Marketing in B2B organisations: as it is; as it

should be – a commentary for change

Malcolm McDonald
School of Management, Cranfield University, Shrivenham, UK

Abstract
Purpose – There are many challenges facing senior marketing people, and this commentary paper, based on the author’s consultancy experience,
teaching expertise and observations of the business-to-business (B2B) environment, aims to address the causal relationship between marketing
expenditure and results, which is holding back marketers from inclusion in the boardroom.
Design/methodology/approach – This paper includes a contextual analysis with questions and answers, giving supporting examples and
facts.
Findings – B2B marketers have work extensively to earn a place in the boardroom. The author remains optimistic that given the increasing
number of chartered marketers (marketing executives qualified to practice via the Chartered Institute of Marketing) and marketing MSc
programmes, B2B marketers will eventually earn the right become the main drivers of corporate strategy, as is the case in the best companies
in the world.
Originality/value – The paper brings valuable insight into enhancing marketing accountability and to provide a better position to marketers in the
boardroom.
Keywords Marketing, Accountability, Budgeting, B2B organisations
Paper type Research paper

Introductory comment 1 – Lack of real The most recent estimate of promotional expenditure alone by
accountability must end the 176,000 B2B marketers in the UK is £9.8bn (Court,
2002). Notoriously, marketing expenditure has tended to
This is the title for a presentation given to the author by the escape rigorous performance appraisal for a number of
organisers of a business-to-business (B2B) conference reasons. Firstly, there has been real confusion as to the true
planned at the University of Bournemouth in April 2012. scope and nature of marketing investments. Marketing
Although this conference was subsequently postponed to the expenditure has been assumed to be only the budgets put
following year, the author was asked to write a commentary for together by the marketing function. Secondly, the causal
this special issue of the Journal of Business and Industrial relationship between expenditure and results has been
Marketing. regarded as too difficult to pin down for any useful level of
The presentation would have begun by providing some precision (Deloitte Report, 2007). Following the Deloitte
context for ten questions that chief executive officers (CEOs) report, however, those days have gone. This paper addresses
and chief marketing officers (CMOs) ask of the senior this issue in some detail in the section on the ten questions
marketing people about the effectiveness of the often being asked by CEOs and CFOs.
substantial budgets they are responsible for following the For the purpose of this paper, the author explains his
Deloitte report of (2007) (Christensen et al., 2008). Some of understanding of what constitutes a marketing budget.
these criticisms are as follow: The marketing budget is not, alas, an unambiguous
The historic rift between marketers and the finance department, caused by concept. It is not just a statement of marketing costs, as it
marketing’s reluctance to be accountable for what they do, is as marked as should include all direct and indirect costs such as: staff costs;
ever.
office and equipment expenses; marketing mix costs
Tense relations between Chief Financial Officers (CFOs) and Marketers are
dividing boardrooms over the value of marketing. One in three FOs said
(packaging, new product launches, modification launches,
they did not believe marketing to be crucial in determining strategy. etc.); pricing discounts, price lists, commission, etc.;
Marketers have constantly hidden behind a fog of measures that are based communications (advertising, media and production costs,
purely on tactical marketing activity, rather than solid financial metrics that sales promotion, PR, sales force and field costs, etc.);
are relevant to the City. distribution (transport of finished goods, storage,
warehousing, etc.).
However, this is not normal practice. It falls into the trap of
The current issue and full text archive of this journal is available on combining controllable and uncontrollable costs. For
Emerald Insight at: www.emeraldinsight.com/0885-8624.htm example, if distributor commission rates are set by the senior
management, this is an “uncontrollable” factor. Another

Journal of Business & Industrial Marketing

31/8 (2016) 961–970 Received 12 August 2014
© Emerald Group Publishing Limited [ISSN 0885-8624] Revised 15 August 2015
[DOI 10.1108/JBIM-10-2016-269] Accepted 13 December 2015

961
 B2B organisations Journal of Business & Industrial Marketing
Malcolm McDonald Volume 31 · Number 8 · 2016 · 961–970

danger is confusing overheads with direct or incremental The information appearing in the majority of boardrooms remains
costs. Marketing may decide on a sales promotion plan, but it predominantly financial in nature. Without (additional) information on
value-creating activities management are typically flying blind – when
has no control over the costs of administering them in the financials tell them there is a problem management have already missed the
order processing system. Then there is the valid concept that optimal point for taking appropriate corrective action.
it is the INDIVIDUAL customer that is the ultimate profit
centre.
Introductory comment 3 – The effect of
Empirical studies have shown that the real responsibilities of
the marketing manager are exaggerated and that the short termism
components of a marketing budget vary greatly between Improvements in short term financial measures such as economic profit can
companies. Indeed, a management accountant said to me be achieved through postponing capital investments, reducing marketing
and training expenditures, or by divesting assets, each of which may have a
recently, “Many accountants have resigned themselves to the positive effect on near-term performance, but adversely affect long term
fact that marketing cost is an impossible area to analyse and value creation performance (McDonald, 1991).
control”. However, an American survey found that large
The point to be stressed here is that marketing is not like, for
industrial companies budgeted around: order-filling activities
example, factory productivity, which can be measured
(mainly concentrated on physical distribution costs); order-
accurately. The effects of marketing expenditure are often
getting activities (mainly centred on advertising, sales
promotion and merchandising). In most companies, however, only manifested some considerable time after they have “left
the marketing budget is, in effect, the budget for advertising the factory”.
and promotion. The institute for practitioners in advertising (IPA) has
Above all, a marketing budget should be a managerial tool, hundreds of case histories with data attesting to the fact that
not just a financial device. So, it is advisable to identify the once lost, it takes many years to recover a market position lost
costs and revenue for which you are responsible and because of short-term cuts in marketing spend to boost
accountable and care must be taken to assess the relevance of short-term financial results.
including fixed costs, variable costs, controllable costs and
uncontrollable costs and not to get sucked into taking
Introductory comment 4 – Marketers do not
responsibility for costs over which you have no control.
One final possibility is to separate budgets into an operating measure the right things
budget and an opportunities budget, which deals with new The customer portfolio shown in Figure 1 (reproduced with
things. kind permission from Nigel Piercy) illustrates very clearly an
array of customers in B2B according to size and the need for
Introductory Comment 2 – The uselessness of deeper supplier service relationships.
profit and loss statements without meaningful The problem relating to this array is that B2B companies
market-based information today (in the experience of the author only) still use product
profitability as the main accounting method to determine
Although this must, out of necessity, be anecdotal, the
profitability, even though it has always been the cost of dealing
majority of the operating boards of directors the author has
with customers after the product has left the “factory” that
worked with during the past 20 years – 150 in total – (most of
matters. Activity-based costing (ABC) has been around for
them B2B) cannot even answer the simplest questions posed
to them, such as: many years.
● “What are your key target markets in order of priority?” Figure 2 illustrates the profitability of a major European
This nearly always results in a list of their products. company’s customer database broken down into deciles by
● “What are your sources of differential advantage against size and profitability today compared with 15 years ago.
each of these key target markets?” They frequently do not The “today” picture is counterintuitive, but the truth is
know. realised only after ABC accounting is used to measure
profitability. The stark truth is that such companies are often
Instead, they spend their board meeting time examining found to be overserving both the small customers and the large
profit and loss statements, on which there is usually only
customers. But when ABC is explained to companies and
one line for revenue, followed by many on costs. The
when they carry out an ABC analysis on their major
disguised – but real – accounts of (anonymised) Company
customers, they are frequently surprised to discover that what
X can be seen in Table I.
they thought were profitable relationships are in fact
On the face of it, this looks like a spectacularly good
performance over a five-year period. But as is clearly shown in unprofitable. At Cranfield University School of Management,
Table II, when set against market-based information, the author set up the longstanding Key Account Management
Company X’s performance is slowly but surely deteriorating Best Practice Research club and over a five-year period, using
and of course it only takes a downturn such as that an audience response system to ensure both confidentiality
experienced in 2008 for companies like this and many others and honest answers; the results of which are shown in Figure 3.
to go bankrupt. It shows that, of a total population of 500 B2B companies
B2B marketers must ask themselves whether they are (approximately 100 per year) and their responses to the
reporting timely, relevant information to the Board. question – “How well do you know the real profitability of
This view is supported by the following excerpt from a your top ten accounts?” – the majority indicated that they did
PricewaterhouseCoopers’s (2003) report: not.

962
 B2B organisations Journal of Business & Industrial Marketing
Malcolm McDonald Volume 31 · Number 8 · 2016 · 961–970

Table I Company X’s five-year profit performance

Performance (£m) Base year 1 2 3 4 5
Sales revenue (£) 254 293 318 387 431 454
Cost of goods sold 135 152 167 201 224 236
Gross contribution (£) 119 141 151 186 207 218
Manufacturing overhead 48 58 63 82 90 95
Marketing and sales 18 23 24 26 27 28
Research and development 22 23 23 25 24 24
Net profit (£) 16 22 26 37 50 55
Return on sales (%) 6.3 7.5 8.2 9.6 11.6 12.1
Assets (£) 141 162 167 194 205 206
Assets (% of sales) 56 55 53 50 48 45
Return on assets (%) 11.3 13.5 15.6 19.1 24.4 26.7

Table II Company X’s five-year market-based performance

Performance (£m) Base year (%) 1 (%) 2 (%) 3 (%) 4 (%) 5 (%)
Market growth 18.3 23.4 17.6 34.4 24.0 17.9
Company X’s sales growth (%) 12.8 17.4 11.2 27.1 16.5 10.9
Market share (%) 20.3 19.1 18.4 17.1 16.3 14.9
Customer retention (%) 88.2 87.1 85.0 82.2 80.9 80.0
New customers (%) 11.7 12.9 14.9 24.1 22.5 29.2
% Dissatisfied customers 13.6 14.3 16.1 17.3 18.9 19.6
Relative product quality ⫹10 ⫹8 ⫹5 ⫹3 ⫹1 0
Relative service quality ⫹0 ⫹0 ⫺20 ⫺3 ⫺5 ⫺8
Relative new product sales ⫹8 ⫹8 ⫹7 ⫹5 ⫹1 ⫺4

Figure 1 The customer portfolio 2 Second, the term “management” suggests a series of
coordinated, proactive and reactive acts within a planned
strategy implicit in the management ethic. The reality, of
course, is that the evidence for such behaviour is minimal
in many B2B organisations.
Also, the title “chief marketing officer” suggests a powerful
figure in charge of customer needs and wants, and the product
development required to meet those needs, as well as
evaluating whether the whole company is delivering what is
required to keep those customers happy – for the sake of this
year’s earnings, and those in the future (McDonald, 2007).
It is certainly not the experience of the author that B2B
marketers are at the epicentre of strategy setting in
boardrooms.

Introductory comment 6 – What B2B marketers

Introductory comment 5 – Are B2B marketers SHOULD be doing
actually doing real marketing? Over 40 years of research into the link between long-run
The use of the term “marketing management” in the context financial success and excellent marketing strategies reveals the
of B2B organisations has to be interpreted very liberally, for following:
two reasons: 1 Excellent strategies:
1 If “marketing” is intended to mean all those activities ● target needs-based segments;
related to demand creation and satisfaction and the ● make a specific offer to each segment;
associated intelligence, then it is clear that most ● leverage their strengths and minimise their weaknesses;
rudimentary marketing takes place during the technical and
service delivery process or during informal customer ● anticipate the future.
contacts. Thus, in such situations, the term “marketing” 2 Weak strategies:
reflects this duality and acts as a term for both marketing ● target product categories;
and technical service delivery. ● make similar offers to all segments;

963
 B2B organisations Journal of Business & Industrial Marketing
Malcolm McDonald Volume 31 · Number 8 · 2016 · 961–970

Figure 2 The widening rift between profitable and unprofitable customers

The widening rift between profitable and

unprofitable customers:

% of company profit by customer decile (each decile = 10% of customer base)

% of total % of total
company company
profits t-15 profits 29
t.o
17
16 26
15
22
13 20
12

10

7 8
6
4
4

1
–3 –3 –3
1 2 3 4 5 6 7 8 9 10 1 2 3 4 5 6 7 8 9 10
Largest 10% Smallest 10% Largest 10% Smallest 10%
of clients of clients of clients of clients
customer decile groups customer decile groups

Adapted from: ‘Profitable customers’ by Charles Wilson

Figure 3 How well do you know the real profitability of the top ten account?
How well do you know the real profitability of the
top ten accounts?
Chart Title

t-5
(%)
t-4
t-3
t-2
t-1

1 2 3 4 5 6 7 8 9
Not
at all Totally

● have little understanding of their strengths and Question 1

weaknesses; and
Do we know and understand our key markets?
● plan using historical data.
The answer includes the following:
There are 173 scholarly references supporting the ● We define our markets in terms of needs satisfied, not the
aforementioned marketing strategies (Rappaport, 1998). products we sell. Remember IBM (“we are in the mainframe
The remainder of this paper expands on these points by market”) and Gestetner (“we’re in the duplicator market”)
setting out the ten questions the author has established from and Kodak (“we’re in the film market”).
his work with CEOs and CFOs that are being asked of their ● We map our markets, showing product/service flows,
senior marketing colleagues and the answers B2B marketers volumes/values in total, our shares and draw critical
should be giving. conclusions for our company.
● We know what the key decision points are. In particular, we
Introduction understand the 20/80 rule, as this is where segmentation is
done.
As was made clear by the Deloitte Report (2007) (op cit.),
directors will no longer tolerate sloppy, unprofessional To expand on this, Figure 4 is a generic version of a market map,
marketing departments who fail to justify the often substantial illustrating how value should be tracked from supplier through to
sums of money they spend. The following are ten crucial end-user, with percentages illustrating where the main decision
questions they are increasingly demanding answers for. points are and where segmentation needs to take place.

964
 B2B organisations Journal of Business & Industrial Marketing
Malcolm McDonald Volume 31 · Number 8 · 2016 · 961–970

Figure 4 Generic market map ● We act on the resulting strengths and weaknesses. We
check that our strengths create value for us and the
…including the number of each customer type
customer and that they are difficult to copy. We work hard
vol/val
vol/
vol/val %
N Other vol/val
% N National
Builders
at tackling our weaknesses that are meaningful to the
val % N Local
%
Distributors Retailers
N vol/val customer.
Contractors % N Local
N Regional vol/
val %
Builders ● We regularly monitor the opportunities and threats by
Distributors
vol/
val % vol/
N Spcist.
Retailers vol/val N Private segment and work hard to take advantage of the
val % % Companies
vol/val %
N National
Distributors
vol/
val %
opportunities and ameliorate the threats.
N Detp. vol/val %
UK Sales
Retailers
vol/val %
vol/val % Figure 6 shows the kind of strengths, weaknesses,
N Local
vol/val % N Sheds
vol/val %
Government opportunities and threats (SWOT) analysis taught in some
Users
vol/val % vol/val % business schools, written about in books and carried out by
N = Number
(%) = Your Share vol/val %
N Domestic
Users marketers all over the world. It is plain WRONG and assumes
all customers in a market behave the same way.
Note: NB. Sketch out complex junctions separately. Alternatively, Figure 7 shows the correct way to do a SWOT analysis,
build an outline map, applying details at the junctions to be comparing our own performance in each segment against
segmented those of competitors using those factors important to
customers in deciding from whom to buy. These consist
Question 2 usually of a detailed analysis of the 4Ps.

Do we address real segments in our markets?

The answer includes the following:
Question 4
● We do proper needs-based segmentation, not that a priori Do we all agree where we should target our limited
nonsense such as socioeconomics (not all A’s behave the resources?
same), demographics (not all 18- to 24-year-old women The answer includes the following:
behave the same), geodemographics (not everyone in the ● We prioritise the segments in each market, having
same street behaves the same), etc. classified them all according to relative potential for
● We also understand the needs of members of each growth in our profits in each over the next three years and
segment. according to our company’s relative competitive position
in each.
Figure 5 shows the results of a market segmentation study into
buyers of IS/IT. This shows that it is PEOPLE not companies Figure 8 shows segments arranged according to the potential
who buy goods and services. These people do not become any of each for growth in the supplier’s profits over at least a
more rational than when they are buying consumer goods and three-year period and according to their relative competitive
services. strengths (taken from the SWOT analysis).
Typical criteria for the vertical axis are shown in Table III,
Question 3 although the factors and weightings will vary according to a
supplier’s commercial circumstances.
Do we know what our sources of differentiation are in
each of the principal market segments in our key
target markets?
Question 5
The answer includes the following: Are our objectives for revenue growth and market
● We regularly check on the buying motives of segments and share realistic?
compare how well our company performs compared with The answer includes the following:
main competitors. Refer again to Figure 8.
● For attractive markets (attractive means there is potential
Figure 5 Example of market segmentation of information system growth in sales and profits in the next three years), our
buyers objectives are to improve net present value (NPV), whilst
investing in growing/retaining our competitive position.
Understand the different category buyers
● For attractive markets in which we have few strengths,
Business
having chosen the better ones, our objectives are to
Business
perfectionist Save my
budget
Figure 6 An incorrect format of SWOT analysis
Radical thinkers
Business
Profit engineer general STRENGTHS WEAKNESSES
“Reward” “Relief”
Radical Save my
architect career

Technical Conservative OPPORTUNITIES THREATS

idealist technocrat

Technical

965
 B2B organisations Journal of Business & Industrial Marketing
Malcolm McDonald Volume 31 · Number 8 · 2016 · 961–970

Figure 7 SWOT analysis exercise

Strategic marketing planning exercise – SWOT analysis

1. SEGMENT DESCRIPTION 2. CRITICAL SUCCESS 3. WEIGHTING 4. STRENGTHS / WEAKNESSES
It should be a specific part of FACTORS (How important ANALYSIS
the business and should be In other words, how do is each of these How would your customers score you and
very important to the customers choose? CSFs? Score each of your main competitors out of 10 on
organisation out of 100) each of the CSFs?
Multiply the score by the weight.

1 You Comp A Comp B Comp C Comp D

2 1
3 2
4 3
5 4
5. OPPORTUNITIES / THREATS Total 100 5
What are the few things outside your
direct control that have had, and will
have, an impact on this part of your
business? THREATS
OPPORTUNITIES

1
2
3
4
5
6. KEY ISSUES THAT NEED
TO BE ADDRESSED
What are the really key issues
from the SWOT that need to
be addressed?

Figure 8 A portfolio approach to prioritising markets and segments Question 6

P P Are our strategies for product development, pricing,
high Supplier business high/ customer service, channel management and
strength with customer medium
promotion consistent with our objectives?
High Low The answer includes the following:
C G C G
High
● Our strategies match the objectives referred to above. For
Strategic Star
example, the majority of the available budget goes into
Strategic Selective attractive markets where we have strengths followed by
Mkt/Segment investment investment unattractive markets where we have strengths, followed by
attractiveness attractive markets where we have few strengths – in that order.
Status Streamline
P P

medium Pro-active Manage for low Strategies for marketing refer principally to the 4Ps. What
- cash
Low maintenance needs to be done or improved comes from the critical success
factor (CSF) scores in the SWOT analyses referred to in
C G C G
Question 3 above.
P = profit g = growth c = costs

Question 7
improve our competitive position by investing in them. For
those markets not selected for investment, our objectives Have we dispassionately assessed the risks associated
are to maximise net free cash flows. with our strategic marketing plan?
● For unattractive markets in which we have few strengths, To answer this question, we use the standard tools of marketing
our objectives are to maximise net free cash flows. to make a probabilistic assessment of whether the forecasts are
● For unattractive markets where we have strengths, our likely to happen. These are shown in Tables IV-VI.
objectives are to minimise costs consistent with retaining The answer includes the following:
our competitive position and to maximise net free cash ● We assess the risks associated with our MARKET
flows. forecasts by using the long-established tools of marketing,

Table III Market attractiveness evaluation

Scoring criteria
Factor 10-7 6-4 3-0 Score Weighting Ranking
1. Market size (£m) ⬎€250 €51-250 ⬍€50 5 15 0.75
2. Volume growth (Units) ⬎10% 5-9% ⬍5% 10 40 4.0
3. Industry profitability ⬎15% 10-15% ⬍10% 8 35 2.8
4. Competitive intensity Low Medium High 6 10 0.6
Total 8.15
Note: This form illustrates a quantitative approach to evaluating market attractiveness. Each factor is scored, then multiplied by the percentage
weighting and totalled for the overall score. In this example, an overall score of 8.5 out of 10 places this market in the highly attractive category

966
 B2B organisations Journal of Business & Industrial Marketing
Malcolm McDonald Volume 31 · Number 8 · 2016 · 961–970

Table IV Market risk assessment Having done this, we agree with or reduce the free cash flows for
Product category The marketing strategy has a higher probability each of the years forecast for each year in the planning cycle.
existence of success if the product category is
well-established Question 8
Segment existence If the target segment is well-established Have we calculated whether our strategic marketing
Sales volumes If the sales volumes are well supported by plan creates or destroys shareholder value?
evidence The answer includes the following:
Forecast growth If the forecast growth is in line with historical 1 We work with our senior accountants having taken
trends account of the risk-adjusted net free cash flows from all
Pricing assumptions If the pricing levels are conservative relative to products for markets. We then calculate whether these
current pricing levels cash flows are greater than the cost of capital. If they
are, we are creating shareholder value and can quantify
this. Figure 9 spells out a methodology for doing this.
Table V Marketing strategy risk assessment
2 Background/Facts:
Target market The marketing strategy has a higher probability ● Risk and return are positively correlated, i.e. as risk
definition of success if the target is defined in terms of increases, investors require a higher return.
homogeneous segments and is characterised by ● Risk is measured by the volatility in returns, i.e. high
utilisable data risk is the likelihood of either making a very good
Proposition If the proposition delivered to each segment is return or losing all your money. This can be described
specification different from that delivered to other segments as the quality of returns.
and addresses the needs which characterised ● All assets are defined as having future value to the
the target segment
organisation. Hence, assets to be valued include not
SWOT alignment If the strengths and weaknesses of the
only tangible assets like plant and machinery, but
organisation are independently assessed and
intangible assets, such as key market segments.
the choice of target and proposition leverages
● The present value of future cash flows is the most
strengths and minimises weaknesses
acceptable method to value assets including key
Strategy uniqueness If choice of target and proposition is different
market segments.
from that of major competitors
● The present value is increased by:
Anticipation of If changes in the external microenvironment
– increasing the future cash flows; and
market change and macroenvironment are identified and their
– making the future cash flows “happen” earlier; and
implications allowed for
– reducing the risk in these cash flows, i.e. improving
the certainty of these cash flows, and, hence,
Table VI Profit pool risk assessment reducing the required rate of return.

Profit pool The marketing strategy has a higher probability Suggested approach
of success if the targeted profit pool is high 1 Identify your key market segments. It is helpful if they can
and growing be classified on a vertical axis (a kind of thermometer)
Profit sources If the source of new business is growth in the according to their attractiveness to your company.
existing profit pool
“Attractiveness” usually means the potential of each for
Competitor impact If the profit impact on competitors is small and growth in your profits over a period of between three and
distributed
five years. (See the attached matrix)
Internal gross If the internal gross margin assumptions are
margin assumptions conservative relative to current products Figure 9 Portfolio analysis-directional policy matrix (DPM)
Assumptions of If assumptions regarding other costs, including
other costs marketing support, are higher than existing Portfolio analysis - directional policy matrix (DPM)
costs Relative company competitiveness
High Low

such as product life-cycle analysis. We assess the risks

associated with our plans for new products and markets by High
?
using tools such as the Ansoff matrix. Invest/
build
● We assess the risks associated with our declared Segment NB. Suggested
time period -
STRATEGIES by testing whether we are addressing proper attractiveness
Maintain 3 years
needs-based segments with specific offers and whether we are Manage for
leveraging our strengths, minimising our weaknesses, taking Low No cash
change
advantage of opportunities and ameliorating threats.
● We assess the risks associated with our declared BUDGETS
by checking our forecast margins against historical margins
and by checking that we are not setting unrealistic objectives
Present position Forecast position in 3 years
such as rapid growth in static or declining markets.

967
 B2B organisations Journal of Business & Industrial Marketing
Malcolm McDonald Volume 31 · Number 8 · 2016 · 961–970

2 Based on your current experience and planning horizon The problem with this is that the investment community
that you are confident with, make a projection of future uses the capital asset pricing model to assess risk (volatility),
net free cash inflows from your segments. It is normal to which is a backward-looking method, whereas the marketing
select a period such as three or five years. due diligence (MDD) process described above is a
3 These calculations will consist of three parts: forward-looking, quantitative method for assessing the risks
● revenue forecasts for each year; associated with marketing strategies (Smith, 2003).
● cost forecasts for each year; and The author believes that marketers in B2B organisations
● net free cash flow for each segment for each year. should subject their strategies to this rigorous, quantitative
4 Identify the key factors that are likely to either increase or MDD process to prove to the boards of directors that their
decrease these future cash flows. plans are creating shareholder value, not destroying it.
5 These factors are likely to be assessed according to the
following factors:
● the riskiness of the product/market segment relative to Question 9
its position on the ANSOFF matrix; Have we agreed the metrics for measuring market
● the riskiness of the marketing strategies to achieve the effectiveness?
revenue and market share; and The answer includes the following:
● the riskiness of the forecast profitability (e.g. the cost ● We know the levels of promotional expenditure necessary
forecast accuracy). to maintain our current level of sales (maintenance).
6 Now recalculate the revenues, costs and net free cash ● We subject any promotional expenditure over and above
flows for each year, having adjusted the figures using the maintenance expenditure (investment/growth expenditure)
risks (probabilities) from the above. to net present value calculations.
7 Ask your accountant to provide you with the overall strategic ● We know the difference between lead indicators (actions that
business unit (SBU) cost of capital and capital used in the cause sales, etc.) and lag indicators (outputs, such as sales
SBU. This will not consist of only tangible assets. Thus, growth).
£1,000,000 capital at a required shareholder rate of return of ● As a result of this, we know what needs reporting, why, when,
10 per cent would give £100,000 as the minimum return how often and to whom it should be reported.
necessary.
Figure 11 shows the result of a five-year research project at
8 Deduct the proportional cost of capital from the free cash
Cranfield University School of Management (Christensen
flow for each segment for each year.
et al., 2008). Reading from right to left, it can be seen that
9 An aggregate positive net present value indicates that you are
corporate revenue and profit can only accrue from selling
creating shareholder value – i.e. achieving overall returns
something to someone, represented by the Ansoff matrix box.
greater than the weighted average cost of capital, having
On each product for market in the Ansoff matrix, the SWOT
taken into account the risk associated with future cash flows.
analyses will have spelled out the CSFs in each segment and
A company’s share price, the shareholder value it creates and its what needs to be improved (“PF” means “productivity
cost of capital are all heavily influenced by one factor – risk. factors” and “HF” means “hygiene factors”, neither of which
Investors constantly seek to estimate the likelihood of a business will lead to competitive advantage).
plan delivering its promises, whilst company boards try to The CSFs become the marketing expenditure budget, but it
demonstrate the strength of their strategy. is now possible to link such expenditure back (indirectly) to
An unarguable fact is that today, success is measured in terms corporate revenue and profit, thus avoiding the need to carry
of shareholder value-added or economic value-added (Shaw and out return on investment (ROI) calculations on all
Mazur, 1997) having taken account of the cost of capital, the expenditure. After all, an aircraft company would not ask for
time value of money and the risks associated with declared an ROI on the wings of an aircraft!
strategies. Figure 12 is based on an article by Christensen et al. (2008) in
The problem is that stock exchanges the world over all work the Harvard business review. It spells out the need to do NPV
the same way. The whole basis of shareholder value is the direct calculations on both “maintenance” marketing expenditure
linking of the level of risk to the level of financial return that is (what we need to spend to stay where we are) and “investment”
required. Indeed, as shown in Figure 10, the causality marketing expenditure. Both produce dramatically different
relationship shows that the perceived risk profile of the outputs.
investment drives the level of return required by investors in this
particular investment.
In Figure 10, a minimum positive required rate of return is Question 10
shown where the risk/return line cuts the vertical axis. This Are we happy with our marketing planning processes?
minimum required rate of return carries a zero risk perception, In answer, our plans demonstrate the following:
which means guaranteed, certain future returns. Logically, ● a deep understanding of our markets;
therefore, a normal, rational, risk-averse investor requires an ● a clear understanding of needs-based segments;
increase in the expected future return from any more risk ● a clear prioritisation of our objectives and strategies;
investment to compensate for any future volatility. Shareholder ● quantified proof that they create shareholder value;
value is created only when the total returns are greater than the ● they are clear, creative and interesting; and
risk-adjusted rate of return. ● they enable us to allocate our scarce resources differentially.

968
 B2B organisations Journal of Business & Industrial Marketing
Malcolm McDonald Volume 31 · Number 8 · 2016 · 961–970

Figure 10 Perceived risk profile of investment

Figure 11 Overall marketing metrics model The following list enumerates evaluation techniques used to
evaluate the quality of the strategic marketing plan. These
Overall Marketing Metrics Model were constructed by the author for IBM following a series of
Lead indicators Lag indicators strategic marketing planning workshops:
Resource
Intention/ Plan/ Strategy/ Objectives/ Forecast/
actuality
allocation/
action achievement results profit 1 How good is your strategic marketing plan? (Score out
spend
PFs of 10):
budget actions, esp. product corporate
Business funds & marketing market performance
● Market structure and segmentation:
element time segment
HFs
– Is there a clear and unambiguous definition of the
£ what who
market we are interested in serving?
£ what who ms% corporate
budget
£ what who CSFs sales£ rev£ – Is it clearly mapped, showing product/service
profit£ profit£
£ what who flows, volumes/values in total, our shares and
critical conclusions for our organisation?
Measure- application costs, metrics on performance turnover,
ment of spend activity achievement by product profit & – Are the segments clearly described and quantified?
milestones of factor to market shareholder
& outputs required level segment value These must be groups of customers with the same or
Positioning
of issues in similar needs, not sectors.
the model Cost to achieve Required by Market growth
Responsibilities customers. Customer acquisition/ retention/ – Are the real needs of these segments properly
Relative to uptrading/ X-selling/ regained
competitors Product/customer mix quantified with the relative importance of these
Channel performance
needs clearly identified?

Figure 12 Maintenance versus investment marketing expenditure

Projected cash DCF and NPV

flows from methods
investing in a implicitly make
promotion A this comparison

B
Companies
should be Assumed cash
C making this flow resulting
comparison from doing
More likely nothing
cash flow
resulting from
doing nothing

Note: Most executives compare the cash flow from

promotion against the default scenario of doing nothing
assuming, incorrectly, that the present health of the
company will persist indefinitely if the investment is not
made. For a better assessment of the promotion’s value,
the comparison should be between the projected
discounted cash flow and the more likely scenario of a
decline in performance in the absence of promotional Figure 10
investment.

Adapted from Christensen CM et al, ( 2008 )

2 + 2 + 2 + 2 = £-0.6 million
£ - 7 million + (1+r) (1+r)² (1+r)³ (1+r)4

£ - 1 million + 2 + 2 + 2 + 2 = £5.4 million

(1+r) (1+r)² (1+r)³ (1+r)4

969
 B2B organisations Journal of Business & Industrial Marketing
Malcolm McDonald Volume 31 · Number 8 · 2016 · 961–970

● Differentiation: Documents/strategy/marketing3d_28062010.pdf (accessed

– Is there a clear and quantified analysis of how well 1 December 2013).
our company satisfies these needs compared to McDonald, M. (1991), “Innovation and the management of
competitors? marketing in high technology small firms”, Journal of
– Are the opportunities and threats clearly identified Marketing Management, Vol. 7, pp. 343-356, adapted from
by segment? (© Professor Malcolm McDonald) a paper by Oakley, R.
2 How good is your strategic marketing plan? (Score out of 10) McDonald, M. (2007), Marketing Due Diligence: Reconnecting
● Scope: Strategy to Share Price, Butterworth Heinemann, Oxford,
– Are all the segments classified according to their (The Capital Asset Pricing Model is explained here) Five
relative potential for growth in profits over the years of research in the Marketing Value Added Research Club
next three years and according to our company’s at the Cranfield University School of Management, in
relative competitive position in each? collaboration with the School’s Finance Faculty with output
– Are the objectives consistent with their position in of five scholarly papers and three books.
the portfolio? (volume, value, market share, profit) PricewaterhouseCoopers (2003), “Transparency in corporate
– Are the strategies (including products, services and
reporting”, Value Reporting Review, New York, NY, p. 25.
solutions) consistent with the objectives? Rappaport, A. (1998), Creating Shareholder Value, Free Press,
– Are the measurement metrics proposed relevant to
New York, NY.
the objectives and strategies? Shaw, R. and Mazur, L. (1997), “Marketing accountability”,
– Are the key issues for action for all departments
Cranfield School of Management Research Series.
clearly spelled out as key issues to be addressed?
Smith, B. (2003), “The effectiveness of marketing strategy
● Value capture:
– Do the objectives and strategies add up to the making processes: a critical literature review and a research
agenda”, Journal of Targeting, Measurement and Analysis for
profit goals required by our company?
– Does the budget follow on logically and clearly Marketing, Vol. 11 No. 3, pp. 273-290.
from all the above, or is it merely an add on? Young, L. (2012), “What’s different about B2B marketing?”,
(© Professor Malcolm McDonald) Market Leader, Quarter 2, March, pp. 40-43.

In conclusion, let me say that, whilst all these questions are not About the author
relevant to all markets, unless marketers can answer the
Professor Malcolm McDonald, MA(Oxon), MSc, PhD,
relevant ones, they should either get their marketing education
DLitt, DSc, was, until recently, Professor of Marketing and
up to par or question whether they are in the right job.
Deputy Director, Cranfield University School of Management,
Conclusion with special responsibility for e-business, and is now an
Emeritus Professor at the University, as well as an Honorary
This philosophical paper emphasises that B2B marketers have to Professor at Warwick Business School. Prof Malcolm is a
work extensively to earn a place in the boardroom. The author graduate in English Language and Literature from Oxford
remains optimistic that given the increasing number of chartered University, in Business Studies from Bradford University
marketers (marketing executives qualified to practice via the Management Centre and has a PhD from Cranfield
CIM) and marketing MSc programmes, B2B marketers will University. He has written over 40 books, including the best
eventually earn the right to be the main drivers of corporate seller “Marketing Plans: How to Prepare Them, How to Use
strategy, as is the case in the best companies in the world. Them”, and more than 100 articles and papers. Coming from
a background in business which included a number of years as
References Marketing Director of Canada Dry, Prof Malcolm has
Christensen, C.M., Kaufman, S.P. and Shih, W.C. (2008), successfully maintained a close link between academic rigour
“Innovation killers: how financial tools destroy your capacity and commercial application. He has been consultant to many
to do new things”, Harvard Business Review, Vol. 86 No. 1, major companies from the UK, Europe, USA, Far East,
January, special Issue on HBS Centennial, available at: Southeast Asia, Australasia and Africa, in the areas of strategic
www.hbs.edu/faculty/Pages/item.aspx?num⫽31559 marketing and marketing planning, market segmentation, key
Court, S. (2002), “Why value-based management goes account management, international marketing and marketing
wrong”, Market Leader, Tokyo, March. accountability. Prof Malcolm is currently the chairman of six
Deloitte Report (2007), “‘Marketing in 3D’ marketing in 3D companies and works with the operating boards of a number
in marketing”, Highlighting Perspectives on Marketing of the world’s leading multinationals in all continents.
Effectiveness, Audit. Tax. Consulting. Corporate Finance, Malcolm McDonald can be contacted at: m.mcdonald@
available at: www2.deloitte.com/content/dam/Deloitte/pt/ cranfield.ac.uk

For instructions on how to order reprints of this article, please visit our website:
www.emeraldgrouppublishing.com/licensing/reprints.htm
Or contact us for further details: [email protected]

970