectives apply to the use of manufacturing andservice capacity and to product and service quality. Financial goals or objectives focuson return on investment, return on sales, profit, cash flow, and shareholder wealth.Marketing goals or objectives emphasize market share, marketing productivity, salesvolume, profit, customer satisfaction, customer value creation, and customer lifetimevalue. When production, financial, and marketing goals or objectives are combined,they represent a composite picture of organizational purpose within a specific timeframe;accordingly, they must complement one another.

Goal or objective setting should be problem-centered and future-oriented.Because goals or objectives represent statements of what the organization wishes toachieve in a specific time frame, they implicitly arise from an understanding of thecurrent situation. Therefore, managers need an appraisal of operations or a situationanalysis to determine reasons for the gap between what was or is expected and whathas happened or will happen. If performance has met expectations, the questionarises as to future directions. If performance has not met expectations, managers mustdiagnose the reasons for this difference and enact a remedial program. Chapter 3 pro-vides an expanded discussion on performing a situation analysis.

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■ IDENTIFYING AND FRAMING ORGANIZATIONAL GROWTH OPPORTUNITIES

Once the character and direction of the organization have been outlined in itsbusiness definition, mission, and goals or objectives, the practice of strategic market-ing management enters an entrepreneurial phase. Using business definition, mission,and goals as a guide, the search for and evaluation of organizational growth opportu-nities can begin.

Converting Environmental Opportunities into Organizational Opportunities

Three questions help marketing managers decide whether certain environmentalopportunities represent viable organizational growth opportunities:

• What might we do?

• What do we do best?

• What must we do?

Each of these questions assists in identifying and framing organizational growthopportunities. They also highlight major concepts in strategic marketing management.

The what might we do question introduces the concept of environmentalopportunity. Unmet or changing consumer needs, unsatisfied buyer groups, and newmeans or technology for delivering value to prospective buyers represent sources ofenvironmental opportunities for organizations. In this regard, environmental opportu-nities are boundless. However, the mere presence of an environmental opportunitydoes not mean that an organizational growth opportunity exists. Two additional ques-tions must be asked.

The what do we do best question introduces the concept of organizational capa-bility, or distinctive competency. Distinctive competency describes an organization’sunique strengths or qualities, including skills, technologies, or resources that distin-guish it from other organizations.5 In order for any of an organization’s strengths orqualities to be considered truly distinctive and a source of competitive advantage, twocriteria must be satisfied. First, the strength must be imperfectly imitable by competi-tors. That is, competitors cannot replicate a skill (such as the direct-marketing compe-tency of Dell Inc.) easily or without a sizable investment of time, effort, and money.Second, the strength should make a significant contribution to the benefits perceivedby customers and, by doing so, provide superior value to them. For example, the abilityto engage in technological innovation that is wanted and provides value to customersis a distinctive competency. Consider the Safety Razor Division of the Gillette Com-pany.6 Its distinctive competencies lie in three areas: (1) shaving technology and devel-opment, (2) high-volume manufacturing of precision metal and plastic products, and(3) marketing of mass-distributed consumer package goods. These competencies wereresponsible for the Gillete Fusion and Venus razor, which have sustained Gillette’s dom-inance of the men’s and women’s wet-shaving market.

Finally, the what must we do question introduces the concept of success require-ments in an industry or market. Success requirements (also called “key success fac-tors”) are basic tasks that an organization must perform in a market or industry tocompete successfully. These requirements are subtle in nature and often overlooked.For example, distribution and inventory control are critical success factors in the cos-metics industry. Firms competing in the personal computer industry recognize thatthe requirements for success include low-cost production capabilities, access to dis-tribution channels, and continuous innovation.

The linkage among environmental opportunity, distinctive competency, andsuccess requirements will determine whether an organizational opportunity exists.

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A clearly defined statement of success requirements serves as a device for matchingan environmental opportunity with an organization’s distinctive competencies. Ifwhat must be done is inconsistent with what can be done to capitalize on an envi-ronmental opportunity, an organizational growth opportunity will fail to materialize.Too often, organizations ignore this linkage and pursue seemingly lucrative environ-mental opportunities that are doomed from the start. Exxon Mobil Corporationlearned this lesson painfully after investing $500 million in the office products marketover a 10-year period only to see the venture fail. After the company abandoned thisventure, a former Exxon Mobil executive summed up what had been learned:“Don’tget involved where you don’t have the skills. It’s hard enough to make money at whatyou’re good at.”7 By clearly establishing the linkages necessary for success before tak-ing any action, an organization can minimize its risk of failure. An executive for L’eggshosiery illustrates this point when specifying his new-venture criteria:

[P]roducts that can be sold through food and drugstore outlets, are purchased bywomen, . . . can be easily and distinctly packaged, and comprise at least a $500 mil-lion retail market not already dominated by one or two major producers.8

When one considers L’eggs’ past successes, it is apparent that whatever environ-mental opportunities are pursued will be consistent with what L’eggs does best, asillustrated by past achievements in markets whose success requirements are similar.An expanded discussion of these points is found in Chapter 4.

SWOT Analysis

SWOT analysis is a formal framework for identifying and framing organizationalgrowth opportunities. SWOT is an acronym for an organization’s Strengths andWeaknesses and external Opportunities and Threats. It is an easy-to-use frameworkfor focusing attention on the fact that an organizational growth opportunity resultsfrom a good fit between an organization’s internal capabilities (apparent in itsstrengths and weaknesses) and its external environment reflected in the presence ofenvironmental opportunities and threats. Many organizations also perform a SWOTanalysis as part of their goal- or objective-setting process.

Exhibit 1.1 on page 6 displays a SWOT analysis framework depicting representa-tive entries for internal strengths and weaknesses and external opportunities andthreats. A strength is something that an organization is good at doing or some charac-teristic that gives the organization an important capability. Something an organizationlacks or does poorly relative to other organizations is a weakness. Opportunities rep-resent external developments or conditions in the environment that have favorableimplications for the organization. Threats, on the other hand, pose dangers to the wel-fare of the organization.

A properly conducted SWOT analysis goes beyond the simple preparation of lists.Attention needs to be placed on evaluating strengths, weaknesses, opportunities, andthreats and drawing conclusions about how each might affect the organization. Thefollowing questions might be asked once strengths, weaknesses, opportunities, andthreats have been identified:

1. Which internal strengths represent distinctive competencies? Do thesestrengths compare favorably with what are believed to be market or industrysuccess requirements? Looking at Exhibit 1.1, for example, does “proven inno-vation skill”strength represent a distinctive competency and a market successrequirement?

2. Which internal weaknesses disqualify the organization from pursuing certainopportunities? Look again at Exhibit 1.1, and note that the organization acknowl-edges that it has a “weak distribution network and a subpar saleforce.”How might

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E X H I B I T 1 . 1

Sample SWOT Analysis Framework and Representative Examples

Selected Representative Selected RepresentativeInternal External Factors Strengths Weaknesses Factors Opportunities Threats

Experienced Lack of Upturn in the Adverse shifts Management management management Economic business cycle; in foreign

talent depth evidence of exchange growing per- ratessonal dispos-able income

Well thought Weak distribu- Complacency Entry of Marketing of by buyers; tion network; Competition among domestic lower-cost

effective subpar sales competitors foreign advertising force competitorsprogram

Available man- Higher overall Unfulfilled Growing Manufacturing ufacturing production costs Consumer customer preference for

capacity relative to key trends needs on high private-label competitors and low end products

of product category sug-gesting a prod-uct line expansion possibility

Proven inno- Poor track Patent protec- Newer R&D vation skills record in Technology tion of com- substitute

bringing inno- plementary technologiesvations to the technology imminentmarketplace ending

Little debt Weak cash Falling trade Increased U.S.Finance relative to flow position Legal/ barriers in regulation of

industry regulatory attractive product-testingaverage foreign markets procedures

and labeling

Unique, high- Too narrow a New distribu- Low-entry Offerings quality product line Industry/ tion channels barriers for

products market evolving that new structure reach a broader competitors

customer population

this organizational weakness affect the opportunity described as “new distribu-tion channels evolving that reach a broader customer population”?

3. Does a pattern emerge from the listing of strengths, weaknesses, opportunities,and threats? Inspection of Exhibit 1.1 reveals that low-entry barriers into themarket/industry may contribute to the entry of lower-cost foreign competitors.This does not bode well for domestic competitors labeled as “complacent”andthe organization’s acknowledged high production costs.

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■ FORMULATING PRODUCT-MARKET STRATEGIES

In practice, organizational opportunities frequently emerge from an organization’sexisting markets or from newly identified markets. Opportunities also arise for exist-ing, improved, or new products and services. Matching products and markets to formproduct-market strategies is the subject of the next set of decision processes.

Product-market strategies consist of plans for matching an organization’s existingor potential offerings with the needs of markets, informing markets that the offeringsexist, having offerings available at the right time and place to facilitate exchange, andassigning prices to offerings. In short, a product-market strategy involves selectingspecific markets and profitably reaching them through an integrated program called amarketing mix.

Exhibit 1.2 classifies product-market strategies according to the match betweenofferings and markets.9 The operational implications and requirements of each strat-egy are briefly described in the following subsections.

Market-Penetration Strategy

A market-penetration strategy dictates that an organization seeks to gain greaterdominance in a market in which it already has an offering. This strategy involvesattempts to increase present buyers’ usage or consumption rates of the offering, toattract buyers of competing offerings, or to stimulate product trial among potentialcustomers. The mix of marketing activities might include lower prices for the offer-ings, expanded distribution to provide wider coverage of an existing market, andheavier promotional efforts extolling the “unique” advantages of an organization’soffering over competing offerings. For example, following the acquisition of Gatoradefrom Quaker Oats, PepsiCo has announced that it expects to increase Gatorade’salready dominant share of the sports drink market through broader distribution, newflavors, and more aggressive advertising.10

Several organizations have attempted to gain dominance by promoting more fre-quent and varied usage of their offering. For example, the Florida Orange GrowersAssociation advocates drinking orange juice throughout the day rather than for break-fast only. Airlines stimulate usage through a variety of reduced-fare programs and vari-ous family-travel packages designed to reach the primary traveler’s spouse andchildren.

Marketing managers should consider a number of factors before adopting a pene-tration strategy. First, they must examine market growth. A penetration strategy is usu-ally more effective in a growth market. Attempts to increase market share when volumeis stable often result in aggressive retaliatory actions by competitors. Second, they mustconsider competitive reaction. Procter & Gamble implemented a penetration strategy

E X H I B I T 1 . 2

Product-Market Strategies

Markets

Existing New

Market Market penetration development

OfferingsNew offering development Diversification

Existing

New

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for its Folgers coffee in selected East Coast cities, only to run head-on into an equallyaggressive reaction from Kraft Foods’ Maxwell House Division. According to oneobserver of the competitive situation:

When Folger’s mailed millions of coupons offering consumers 45 cents off on a one-pound can of coffee, Maxwell House countered with newspaper coupons of its own.When Folger’s gave retailers 15 percent discounts from the list price . . . , MaxwellHouse met them head-on. [Maxwell House] let Folger’s lead off with a TV blitz. . . .Then [Maxwell House] saturated the airwaves.11

The result of this struggle was no change in market share for either firm. Third,marketing managers must consider the capacity of the market to increase usage orconsumption rates and the availability of new buyers. Both are particularly relevantwhen viewed from the perspective of the conversion costs involved in capturing buy-ers from competitors, stimulating usage, and attracting new users.

Market-Development Strategy

A market-development strategy dictates that an organization introduce its existingofferings to markets other than those it is currently serving. Examples include intro-ducing existing products to different geographical areas (including internationalexpansion) or different buying publics. For example, Harley-Davidson engaged in amarket-development strategy when it entered Japan, Germany, Italy, and France.Lowe’s, the home improvement chain, employed this strategy when it focused atten-tion on attracting women shoppers to its stores.

The mix of marketing activities used must often be varied to reach different mar-kets with differing buying patterns and requirements. Reaching new markets oftenrequires modification of the basic offering, different distribution outlets, or a changein sales effort and advertising.

Like the market-penetration strategy, market development involves a careful con-sideration of competitor strengths and weaknesses and competitor retaliation poten-tial. Moreover, because the firm seeks new buyers, it must understand their number,motivation, and buying patterns in order to develop marketing activities successfully.Finally, the firm must consider its strengths, in terms of adaptability to new markets, inorder to evaluate the potential success of the venture.

Market development in the international arena has grown in importance and usu-ally takes one of four forms: (1) exporting, (2) licensing, (3) joint venture, or (4) directinvestment.12 Each option has advantages and disadvantages. Exporting involves mar-keting the same offering in another country either directly (through sales offices) orthrough intermediaries in a foreign country. Because this approach typically requiresminimal capital investment and is easy to initiate, it is a popular option for developingforeign markets. Procter & Gamble, for instance, exports its deodorants, soaps, fra-grances, shampoos, and other health and beauty products to Eastern Europe andRussia. Licensing is a contractual arrangement whereby one firm (licensee) is given therights to patents, trademarks, know-how, and other intangible assets by its owner(licensor) in return for a royalty (usually 5 percent of gross sales) or a fee. For example,Cadbury Schweppes PLC, a London-based multinational firm, licensed Hershey Foodsto sell its candies in the United States for a fee of $300 million. Licensing provides alow-risk, quick, and capital-free entry into a foreign market. However, the licensor usu-ally has no control over production and marketing by the licensee. A joint venture,often called a strategic alliance, involves investment by both a foreign firm and a localcompany to create a new entity in the host country. The two companies share owner-ship, control, and profits of the entity. Joint ventures are popular because one companymay not have the necessary financial, technical, or managerial resources to enter a mar-ket alone. This approach also often ensures against trade barriers being imposed on theforeign firm by the government of the host company. Japanese companies frequently

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engage in joint ventures with American and European firms to gain access to foreignmarkets. A problem frequently arising from joint ventures is that the partners do notalways agree on how the new entity should be run. Direct investment in a manufactur-ing and/or assembly facility in a foreign market is the most risky option and requiresthe greatest commitment. However, it brings the firm closer to its customers and maybe the most profitable approach for developing foreign markets. For these reasons,direct investment must be evaluated closely in terms of benefits and costs. Directinvestment often follows one of the three other approaches to foreign-market entry.For example, Mars, Inc. originally exported its M&Ms, Snickers, and Mars bars to Russiabut now operates a $200 million candy factory outside Moscow.

Product-Development Strategy

A product-development strategy dictates that the organization create new offerings forexisting markets. The approach taken may be to develop totally new offerings (productinnovation) to enhance the value to customers of existing offerings (product augmen-tation), or to broaden the existing line of offerings by adding different sizes, forms, fla-vors, and so forth (product line extension). Apple Computer’s iPod is an example ofproduct innovation. Product augmentation can be achieved in numerous ways. One isto bundle complementary items or services with an existing offering. For example,embedded software, application aids, and training programs for buyers enhance thevalue of personal computers. Another way is to improve the functional performance ofthe offering. Digital camera manufacturers have done this by improving photo quality.Many types of product-line extensions are possible. Personal-care companies marketdeodorants in powder, spray, and gel forms; Gatorade is sold in more than 20 flavors;and Frito-Lay offers its Lay’s potato chips in a number of package sizes.

Companies successful at developing and commercializing new offerings leadtheir industries in sales growth and profitability. The likelihood of success is increasedif the development effort results in offerings that satisfy a clearly understood buyerneed. In the toy industry, for instance, these needs translate into products with threequalities: (1) lasting play value, (2) the ability to be shared with other children, and(3) the ability to stimulate a child’s imagination.13 Successful commercializationoccurs when the offering can be communicated and delivered to a well-defined buyergroup at a price it is willing and able to pay.

Important considerations in planning a product-development strategy concernthe market size and volume necessary for the effort to be profitable, the magnitudeand timing of competitive response, the impact of the new product on existing offer-ings, and the capacity (in terms of human and financial investment and technology) ofthe organization to deliver the offerings to the market(s). More important, successfulnew offerings must have a significant “point of difference” reflected in superior prod-uct or service characteristics that deliver unique and wanted benefits to consumers.Two examples from General Mills illustrate this view.14 The company introduced Frin-gos, a sweetened cereal flake about the size of a corn chip. Consumers were supposedto snack on them, but they didn’t. The point of difference was not significant enoughto get consumers to switch from competing snacks such as popcorn, potato chips, ortortilla chips. On the other hand, General Mills’ Big G Milk ’n Cereal Bar, which com-bines cereal and a milk-based layer, has succeeded because it satisfies convenience-oriented consumers who desire to “eat and go.”

The potential for cannibalism must be considered with a product-developmentstrategy. Cannibalism occurs when sales of a new product or service come at theexpense of sales of existing products or services already marketed by the firm. Forexample, it is estimated that 75 percent of Gillette’s Gillete Fusion razor volume camefrom the company’s other razors and shaving systems. Cannibalism of this degree islikely to occur in many product-development programs. The issue faced by the manager

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is whether it detracts from the overall profitability of the organization’s total mix ofofferings. At Gillette, the cannibalism rate for Fusion is viewed favorably since its grossprofit margin is significantly higher than the company’s other razors.15

Diversification

Diversification involves the development or acquisition of offerings new to the orga-nization and the introduction of those offerings to publics not previously served bythe organization. Many firms have adopted this strategy in recent years to take advan-tage of perceived growth opportunities.Yet diversification is often a high-risk strategybecause both the offerings (and often their underlying technology) and the public ormarket served are new to the organization.

Consider the following examples of failed diversification. Anheuser-Buschrecorded 17 years of losses with its Eagle Snacks Division and incurred a $206 millionwrite-off when the division was finally shut down. Gerber Products Company, whichholds 70 percent of the U.S. baby-food market, has been mostly unsuccessful in diver-sifying into child-care centers, toys, furniture, and adult food and beverages. Coca-Cola’s many attempts at diversification—acquiring wine companies, a movie studio,and a pasta manufacturer, and producing television game shows—have also proven tobe largely unsuccessful. These examples highlight the importance of understandingthe link between market success requirements and an organization’s distinctive com-petency. In each of these cases, a bridge was not made between these two conceptsand, thus, an organizational opportunity was not realized.16

Still, diversifications can be successful. Successful diversifications typically resultfrom an organization’s attempt to apply its distinctive competency in reaching newmarkets with new offerings. By relying on its marketing expertise and extensive distri-bution system, Procter & Gamble has had success with offerings ranging from cakemixes to disposable diapers to laundry detergents.

Strategy Selection

A recurrent issue in strategic marketing management is determining the consistency ofproduct-market strategies with the organization’s definition, mission and capabilities,market capacity and behavior, environmental forces, and competitive activities. Properanalysis of these factors depends on the availability and evaluation of relevant informa-tion. Information on markets should include data on size, buying behavior, and require-ments. Information on environmental forces such as social, legal, political,demographic, and economic changes is necessary to determine the future viability ofthe organization’s offerings and the markets served. In recent years, for example, orga-nizations have had to alter or adapt their product-market strategies because of politicalactions (deregulation), economic fluctuations (income shifts and changes in disposablepersonal income), sociodemographic trends (increasing racial and ethnic diversity),attitudes (value consciousness), technological advances (the growth of the Internet),and population shifts (city to suburb and northern to southern United States)—toname just a few of the environmental changes. Competitive activities must be moni-tored to ascertain their existing or possible strategies and performance in satisfyingbuyer needs.

In practice, the strategy selection decision is based on an analysis of the costs andbenefits of alternative strategies and their probabilities of success. For example, amanager may compare the costs and benefits involved in further penetrating an exist-ing market to those associated with introducing the existing product to a new market.It is important to make a careful analysis of competitive structure; market growth,decline, or shifts; and opportunity costs (potential benefits not obtained). The prod-uct or service itself may dictate a strategy change. If the product has been purchased

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FORMULATING PRODUCT-MARKET STRATEGIES 11

by all of the buyers it is going to attract in an existing market, opportunities forgrowth beyond replacement purchases are reduced. This situation would indicate aneed to search out new buyers (markets) or to develop new products or services forpresent markets.

The probabilities of success of the various strategies must then be considered.A. T. Kearney, a management consulting firm, has provided rough probability estimatesof success for each of the four basic strategies.17 The probability of a successful diversifi-cation is 1 in 20. The probability of successfully introducing an existing product into anew market (market-development strategy) is 1 in 4. There is a 50–50 chance of successfor a new product being introduced into an existing market (product-development strat-egy). Finally, minor modification of an offering directed toward its existing market (mar-ket-penetration strategy) has the highest probability of success.

A useful technique for gauging potential outcomes of alternative marketing strate-gies is to array possible actions, the response to these actions, and the outcomes in theform of a decision tree, so named because of the branching out of responses fromaction taken. This implies that for any action taken, certain responses can be antici-pated, each with its own specific outcomes. Exhibit 1.3 shows a decision tree.

As an example, consider a situation in which a marketing manager must decidebetween a market-penetration strategy and a market-development strategy. Suppose themanager recognizes that competitors may react aggressively or passively to either strat-egy. This situation can be displayed vividly using the decision-tree scheme, as shown inExhibit 1.4. This representation allows the manager to consider actions, responses, andoutcomes simultaneously. The decision tree shows that the highest profits will result if a

E X H I B I T 1 . 3

Decision-Tree Format

Action Response Outcome

R1 O1

A1

R2 O2

R1 O3

A2

R2 O4

E X H I B I T 1 . 4

Sample Decision Tree

Action Response Outcome

Aggressive competition Estimated profit Market-penetration of $2 millionstrategy

Passive competition Estimated profit of $3 million

Aggressive competition Estimated profit Market-development of $1 millionstrategy

Passive competition Estimated profit of $4 million

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market-development strategy is enacted and competitors react passively. The managermust resolve the question of competitive reaction because an aggressive response willplunge the profit to $1 million, which is less than either outcome under the market-penetration strategy. The manager must rely on informed judgment to assess subjec-tively the likelihood of competitive response. Chapter 3 provides a more detaileddescription of decision analysis and its application.

The Marketing Mix

Matching offerings and markets requires recognition of the other marketing activitiesavailable to the marketing manager. Combined with the offering, these activities formthe marketing mix.

A marketing mix typically encompasses activities controllable by the organization.These include the kind of product, service, or idea offered (product strategy), how it willbe communicated to buyers (communication strategy), the method for distributing theoffering to buyers (channel strategy), and the amount buyers will pay for the offering(price strategy). Each of these individual strategies is described later in this book. Here itis sufficient to note that each element of the marketing mix plays a complementary rolein stimulating a market’s (buyers’) willingness and ability to buy and creating customervalue. For example, communications—personal selling, advertising, sales promotion, andpublic relations—inform and assure buyers that the offering will meet their needs.Marketing channels satisfy buyers’ shopping patterns and purchase requirements interms of point-of-purchase information and offering availability. Price represents thevalue or benefits provided by the offering to buyers.

Formulating the Marketing Mix The appropriate marketing mix for a product orservice depends on the success requirements of the market at which it is directed. The“rightness” of the marketing mix depends on the market served. Consider the case ofCover Girl Cosmetics in China. The marketing mix for Cover Girl in China shares onlyone common element with its marketing mix in other countries—the brand name. Allproduct shades, textures, and colors had to be adjusted to ensure they lookedappealing on Chinese skin. Products have been packaged in small containers thatresemble pieces of colorful candy, unlike other markets. The advertising and saleseffort is localized expressly for the Chinese and on-site beauty consultants assist buyersin Chinese department stores—not in self-service drug or grocery stores as in CoverGirl’s other markets. Cover Girl pricing reflects local competitive conditions.According to Cover Girl’s marketing director, “You can’t just import cosmetics here.Companies have to understand what beauty means to Chinese women and what theylook for, and product offerings, distribution, pricing and communication has to beadjusted accordingly to be right for the market.”18

Internet-based technologies have created another market setting, called the mar-ketspace. Companies that succeed in the new marketspace deliver customer valuethrough the interactive capabilities of these technologies, which allow for greaterflexibility in managing marketing mix elements. For example, online sellers routinelyadjust prices to changing environmental conditions, purchase situations, and pur-chase behaviors of online buyers. Also, interactive two-way Internet-enabled capabili-ties in marketspace allow a customer to tell a seller exactly what his or her buyinginterests and requirements are, making possible the transformation of a product orservice into a customized solution for the buyer. In addition, the purpose and role ofmarketing communications and marketing channels in this market setting change asdescribed in Chapters 6 and 7, respectively.

In addition to being consistent with the needs of markets served, a marketing mixmust be consistent with the organization’s capacity, and the individual activitiesmust complement one another. Several questions offer direction in evaluating an

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organization’s marketing mix. First, is the marketing mix internally consistent? Do theindividual activities complement one another to form a whole, as opposed to frag-mented pieces? Does the mix fit the organization, the market, and the environmentinto which it will be introduced? Second, are buyers more sensitive to some market-ing mix activities than to others? For example, are they more likely to respond favor-ably to a decrease in price or an increase in advertising or sales promotion? Third,what are the costs of performing marketing mix activities and the costs of attractingand retaining buyers? Do these costs exceed their benefits? Can the organizationafford the marketing mix expenditures? Finally, is the marketing mix properly timed?For example, are communications scheduled to coincide with product availability? Isthe entire marketing mix timely with respect to the buying cycle of consumers, com-petitor actions, and the ebb and flow of environmental forces?

Implementing the Marketing Mix Implementation of the marketing mix is as muchan art as a science. Successful implementation requires an understanding of markets,environmental forces, organizational capacity, and marketing mix activities with ahealthy respect for competitor reactions. These topics are raised again in Chapter 10.An example of an implementation with less than successful results is that of A&P’sWEO (Where Economy Originates) program. Prior to implementing the program,A&P had watched its sales volume plateau with shrinking profits, while other groceryretailers continued to increase sales volume and profits.When the WEO program wasinitiated, it emphasized discount pricing (price strategy) with heavy promotionalexpenditures (communication strategy). The program increased sales volume by $800million but produced a profit loss of over $50 million. In the words of one industryobserver at the time:

Its competitors are convinced that A&P’s assault with WEO was doomed from thestart. Too many of its stores are relics of a bygone era. Many are in poor locations [dis-tribution strategy]. . . . They are just not big enough to support the tremendous vol-ume that is necessary to make a discounting operation profitable [capacity] . . . storeslack shelf space for stocking general merchandise items, such as housewares and chil-dren’s clothing [product strategy].19

The product-market strategy employed by A&P could be classified as a market-pen-etration strategy. Its implementation, however, could be questioned in terms of internalconsistency, costs of the marketing mix activities, and fit with organizational capacity.Moreover, the retail grocery industry was plagued at the time by rising food and energycosts. Both environmental factors had a destructive effect on A & P’s strategy success.

■ BUDGETING MARKETING, FINANCIAL, AND PRODUCTION RESOURCES

The fourth phase in the strategic marketing management process is budgeting. Abudget is a formal, quantitative expression of an organization’s planning and strategyinitiatives expressed in financial terms. A well-prepared budget meshes and balancesan organization’s financial, production, and marketing resources so that overall orga-nizational goals or objectives are attained.

An organization’s master budget consists of two parts: (1) an operating budgetand (2) a financial budget. The operating budget focuses on an organization’s incomestatement. Since the operating budget projects future revenues and expenses, it issometimes referred to as a pro forma income statement or profit plan. The financialbudget focuses on the effect that the operating budget and other initiatives (such ascapital expenditures) will have on the organization’s cash position. For example, the

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master budget for General Motors includes an income statement that details revenues,expenses, and profit for existing Hummer models. Its financial budget included thecapital expenditures for the new midsize Hummer H3 model.

In addition to the operating and financial budget, many organizations preparesupplemental special budgets, such as an advertising and sales budget, and relatedreports tied to the master budget. For example, a report showing how revenues,costs, and profits change under different marketing decisions and competitiveand economic conditions is often prepared. As indicated, budgeting is more thanan accounting and finance function. It is an essential element of strategic marketingmanagement as well.

A complete description of the budgetary process is beyond the scope of this section.However,Chapter 2,“Financial Aspects of Marketing Management,”provides an overviewof cost concepts and behavior. It also describes useful analytical tools for dealing with thefinancial dimensions of strategic marketing management, including cost-volume-profitanalysis, discounted cash flow, customer lifetime value analysis, and the preparation ofpro forma income statements.

■ DEVELOPING REFORMULATION AND RECOVERY STRATEGIES

Reformulation and recovery strategies form the cornerstone of adaptive behavior inorganizations. Strategies are rarely timeless. Changing markets, economic conditions,and competitive behavior require periodic, if not sudden, adjustments in marketingstrategy.

Marketing audit and control procedures are fundamental to the developmentof reformulation and recovery strategies. The marketing audit has been defined asfollows:

A marketing audit is a comprehensive, systematic, independent, and periodic exami-nation of a company’s—or business unit’s—marketing environment, objectives, strate-gies and activities with a view of determining problem areas and opportunities andrecommending a plan of action to improve the company’s marketing performance.20

The audit process directs the manager’s attention to both the strategic fit of theorganization with its environment and the operational aspects of the marketing pro-gram. Strategic aspects of the marketing audit address the synoptic question,“Are wedoing the right things?” Operational aspects address an equally synoptic question—“Are we doing things right?”

The distinction between strategic and operational perspectives, as well as theimplementation of each, is examined in Chapter 9. Suffice it to say here that marketingaudit and control procedures underlie the processes of defining the organization’sbusiness, mission, and goals or objectives, identifying external opportunities andthreats and internal strengths and weaknesses, formulating product-market strategiesand marketing mix activities, and budgeting resources. The intellectual process ofdeveloping reformulation and recovery strategies during the planning process servestwo important purposes. First, it forces the manager to consider the “what if” ques-tions. For example,“What if an unexpected environmental threat arises that renders astrategy obsolete?”or “What if competitive and market response to a strategy is incon-sistent with what was originally expected?”Such questions focus the manager’s atten-tion on the sensitivity of results to assumptions made in the strategy-developmentprocess. Second, preplanning of reformulation and recovery strategies, or contingencyplans, leads to a faster reaction time in implementing remedial action. Marshaling andreorienting resources is a time- consuming process itself without additional time lost inplanning.

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■ DRAFTING A MARKETING PLAN

A marketing plan embodies the strategic marketing management process. It is a formal,written document that describes the context and scope of an organization’s marketingeffort to achieve defined goals or objectives within a specific future time period.Marketing plans go by a variety of names depending on their particular focus. Forexample, there are business marketing plans, product marketing plans, and brand mar-keting plans. At Frito-Lay, Inc., for instance, a marketing plan is drafted for a particularbusiness (snack chips), for a product class (potato chips, tortilla chips, corn chips), andfor specific brands (Lay’s potato chips, Doritos tortilla chips, Fritos corn chips). Market-ing plans also have a time dimension. Short-run marketing plans typically focus on aone-year period and are called annual marketing plans. Long-run marketing plans oftenhave a three- to five-year planning horizon.

A formal, written marketing plan represents a distillation of and the attention andthought given the five interrelated analytical processes in this chapter. It is the tangibleresult of an intellectual effort. As a written document, a marketing plan also exhibitscertain stylistic elements. Although there is no “generic”marketing plan that applies toall organizations and all situations, marketing plans follow a general format. The appen-dix at the end of this chapter provides an actual example of a condensed marketingplan for Paradise Kitchens®, Inc., a company that produces and markets a unique lineof single-serve and microwavable Southwestern/Mexican-style frozen chili products.This example illustrates both the substance and style of a five-year marketing plan.

■ MARKETING ETHICS AND SOCIAL RESPONSIBILITY

On a final note, it must be emphasized that matters of ethics and social responsibilitypermeate every aspect of the strategic marketing management process. Indeed, mostmarketing decisions involve some degree of moral judgment and reflect an organiza-tion’s orientation toward the publics with which it interacts. Enlightened marketingexecutives no longer subscribe to the view that if an action is legal, then it is also ethi-cal and socially responsible. These executives are sensitive to the fact that the market-place is populated by individuals and groups with diverse value systems. Moreover,they recognize that their actions will be judged publicly by others with different val-ues and interests.

Enlightened ethical and socially responsible decisions arise from the ability of mar-keters to discern the precise issues involved and their willingness to take action evenwhen the outcome may negatively affect their standing in an organization or the com-pany’s financial interests. Although the moral foundations on which marketing deci-sions are made will vary among individuals and organizations, failure to recognize issuesand take appropriate action is the least ethical and most socially irresponsible approach.A positive approach to ethical and socially responsible behavior is illustrated byAnheuser-Busch, which has spent more than $500 million since 1982 to promoteresponsible drinking of alcoholic beverages through community-based programs andnational advertising campaign. Anheuser-Busch executives acknowledge the potentialfor alcohol abuse and are willing to forgo business generated by misuse of the com-pany’s products. These executives have discerned the issues and have recognized anethical obligation to present and potential customers. They have also recognized thecompany’s social responsibility to the general public by encouraging safe driving andresponsible drinking habits.21

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N O T E S

1. Roger A. Kerin, “Strategic Marketing and the CMO,” Journal of Marketing (October2005):12–14;and Gail McGovern and John A. Quelch,“The Fall and Rise of the CMO,”Strategy &Business (Winter 2004):44–48ff.

2. Derek E. Abell, Defining the Business: The Starting Point of Strategic Planning(Upper Saddle River, NJ: Prentice Hall, 1980); and Roger A. Kerin, Vijay Mahajan, and P. RajanVaradarajan, Contemporary Perspectives on Strategic Market Planning (Boston: Allyn andBacon, 1990).

3. “New Britannica Keeps Pace with Change,” Encyclopaedia Britannica News Release,March 23, 2005.

4. Eric von Hippel, Stephan Thomke, and Mary Sonnack,“Creating Breakthroughs at 3M,”Harvard Business Review (September–October 1999):47–56.

5. Robert A. Pitts and David Lei, Strategic Management: Building and Sustaining Com-petitive Advantage, 4th ed. (St. Paul, MN:West Publishing Company, 2006):6.

6. “Gillette Safety Razor Division,” Harvard Business School case #9-574-058; and“Gillette’s Edge,”BRANDWEEK (May 28, 2001):5.

7. “Exxon’s Flop in Field of Office Gear Shows Diversification Perils,”Wall Street Journal(September 3, 1985):1ff.

8. “Hanes Expands L’eggs to the Entire Family,”Business Week (June 14, 1975):57ff.9. This classification is adapted from H. Igor Ansoff, Corporate Strategy (New York:

McGraw-Hill, 1964): Chapter 6. For an extended discussion on product-market strategies, seeRoger A. Kerin,Vijay Mahajan, and P. Rajan Varadarajan, Contemporary Perspectives on Strate-gic Market Planning (Boston: Allyn and Bacon, 1990):Chapter 6.

10. “In Lean Times, Big Companies Make a Grab for Market Share,” Wall Street Journal(September 5, 2003): A1, A6.

11. H. Menzies,“Why Folger’s Is Getting Creamed Back East,”Fortune (July 17, 1978):69.12. Philip R. Cateora and John L. Graham, International Marketing, 12th ed. (Burr Ridge,

IL:McGraw-Hill/Irwin, 2005):Chapter 11.13. “Hasbro, Inc.,” in Eric N. Berkowitz, Roger A. Kerin, Steven N. Hartley, and William

Rudelius (eds.), Marketing, 5th ed. (Chicago:Richard D. Irwin, 1997):656–657.14. Greg Burns,“Has General Mills Had Its Wheaties?”Business Week (May 8, 1995):68–69;

and Julie Forster,“The Lucky Charm of Steve Sanger,”Business Week (March 26, 2001):75–76.15. “Gillette’s New Edge,”Business Week (February 6, 2006):44.16. Failed diversification attempts, along with advice on diversification, are detailed in

Chris Zook with James Allen, Profit from the Core (Cambridge, MA: Harvard Business SchoolPress, 2001).

17. These estimates were reported in “The Breakdown of U.S. Innovation,”Business Week(February 16, 1976):56ff.

18. “P&G Introduces Cover Girl: U.S. Beauty Brand Gets Local Color,” AdAgeChina.com,downloaded October 25, 2005.

19. Robert F. Hartley, Marketing Mistakes, 5th ed. (New York: John Wiley & Sons, 1992).Items in brackets added for illustrative purposes.

20. Philip Kotler and Kevin Lane Keller, Marketing Management, 12th ed. (Upper SaddleRiver, NJ:Prentice Hall, 2006):719.

21. “Our Commitment to Preventing Alcohol Abuse and Underage Drinking,”beeresponsible.com, downloaded January 10, 2006.

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A P P E N D I X A

A Sample Marketing Plan

Crafting a marketing plan is hard but satisfying work. When completed, a marketingplan serves as a roadmap that details the context and scope of marketing activitiesincluding, but not limited to, a mission statement, goals and objectives, a situationanalysis, growth opportunities, target market(s) and marketing (mix) program, abudget, and an implementation schedule.

As a written document, the plan conveys in words the analysis, ideas, and aspira-tions of its author pertaining to a business, product, and/or brand marketing effort.How a marketing plan is written communicates not only the substance of the market-ing effort but also the professionalism of the author. Writing style will not overcomelimitations in substance. However, a poorly written marketing plan can detract fromthe perceived substance of the plan.

■ WRITING AND STYLE CONSIDERATIONS

Given the importance of a carefully crafted marketing plan, authors of marketing plansadhere to certain guidelines. The following writing and style guidelines generally apply:

• Use a direct, professional writing style. Use appropriate business andmarketing terms without jargon. Present and future tenses with active voiceare generally better than past tense and passive voice.

• Be positive and specific. At the same time, avoid superlatives (“terrific,”“wonderful”). Specifics are better than glittering generalities. Use numbers forimpact, justifying computations and projections with facts or reasonablequantitative assumptions where possible.

• Use bullet points for succinctness and emphasis. As with the list you are reading,bullets enable key points to be highlighted effectively and with great efficiency.

• Use “A-level”(the first level) and “B-level”(the second level) headings undermajor section headings to help readers make easy transitions from one topic toanother. This also forces the writer to organize the plan more carefully. Usethese headings liberally, at least once every 200 to 300 words.

• Use visuals where appropriate. Illustrations, graphs, and charts enable largeamounts of information to be presented succinctly.

• Shoot for a plan 15 to 35 pages in length, not including financial projectionsand appendices. An uncomplicated small business may require only 15 pages,while a new business startup may require more than 35 pages.

• Use care in layout, design, and presentation. Laser or ink-jet printers give amore professional look than do dot matrix printers. A bound report with acover and clear title page adds professionalism.

This appendix is adapted from Roger A. Kerin, Steven W. Hartley, Eric N. Berkowitz, and William Rudelius,Marketing, 8th ed. (Burr Ridge, IL:McGraw-Hill/Irwin, 2006). Used with permission.

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■ SAMPLE FIVE-YEAR ANNOTATED MARKETING PLAN FOR PARADISEKITCHENS®, INC.

The marketing plan that follows for Paradise Kitchens®, Inc. is based on an actual plandeveloped by the company. To protect proprietary information about the company, anumber of details and certain data have been altered, but the basic logic of the planhas been preserved.Various appendices are omitted due to space limitations.

Notes in the margins next to the Paradise Kitchens®, Inc. marketing plan fall intotwo categories:

1. Substantive notes elaborate on the rationale or significance of an element inthe marketing plan.

2. Writing style, format, and layout notes explain the editorial or visual ration-ale for the element.

As you read the marketing plan, you might consider adding your own notes in themargins related to the discussion in the text. For example, you may wish to comparethe application of SWOT analysis and reference to “points of difference” in the Par-adise Kitchens®, Inc. marketing plan with the discussion in Chapter 1. As you readadditional chapters in the text, you may return to the marketing plan and insert addi-tional notes pertaining to terminology used and techniques employed.

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A SAMPLE MARKETING PLAN 19

FIVE-YEAR MARKETING PLAN

Paradise Kitchens®, Inc.

Table of Contents

1. Executive Summary

2. Company Description

Paradise Kitchens®, Inc. was started by cofounders Randall F.Peters and Leah E. Peters to develop and market Howlin’Coyote®

Chili, a unique line of single serve and microwavable Southwest-ern/ Mexican style frozen chili products. The Howlin’Coyote® lineof chili was first introduced into the Minneapolis–St. Paul marketand expanded to Denver two years later and Phoenix two yearsafter that.

To the Company’s knowledge, Howlin’Coyote® is the onlypremium-quality, authentic Southwestern/Mexican-style, frozenchili sold in U.S. grocery stores. Its high quality has gained fast,widespread acceptance in these markets. In fact, same-store salesdoubled in the last year for which data are available. The Companybelieves the Howlin’Coyote® brand can be extended to othercategories of Southwestern/Mexican food products such as tacos,enchiladas, and burritos.

Paradise Kitchens believes its high-quality, high-price strategyhas proven successful. This marketing plan outlines how theCompany will extend its geographic coverage from 3 markets to20 markets by the year 2010.

3. Strategic Focus and Plan

This section covers three aspects of corporate strategy thatinfluence the marketing plan: (1) the mission, (2) goals, and (3) core competence/sustainable competitive advantage ofParadise Kitchens.

MISSION

The mission and vision of Paradise Kitchens are to market linesof high-quality Southwestern/Mexican food products at premiumprices that satisfy consumers in this fast-growing food segmentwhile providing challenging career opportunities for employeesand above-average returns to stockholders.

The Table of Contentsprovides quick access tothe topics in the plan,usually organized bysection and subsectionheadings.

Seen by many experts asthe single most importantelement in the plan, theExecutive Summary, with amaximum of two pages,“sells”the document toreaders through its clarityand brevity.

The Company Descriptionhighlights the recenthistory and recentsuccesses of the organization.

The Strategic Focus andPlan sets the strategicdirection for the entireorganization, a directionwith which proposedactions of the marketingplan must be consistent.This section is not includedin all marketing plans.

The Mission Statementfocuses the activities ofParadise Kitchens for thestakeholder groups to beserved.

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The Situation Analysis is asnapshot to answer thequestion,“Where are wenow?”

GOALS

For the coming five years, Paradise Kitchens seeks to achievethe following goals:

• Nonfinancial goals

1. To retain its present image as the highest-quality line ofSouthwestern/Mexican products in the food categories inwhich it competes.

2. To enter 17 new metropolitan markets.

3. To achieve national distribution in two convenience storeor supermarket chains by 2005 and five by 2006.

4. To add a new product line every third year.

5. To be among the top three chili lines—regardless ofpackaging (frozen, canned) in one-third of the metromarkets in which it competes by 2006 and two-thirds by2008.

• Financial goals

1. To obtain a real (inflation adjusted) growth in earningsper share of 8 percent per year over time.

2. To obtain a return on equity of at least 20 percent.

3. To have a public stock offering by the year 2006.

CORE COMPETENCY AND SUSTAINABLE COMPETITIVE ADVANTAGE

In terms of core competency, Paradise Kitchens seeks toachieve a unique ability (1) to provide distinctive, high-qualitychilies and related products using Southwestern/Mexican recipesthat appeal to and excite contemporary tastes for these productsand (2) to deliver these products to the customer’s table usingeffective manufacturing and distribution systems that maintain theCompany’s quality standards.

To translate these core competencies into a sustainablecompetitive advantage, the Company will work closely with keysuppliers and distributors to build the relationships and alliancesnecessary to satisfy the high taste standards of our customers.

4. Situation Analysis

This situation analysis starts with a snapshot of the currentenvironment in which Paradise Kitchens finds itself by providing abrief SWOT (strengths, weaknesses, opportunities, threats) analysis.After this overview, the analysis probes ever-finer levels of detail:industry, competitors, company, and consumers.

The Goals section sets boththe financial andnonfinancial targets—where possible inquantitative terms—againstwhich the company’sperformance will bemeasured.

Lists use parallelconstruction to improvereadability—in this case aseries of infinitives startingwith “To . . .”

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SWOT ANALYSIS

Figure 1 shows the internal and external factors affecting themarket opportunities for Paradise Kitchens. Stated briefly, thisSWOT analysis highlights the great strides taken by the Companysince its products first appeared on grocers’ shelves. In theCompany’s favor internally are its strengths of an experiencedmanagement team and board of directors, excellent acceptance ofits lines in the three metropolitan markets in which it competes,and a strong manufacturing and distribution system to serve theselimited markets. Favorable external factors (opportunities) includethe increasing appeal of Southwestern/Mexican foods, thestrength of the upscale market for the Company’s products, andfood-processing technological breakthroughs that make it easierfor smaller food producers to compete.

Figure 1. SWOT Analysis for Paradise Kitchens

Internal Factors Strengths Weaknesses

Management Experienced and Small size can entrepreneurial restrict optionsmanagement and board

Offerings Unique, high-quality, Many lower-quality,high-price lower-priceproducts competitors

Marketing Distribution in three No national markets with awareness or excellent acceptance distribution;restricted

shelf space in the freezer section

Personnel Good work force, Big gap if keythough small; employee leaveslittle turnover

Finance Excellent growth in Limited resourcessales revenues may restrict growth

opportunities whencompared to giantcompetitors

Manufacturing Sole supplier ensures Lack economies ofhigh quality scale of huge

competitors

R&D Continuing efforts to Lack of canning andensure quality microwavable food-in delivered products processing expertise

The SWOT Analysisidentifies strengths,weaknesses, opportunities,and threats to provide asolid foundation as aspringboard to identifysubsequent actions in themarketing plan.

Each long table, graph, orphoto is given a figurenumber and title. It thenappears as soon as possibleafter the first reference inthe text, accommodatingnecessary page breaks. Thisalso avoids breaking longtables like this one in themiddle. Short tables orgraphs that are less than 11⁄2 inches are often insertedin the text without figurenumbers because theydon’t cause seriousproblems with page breaks.

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Figure 1. SWOT Analysis for Paradise Kitchens (continued )

External Factors Opportunities Threats

Consumer/Social Upscale market, likely Premium price mayto be stable; limit access toSouthwestern/Mexican mass markets;food category is consumers value afast-growing segment strong brand namedue to growth in Hispanic American population and desire for spicier foods

Competitive Distinctive name and Not patentable;packaging in competitors canits markets attempt to duplicate

product;others betterable to pay slottingfees

Technological Technical break- Competitors havethroughs enable gained economiessmaller food produ- in canning and cers to achieve many microwavable economies available to food processinglarge competitors

Economic Consumer income is Many householdshigh;convenience im- “eating out,”andportant to U.S. bringing preparedhouseholds take-out into home

Legal/Regulatory High U.S. Food & Mergers among large Drug Admin. standards competitors being eliminate fly-by-night approved by competitors government

Among unfavorable factors, the main weakness is the limited sizeof Paradise Kitchens relative to its competitors in terms of the depthof the management team, available financial resources, and nationalawareness and distribution of product lines. Threats include thedanger that the Company’s premium prices may limit access to massmarkets and competition from the “eating-out”and “take-out”markets.

INDUSTRY ANALYSIS: TRENDS IN SPICY AND MEXICAN FOODS

Frozen Foods. According to Grocery Headquarters,consumers are flocking to the frozen-food section of groceryretailers. The reasons:hectic lifestyles demanding increasedconvenience and an abundance of new, tastier, and nutritiousproducts. By 2004, total sales of frozen food in grocery retailers,drugstores, and mass merchandisers, such as Target and Costco(excluding Wal-Mart), reached $27.6 billion. Prepared frozen meals,which are defined as meals or entrees that are frozen and requireminimal preparation, accounted for $7.3 billion, or 26 percent ofthe total frozen-food market, which is shown in Figure 2.

The Industry Analysissection provides thebackdrop for thesub-sequent, more detailedanalysis of competition, thecompany, and the com-pany’s customers.Withoutan in-depth understandingof the industry, the remain-ing analysis may be mis-directed.

Even though relatively brief, this in-depthtreatment of the SpicySouthwestern/Mexicanfood industry in the UnitedStates demonstrates to theplan’s readers the com-pany’s understanding of theindustry in which it com-petes. It gives readers con-fidence that the companythoroughly understands itsown industry.

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Figure 2. Some Frozen Entrees Included in the Prepared Frozen-Food Product Category, 2004

Frozen dinners $1,323 18%

Italian entrees 1,231 17

Meat entrees 721 10

Mexican entrees 506 7

Oriental entrees 479 7

Poultry entrees 1,617 22

Seafood entrees 190 3

Other entrees 1,281 16

Total $7,348 100%

Handheld entrees, such as Hot Pockets ($1.1 billion), comprisea significant portion of the “Other entrees”category. However,frozen pizza/snacks, which are not included in this category,accounted for an additional $3.3 billion in frozen-food sales in2004. Heavy consumers of frozen meals, those who eat five ormore meals every two weeks, tend to be kids, teens, and youngadults 35–44 years old.

Mexican Foods. Currently, Mexican foods such as burritos,enchiladas, and tacos are used in two-thirds of Americanhouseholds. These trends reflect a generally more favorable attitudeon the part of all Americans toward spicy foods that include redchili peppers. Grocery marketers and retailers have tried tocapitalize on this trend by developing meals targeted to those whodesire this type of food. Considering the current desire forconvenience, several major food processors, such as Hormel,TysonFoods, and ConAgra, as well as Hispanic-owned firms, such as Goya(Mission Foods), Ruiz Foods, and Don Miguel’s, have introducedmany new frozen Mexican food entrees over the past few years.The growing Hispanic population in the U.S., about 36 million andalmost $600 billion in purchasing power in 2004, partly explainsthe increasing demand for Mexican food.

COMPETITORS IN THE CHILI MARKET

The chili market represents over $500 million in annual sales.On average, consumers buy five to six servings annually. Theproducts fall primarily into two groups:canned chili (70 percent ofsales) and dry chili (25 percent of sales). The remaining 5 percentof sales go to frozen chili products. Besides Howlin’Coyote®,Stouffer’s offers a frozen chili product (Slowfire Classic’s ChunkyBeef & Bean Chili) as part of its broad line of frozen dinners andentrees. Major canned chili brands include Hormel,Wolf, Dennison,Stagg, Austin’s, and Castleberry’s. Their retail prices range from$1.49 to $2.49. In the fall of 2004, Campbell’s, the world’s largestmaker of soup, and Bush Brothers, a privately held marketer ofbaked beans, will enter the canned chili market. However, Bushwill use a glass bottle to package its Homestyle Chili brand.

As with the IndustryAnalysis, the CompetitorAnalysis demonstrates thatthe company has a realisticunderstanding of who itsmajor competitors are andwhat their marketingstrategies are. Again, arealistic assessment givesconfidence to readers thatsubsequent marketingactions in the plan rest on asolid foundation.

This summary of sales ofkey entrees in the preparedfrozen-food productcategory, showing Mexicanentrees are significant,provides a variety of futureopportunities for ParadiseKitchens.

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Bluntly put, the major disadvantage of the segment’s dominantproduct, canned chili, is that it does not taste very good. A taste testdescribed in an issue of Consumer Reports magazine ranked 26canned chili products “poor”to “fair” in overall sensory quality. Thestudy concluded,“Chili doesn’t have to be hot to be good. Butreally good chili, hot or mild, doesn’t come out of a can.”

Dry mix brands include such familiar spice brands asMcCormick (which has 40 percent of this market), Lawry’s,French’s, and Durkee, along with smaller offerings such as WickFowler’s and Carroll Shelby’s. Their retail prices range from $0.99to $1.49. The Consumer Reports study was more favorable aboutdry chili mixes, ranking them from “fair”to “very good.”

COMPANY ANALYSIS

Currently, Howlin’Coyote® products compete in the chili andMexican frozen entree segments of the Southwestern/Mexicanfood market.While the chili obviously competes as a stand-aloneproduct, its exceptional quality means it can complement suchdishes as burritos, nachos, and enchiladas and can be readily usedas a smothering sauce for pasta, rice, or potatoes. This flexibility ofuse is relatively rare in the prepared food marketplace.WithHowlin’Coyote®, Paradise Kitchens is broadening the position offrozen chili in a way that can lead to impressive market share forthe new product category.

The Company now uses a single outside producer with which itworks closely to maintain the consistently high quality required inits products. The greater volume has increased productionefficiencies, resulting in a steady decrease in the cost of goods sold.

The Company Analysisprovides details of thecompany’s strengths andmarketing strategies thatwill enable it to achieve themission and goals identifiedearlier.

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CUSTOMER ANALYSIS

In terms of customer analysis, this section describes (1) thecharacteristics of customers expected to buy Howlin’Coyote®

products and (2) health and nutrition concerns of Americans today.

Customer Characteristics. Demographically, chili products ingeneral are purchased by consumers representing a broad range ofsocioeconomic backgrounds. Howlin’Coyote® chili is purchasedchiefly by consumers who have achieved higher levels of educationand whose income is $50,000 and higher. These consumersrepresent 50 percent of canned and dry mix chili users.

The household buying Howlin’Coyote® has one to threepeople in it. Among married couples, Howlin’Coyote® ispredominantly bought by households in which both spouses work.While women are a majority of the buyers, single men represent asignificant segment. Anecdotally, Howlin’Coyote® has heard fromfathers of teenaged boys who say they keep a freezer stocked withthe chili because the boys devour it.

Because the chili offers a quick way to make a tasty meal, theproduct’s biggest users tend to be those most pressed for time.Howlin’Coyote®’s premium pricing also means that its purchasersare skewed toward the higher end of the income range. Buyersrange in age from 25 to 54. Because consumers in the westernUnited States have adopted spicy foods more readily than the restof the country, Howlin’Coyote®’s initial marketing expansionefforts will be concentrated in that region.

This “introductory over-view”sentence tells thereader the topics covered inthe section—in this casecustomer characteristicsand health and nutritionconcerns.While thissentence may be omitted inshort memos or plans, ithelps readers see where thetext is leading. Thesesentences are usedthroughout this plan.

The higher-level “Aheading”of CustomerAnalysis has a more dom-inant typeface and positionthan the lower-level “Bheading”of CustomerCharacteristics. Theseheadings introduce thereader to the sequence andlevel of topics covered.

Satisfying customers andproviding genuine value tothem is why organizationsexist in a market economy.This section addresses thequestion of “Who are thecustomers for ParadiseKitchens’products?”

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Health and Nutrition Concerns. Coverage of food issues in theU.S. media is often erratic and occasionally alarmist. BecauseAmericans are concerned about their diets, studies from organiza-tions of widely varying credibility frequently receive significantattention from the major news organizations. For instance, a studyof fat levels of movie popcorn was reported in all the major media.Similarly, studies on the healthfulness of Mexican food have receivedprominent “play”in print and broadcast reports. The high caloriclevels of much Mexican and Southwestern-style food had beenwidely reported and often exaggerated. Some Mexican frozen-foodcompetitors, such as Don Miguel, Mission Foods, Ruiz Foods, andJose Ole, plan to offer or have recently offered more “carb-friendly”and “fat-friendly”products in response to this concern.

Howlin’Coyote® is already lower in calories, fat, and sodiumthan its competitors, and those qualities are not currently beingstressed in its promotions. Instead, in the space and time availablefor promotions, Howlin’Coyote®’s taste, convenience, andflexibility are stressed.

5. Product-Market Focus

This section describes the five-year marketing and productobjectives for Paradise Kitchens and the target markets, points ofdifference, and positioning of its lines of Howlin’Coyote® chilies.

MARKETING AND PRODUCT OBJECTIVES

Howlin’Coyote®’s marketing intent is to take full advantage ofits brand potential while building a base from which other revenuesources can be mined—both in and out of the retail grocerybusiness. These are detailed in four areas below:

• Current markets. Current markets will be grown byexpanding brand and flavor distribution at the retail level. Inaddition, same-store sales will be grown by increasingconsumer awareness and repeat purchases.With thisincrease in same-store sales, the more desirable broker/ware-house distribution channel will become available, increasingefficiency and saving costs.

The chances of success fora new product are signifi-cantly increased if objec-tives are set for the productitself and if target marketsegments are identified forit. This section makes theseexplicit for ParadiseKitchens. The objectivesalso serve as the plannedtargets against whichmarketing activities aremeasured in programimplementation andcontrol.

This section demonstratesthe company’s insights intoa major trend that has apotentially large impact.

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• New markets. By the end of Year 5, the chili, salsa, burrito,and enchilada business will be expanded to a total of 20metropolitan areas. This will represent 70 percent of U.S.food store sales.

• Food service. Food service sales will include chili productsand smothering sauces. Sales are expected to reach$693,000 by the end of Year 3 and $1.5 million by the end ofYear 5.

• New products. Howlin’Coyote®’s brand presence will beexpanded at the retail level through the addition of newproducts in the frozen-foods section. This will be accom-plished through new product concept screening in Year 1 toidentify new potential products. These products will bebrought to market in Years 2 and 3. Additionally, the brandmay be licensed in select categories.

TARGET MARKETS

The primary target market for Howlin’Coyote® products ishouseholds with one to three people, where often both adultswork, with household income typically above $50,000 per year.These households contain more experienced, adventurousconsumers of Southwestern/Mexican food and want premiumquality products.

POINTS OF DIFFERENCE

The “points of difference”—characteristics that make Howlin’Coyote® chilies unique relative to competitors—fall into threeimportant areas:

• Unique taste and convenience. No known competitor offersa high-quality,“authentic”frozen chili in a range of flavors.And no existing chili has the same combination of quickpreparation and home-style taste.

• Taste trends. The American palate is increasingly intriguedby hot spices, and Howlin’Coyote® brands offer more “kick”than most other prepared chilies.

• Premium packaging. Howlin’Coyote®’s high-valuepackaging graphics convey the unique, high-quality productcontained inside and the product’s nontraditionalpositioning.

This section identifies thespecific niches or targetmarkets toward which thecompany’s products aredirected.When appropriateand when space permits,this section often includes aproduct-market matrix.

An organization cannotgrow by offering only“me-too products.” Thegreatest single factor in anew product’s failure is thelack of significant “points ofdifference”that set it apartfrom competitors’ sub-stitutes. This section makesthese points of differenceexplicit.

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POSITIONING

In the past chili products have been either convenient or tasty,but not both. Howlin’Coyote® pairs these two desirable character-istics to obtain a positioning in consumers’minds as very high-quality “authentic Southwestern/Mexican tasting”chilies that canbe prepared easily and quickly.

6. Marketing Program

The four marketing mix elements of the Howlin’Coyote® chilimarketing program are detailed below. Note that “chile”is thevegetable and “chili” is the dish.

PRODUCT STRATEGY

After first summarizing the product line, the approach toproduct quality and packaging is covered.

Product Line. Howlin’Coyote® chili, retailing for $3.99 for an11-ounce serving, is available in five flavors. The five are:

• Green Chile Chili:braised extra-lean pork with fire-roastedgreen chilies, onions, tomato chunks, bold spices, andjalapeno peppers, based on a Southwestern favorite.

• Red Chile Chili: extra-lean cubed pork, deep-red acho chilies, and sweet onions;known as the “Texas Bowl of Red.”

• Beef and Black Bean Chili: lean braised beef with blackbeans, tomato chunks, and Howlin’Coyote®’s own blend ofred chilies and authentic spicing.

• Chicken Chunk Chili:hearty chunks of tender chicken, fire-roasted green chilies, black beans, pinto beans, diced onions,and zesty spices.

• Mean Bean Chili: vegetarian, with nine distinctive beanvarieties and fire-roasted green chilies, tomato chunks,onion, and a robust blend of spices and rich red chilies.

Unique Product Quality. The flavoring systems of the Howlin’Coyote® chilies are proprietary. The products’ tastiness is due toextra care lavished upon the ingredients during production. Theingredients used are of unusually high quality. Meats are low-fatcuts and are fresh, not frozen, to preserve cell structure andmoistness. Chilies are fire-roasted for fresher taste, not the cannedvariety used by more mainstream products. Tomatoes andvegetables are select quality. No preservatives or artificial flavorsare used.

Using parallel structure,this bulleted list presentsthe product line efficientlyand crisply.

A positioning strategy helpscommunicate thecompany’s unique points ofdifference of its products toprospective customers in asimple, clear way. Thissection describes thispositioning.

Everything that has gonebefore in the marketingplan sets the stage for themarketing mix actionscovered in the marketingprogram.

This section describes indetail three key elements ofthe company’s productstrategy: the product line,its quality and how this isachieved, and its “cuttingedge”packaging.

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Packaging. Reflecting the “cutting edge”marketing strategy ofits producers, Howlin’Coyote® bucks conventional wisdom inpackaging. It avoids placing predictable photographs of theproduct on its containers. (Head to any grocer’s freezer and youwill be hardpressed to find a product that does not feature a heavilystylized photograph of the contents.) Instead, Howlin’Coyote®’spackage shows a Southwestern motif that communicates theproduct’s out-of-the-ordinary positioning. This approach signals theproduct’s nontraditional qualities: “adventurous”eating withminimal fuss—a frozen meal for people who do not normally enjoyfrozen meals.

PRICE STRATEGY

Howlin’Coyote® chili is, at $3.99 for an 11-ounce package,priced comparably to the other frozen offerings and higherthan the canned and dried chili varieties. However, thesignificant taste advantages it has over canned chilies and theconvenience advantages over dried chilies justify this pricingstrategy.

PROMOTION STRATEGY

Key promotion programs feature in-store demonstrations,recipes, and cents-off coupons.

In-Store Demonstrations. In-store demonstrations will beconducted to give consumers a chance to try Howlin’Coyote®

products and learn about their unique qualities. Demos will beconducted regularly in all markets to increase awareness and trialpurchases.

Recipes. Because the products’flexibility of use is a key sellingpoint, recipes will be offered to consumers to stimulate use. Therecipes will be given at all in-store demonstrations, on the back ofpackages, and through a mail-in recipe book offer. In addition,recipes will be included in coupons sent by direct-mail or free-standing inserts. For new markets, recipes will be included on in-pack coupon inserts.

Cents-Off Coupons. To generate trial and repeat-purchase ofHowlin’Coyote® products, coupons will be distributed in fourways:

• In Sunday newspaper inserts. Inserts are highly read and willhelp generate awareness. Coupled with in-store

Elements of the PromotionStrategy are highlightedhere with B-headings interms of the three keypromotional activities thecompany is emphasizing forits product line: in-storedemonstrations, recipesfeaturing its Howlin’Coyote® chilies, and cents-off coupons.

This Price Strategy sectionmakes the company’s pricepoint very clear, along withits price position relative topotential substitutes.Whenappropriate and whenspace permits, this sectionmight contain a break-evenanalysis.

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demonstrations, this has been a very successful technique sofar.

• In-pack coupons. Inside each box of Howlin’Coyote® chiliwill be coupons for $1 off two more packages of the chili.These coupons will be included for the first three monthsthe product is shipped to a new market. Doing so encour-ages repeat purchases by new users.

• Direct-mail chili coupons. Those households that fit theHowlin’Coyote® demographics described above will bemailed coupons. This is likely to be an efficient promotiondue to its greater audience selectivity.

• In-store demonstrations. Coupons will be passed out at in-store demonstrations to give an additional incentive topurchase.

DISTRIBUTION STRATEGY

Howlin’Coyote® is distributed in its present markets through afood distributor. The distributor buys the product, warehouses it, andthen resells and delivers it to grocery retailers on a store-by-storebasis. This is typical for products that have moderate sales—compared with, say, staples like milk or bread. As sales grow, we willshift to a more efficient system using a broker who sells the productsto retail chains and grocery wholesalers.

7. Financial Data and Projections

PAST SALES REVENUES

Historically, Howlin’Coyote® has had a steady increase in salesrevenues since its introduction in 1997. In 2001, sales jumped, duelargely to new promotion strategies. Sales have continued to rise,but at a less dramatic rate. The trend in sales revenues appears inFigure 3.

Figure 3. Sales Revenues for Paradise Kitchens®, Inc.

Another bulleted list addsmany details for the reader,including methods ofgaining customerawareness, trial, and repeatpurchases as Howlin’Coyote® enters newmetropolitan areas.

The Distribution Strategy isdescribed here in terms ofboth (1) the presentmethod and (2) the newone to be used when theincreased sales volumemakes it feasible.

All the marketing mixdecisions covered in themarketing program haveboth revenue and expenseeffects. These are summar-ized in this section of themarketing plan.

The graph shows moreclearly the dramatic growthof sales revenue than datain a table would do.

1997

60 210 360600

1650

2428

3174

4067

51235,500

0

4,000

4,500

5,000

3,500

3,000

2,500

2,000

1,500

1,000

500

1998 1999 2000 2001

Year

Sale

s R

even

ues

($1,

000)

2002 2003 2004 2005

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FIVE-YEAR PROJECTIONS

Five-year financial projections for Paradise Kitchens®, Inc.appear below:

Projections

Financial Actual Year 1 Year 2 Year 3 Year 4 Year 5Element Units 2006 2006 2007 2008 2009 2010

Cases sold 1,000 353 684 889 1,249 1,499 1,799

Net sales $1,000 5,123 9,913 12,884 18,111 21,733 26,080

Gross profit $1,000 2,545 4,820 6,527 8,831 10,597 12,717Selling and general and admin.expenses $1,000 2,206 3,835 3,621 6,026 7,231 8,678

Operating

profit (loss) $1,000 339 985 2,906 2,805 3,366 4,039

These projections reflect the continuing growth in number ofcases sold (with 8 packages of Howlin’Coyote® chili per case) andincreasing production and distribution economies of scale as salesvolume increases.

Because this table is veryshort, it is woven into thetext, rather than given atable number and title.

The Five-Year FinancialProjections section startswith the judgment forecastof cases sold and theresulting net sales. Grossprofit and then operatingprofit—critical for thecompany’s survival—areprojected. An actual planoften contains many pagesof computer-generatedspreadsheet projections,usually shown in anappendix to the plan.

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8. Implementation Plan

Introducing Howlin’Coyote® chilies to 17 new metropolitanareas is a complex task and requires that creative promotionalactivities gain consumer awareness and initial trial among thetarget market households identified earlier. The anticipated rolloutschedule to enter these metropolitan markets appears in Figure 4.

Figure 4. Rollout Schedule to Enter New U.S. Markets

New Markets Cumulative Cumulative Percentage Year Added Markets of U.S.Market

Today (2005) 2 5 16

Year 1 (2006) 3 8 21

Year 2 (2007) 4 12 29

Year 3 (2008) 2 14 37

Year 4 (2009) 3 17 45

Year 5 (2010) 3 20 53

The diverse regional tastes in chili will be monitored carefullyto assess whether minor modifications may be required in the chilirecipes. For example, what is seen as “hot”in Boston may not beseen as “hot”in Dallas. As the rollout to new metropolitan areas continues, Paradise Kitchens will assess manufacturing anddistribution trade-offs. This is important in determining whether tostart new production with selected high-quality regional contractpackers.

9. Evaluation and Control

Monthly sales targets in cases have been set for Howlin’Coyote® chili for each metropolitan area. Actual case sales will becompared with these targets and tactical marketing programsmodified to reflect the unique sets of factors in each metropolitanarea. The speed of the roll out program may increase or decrease,depending on Paradise Kitchens’performance in the successivemetropolitan markets it enters. Similarly, as described above in thesection on the implementation plan, Paradise Kitchens may elect torespond to variations in regional tastes by using contract packers,which will reduce transportation and warehousing costs but willrequire special efforts to monitor production quality.

10. Appendices

The Implementation Planshows how the companywill turn plans into results.Gantt charts are often usedto set deadlines and assignresponsibilities for themany tactical marketingdecisions needed to enter anew market.

The essence of Evaluationand Control is comparingactual sales with thetargeted values set in theplan and taking appropriateactions. Note that thesection briefly describes acontingency plan for alter-native actions, dependingon how successful theentry into a new marketturns out to be.

Various appendices mayappear at the end of theplan, depending on thepurpose and audience forthem. For example, detailedfinancial spreadsheets oftenappear in an appendix.

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