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Lesson 6
The Annual Product Plan
Lesson 5 and 6 described the background analysis, with a special emphasis
on understanding customers and prospects, as the prelude for developing the
marketing plan. Armed with this information, product managers are able to set visions
or targets for their products. However, a target without a plan is just a dream. So this
chapter discusses the process of turning dreams into plans.

Synthesis: Where Do You Want to Go?

The synthesis is the section of the annual product marketing plan that ties
together the background analysis with the vision by indicating what steps will be
taken this fiscal year to move closer to the future picture of the company’s product
line. It starts with the identification of problems and opportunities that need to be
addressed in the annual plan. Then it moves to the forecast of sales volume, the
marketing objectives that specify the market segments from which the volume will be
generated, and the positioning of the product in the customers’ minds.

Problems and Opportunities

After examining the market, the competition, the historical performance, and
any significant trends, the next step is to synthesize the information to look for
problems or opportunities and decide where to go from there. Problems or
opportunities are the conclusions drawn from any part of the background analysis.
For example, the analysis might uncover new niches that previously had been
overlooked, a declining market share that was camouflaged by a growing market
segment, or an inconsistent product image. In any case, focus on problems to correct
or opportunities to leverage in the product marketing plan. Without this step of
drawing conclusions, the background analysis is often perceived as a waste of time
and is not made relevant to the marketing plan.

Setting marketing and sales objectives follows the identification of problems

and opportunities. Frequently a product manager is given a financial sales goal, and
his or her job is to design a marketing program to make it happen. In other cases, the
product manager must present the sales forecast to management with a justification
or rationale. Typically, there is some combination of the two approaches.

Sales Forecasting

The product manager is responsible for forecasting product sales or, at a

minimum, understanding the forecasts received. There are three categories of
forecasting techniques that might be used:

1. Time series forecasts can be obtained from historical data on past product
sales to project into the future for short-term sales figures.

2. Compiled forecasts, as the term implies, are compilations of data from

qualitative and quantitative research.

3. Causal forecasts are derived from relating sales to the factors that cause the
sales to happen.
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Although a product manager usually works with an analyst to obtain these

figures, it is important to understand the basic ramifications of the three categories of
forecasts.

Time Series: A logical place to start forecasting future sales is to look at

historical sales patterns. Time series analyses look at changes in sales over time.
Plotting a product’s sales over time gives the product manager a picture of the
product’s sales trends. Trend-fitting, or regression, plots the sales over time and uses
a statistical formula to fit a line through the data points and then project that line into
the future.
Trend-fitting is relatively simple and fast to do by computer and is easy to
understand. It can be accurate in the short term if there are no external factors that
make the future sales environment significantly different from the past sales
environment.

There are several averages that are time-series based. A moving average
forecasts sales using a given number of time periods from the past (e.g., the average
of the past twelve months’ data). Each data point has the same weight unless
seasonal indexes or other weights are built in. As the average moves into the future,
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it drops off the oldest data point from the calculations. Exponential smoothing is a
form of moving average that provides heavier weights to the most recent data. This is
done because it is assumed that recent data are more valuable in predicting future
sales than older data.

Box-Jenkins is a more sophisticated version of exponential smoothing. This

technique uses a computer to test different time series models for the best fit. For
example, the numbers of data points as well as the different weights affect the time-
series line, so it is important to track how effective the various techniques were in
providing a mathematical line close to the actual line of sales points. Time-series
techniques are appropriate when the sales environment does not change and when
the effectiveness of a marketing plan has no impact on sales. Generally, neither of
these is true. As a result, marketing research information and/or causal information
should be part of the forecasting process.

Compiled Forecasts: The marketing research approach used for forecasting can be
a combination of compiling secondary and primary data as well as qualitative and
quantitative approaches to data collection. Some of the secondary data can be pulled
from the product fact book. Worksheet 5.3 in Chapter 5 provides information on
industry/category sales for a product/line. Look at average market share over time
and multiply this average by the projected industry sales for the next fiscal year. The
result is an approximate sales forecast based on the industry projection. Adjust this
forecast using qualitative information on trends or other elements that could influence
product sales.

In terms of primary data collection, both qualitative and quantitative inputs are
important. Quantitative input can come from front-line sources. Salespeople provide
estimates by account or territory and regional managers provide estimates by
distributor or channel type. An example sales force customer analysis form is shown
in Figure 7.1. In the example, the salespeople are asked to estimate sales for each
major account for selected products, with their best estimate of the probability of
closing the sale during the upcoming quarter. The form can be adapted to include
volume rather than dollar revenue, annual rather than quarterly estimates, or other
industry-specific variables. The product manager (or analyst) can calculate the
expected values by multiplying the sales estimates for each product by the relevant
probabilities. In the example, the expected sales of Product A for this particular
salesperson would be $3,150 (the sum of the sales times the probability for each
account). Customers can also be surveyed directly to assess their probable
purchases by product or for the entire line.
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Qualitative forecasting techniques are also useful, particularly for new

products. Concept testing, in conjunction with intent-to-buy surveys, can be a data
point for the new product forecast. Other tools include the Delphi technique and trade
data.

Causal or Correlation-Based Forecasts: Causal techniques attempt to find

relationships between sales and other variables. For example, tire sales are related
to vehicular sales, and sales of many household products are related to housing
starts. If there are leading indicators (such as vehicle sales or housing starts) that
can be used to better understand the sales environment for a product, they should be
used in the forecasting process. Sales can also be affected by advertising
expenditures, number of salespeople, price changes, or other marketing variables. If
a causal relationship between a change in marketing expenditures and a change in
sales can be demonstrated, that information can be used not only in forecasting, but
also as justification for spending a given amount in the marketing plan.

The forecasted sales figures used in a marketing plan should be based on a

variety of inputs. Do not rely exclusively on trend projections, and do not accept
upper management’s sales forecasts without question. Try to reconcile the unit and
dollar amounts based on the background analysis and the anticipated marketing
plan/budget.

Objectives and Strategies

The next step is to develop objectives and strategies. The objectives answer
the question, “What do you want to happen?” or “What do you need to do to reach
the sales forecast?” The strategy states the “how” of the objectives. The objectives
should be stated in numeric format whenever possible so that they are measurable.
Objectives can be in terms of units or dollars (revenue and/or margin), market share,
customer satisfaction level, and so on. The objective starts with a verb (increase,
maintain, solidify, etc.), acting on a specific goal (repeat purchases, new trial, sales
volume/revenue, etc.) for a stated market (existing customers, new customers, or an
identified market segment) within a specified time (during the last quarter, within the
next twelve months, etc.). An example objective is as follows:

Justify the objectives by providing rationale from the customer analysis and
other worksheets in previous chapters. For example, if the background analysis
uncovered the fact that reorder rates are declining even though customer satisfaction
is high and there are no obvious problems, it could be argued that the objective can
be obtained if appropriate support is provided. Typically, there will be a general
marketing objective, followed by specific objective and strategy statements for each
element of the marketing mix (as appropriate for a firm). Always make sure that the
entire plan is coordinated so that it has maximum effectiveness.
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Positioning

The next part of the synthesis phase is positioning—deciding how a product is

to be perceived in the minds of the customer, relative to the competition. Imagine
talking to a customer who asks, “Why should I buy from you?” What should your
answer be? What makes your product a better buy than competitive products? In this
analysis, consider the customer’s frame of reference (i.e., the products they would
consider likely competitors). Different customers will have different frames of
reference that would require different positioning. Therefore, the positioning
statement should identify the relevant market segment, that segment’s frame of
reference, the product’s point of differentiation, and an indication of why a product
provides that differentiation (i.e., the internal strength of competitive edge that makes
a claim of differentiation credible). A positioning statement might resemble the
following:

The Importance of Customer Retention as a Marketing Objective

Companies are realizing that customer retention is as, if not more, important than
getting new customers. According to Business Marketing magazine:

An October 1994 study by Marketing Metrics showed that of the 165

companies surveyed, respondents, on average, allocate 53 percent of
marketing budgets to retain existing customers and 47 percent to win new
customers.

A similar 1991 study showed 46 percent of marketing budgets went to retention,

while 54 percent went to acquiring new customers. Cellular One of New York and New
Jersey, for example, has part of its marketing department devoted solely to customer
retention. Some of the tactics include a 24-hour Customer Care Center and a Corporate
Care Center for special corporate accounts. David Straus, director of customer base
marketing, says, “Our job really starts once the customer is in the door.”

New York-based Bowne & Co., one of the world’s largest financial printers,
publishes a customer newsletter as a tool in customer retention. By keeping customers
abreast of changes in their industries, Bowne & Co. is better able to differentiate itself
from other financial service providers.

Source: Adapted from Kim Cleland, “Firms Want Customers Coming Back for More,” Business Marketing
(January 1995): 4+.
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Start by identifying the attributes customers are looking for when they buy
from the product category, and find out how important each attribute is. Is delivery
important? How about minimum tolerances? How important? Next, have customers
rate the product in question versus the competition along all the important attributes.
Try to isolate attributes for which customers already believe the product is
competitively superior and that the company can protect using its core abilities,
knowledge, or other strength. If this cannot be found, the job of the product manager
is to determine how to build it into the product. (See Worksheet 7.1.)

The Action Program: How Are We Going to Get There?

The purpose of the annual product marketing plan is to provide top

management with a concise marketing and financial summary of objectives and
strategies along with the requirements to achieve the objectives. There should be
enough rationale to allow them to approve the necessary expenditures without the
detail available in a product fact book. Keep the plan as brief as possible, perhaps no
more than six or eight pages (excluding charts and exhibits). Too much detail
obscures the main issues involved.

On the other hand, do not use the desire for brevity as an excuse for not
collecting information. If some information needed to support a recommendation is
not available, mention it in the plan (at least as a footnote) to demonstrate that critical
data are not being ignored, but that there is sufficient confidence with the other
information to justify taking the risk.

If the product plan is to be presented orally as part of a meeting, be sure to

come prepared to answer any questions that might arise. Nothing is more frustrating
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to top management than to reschedule a meeting or make it longer than necessary

because of a product manager’s lack of preparation.

The written plan consists of a summary of the product’s historical

performance, a statement of problems and opportunities, sales forecasts/ goals and
a summary table of the impact on profit and loss (P & L), marketing objectives for the
product or product line, concise strategies for accomplishing the objectives, and a
series of financial and other exhibits to permit a quick assessment of the product
program and its impact.

Separate strategy documents might need to be prepared for operational use

by the product manager. Simply provide a concise summary of each as part of the
annual product plan, perhaps in the format of listing the objective(s) for that element
of the program and providing a brief overview of the strategy to accomplish that
objective. Be careful, however, that the complete plan is coordinated. Do not work on
the advertising strategy document, for example, without coordinating I with the other
elements of the marketing mix.

There are several possible formats for a written product plan; there is no one
best approach. Figure 7.2 is only an example. Modify it as appropriate for a given
product line, company, and circumstances. The format of objectives/strategies for the
various marketing components is quite typical for a written plan, with rationale or
justification included.

Target Market(s)

The first part of the action plan is the description of the target market. There
will very likely be a primary target market as well as secondary targets developed
from the market analysis in lesson 5. The segments the product manager elects to
target determine the marketing strategy as well as the product positioning and
communication approaches. For example, Marvin Windows isolated different needs
among different segments of window buyers and advanced its position from eighth to
third in the industry by stressing the most relevant benefits to each group.

Topic Outline Description

Product Performance Two to three paragraphs summarizing the product’s

performance relative to last year’s plan, along with
explanations of variances from the plan. Any
research conducted on product performance or
quality can be included in this section as well.

Background Highlights from the background analysis, using

bullet points as much as possible. It is useful to
include the market analysis, competitive analysis,
and/or performance history worksheets as
attachments or exhibits.

Long-Term Objectives A statement indicating the long-term direction for

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Topic Outline Description

3. Product strategy This section can contain several items, depending

on the company and product requirements. There
will be one or more objectives, each followed by a
brief strategy statement. The format will usually
be as follows:

 Brief product description (such as one

contained in a catalog) indicating the
competitive differences, along with a table
of the sizes and variety of products in the
line.
 Product objectives, including new uses,
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Figure 7.2: Marketing Plan Outline

Topic Outline Description

b. Cooperative
advertising

A statement of the goals and general program

c. Trade advertising description of cooperative advertising programs with
channel members.

If advertising to intermediaries who resell the

6. Promotion strategy product, the message and media plan should be
summarized in this section.

There are several types of sales promotions,

support materials, trade show plans, and other
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Figure 7.2: Marketing Plan Outline

Topic Outline Description

Training Requirements Any training requirements (e.g., for customers) not

included elsewhere in the marketing plan.

Marketing Research Any planned research for the fiscal year, providing
the proposal as an attachment.

Financial Summary A pro-forma profit and loss statement for the

product(s). (See Figure 7.3.)
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Figure 7.2: Marketing Plan Outline

Part of the target market decision will also include the marshaling of
resources to get the greatest impact for the marketing investment and to accomplish
an objective such as being an industry leader. Industry leadership in the past meant
being the biggest and having the most visible brands. Now, with markets
fragmenting, leadership can be defined with a niche concept. By focusing a firm’s
resources on smaller segments, the firm becomes more visible and gains a
perception of leadership in that segment.

The most important insight . . . is the degree to which this whole concept
validates the merits of a “niche” or “focus” strategy—seeking to become
a large fish in a small pond. A brand of ice cream or beer carried in 500
retail outlets will benefit disproportionately . . . if all those outlets are in
Iowa, not spread over the Midwest, and even more if they are in Des
Moines. A business-to-business marketer can achieve the same level of
visibility and “leadership position” by focusing on one industry. Becoming
the leading supplier of inventory software for meatpackers may be not
only a feasible objective, but also one that confers all the “snowball”
benefits of brand leadership within that industry

Product Strategy

Several objectives in the product plan may be necessary to accomplish a

stated sales forecast. For example, a product objective could be to attain sales of $X
for each of three major products. The supporting strategy would explain what
modifications this would require in terms of quality improvements, “bundling,” or new
uses. The rationale would explain why this is possible given the background analysis.

Branding and packaging might or might not be a crucial part of the plan, but
they should at least be considered. Be sure that the customer need is addressed and
explain why a specific product satisfies this need better than the competition does.
Also, mention the effect of other products on the product line and/or the effect of the
line on the company product mix.

New-product plans might be separate because they usually cover a different

time period from the annual plan. However, because they impact a product
manager’s bottom line, they should probably be summarized here. New-product
specifications, positioning, budget, and event schedules can be included.

Pricing Strategy
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The pricing section should start with a statement of general company policies
and how specific product pricing fits within those policies. Any changes in discounts,
price packages, warranties, terms and conditions of sale, or any other variables
should be listed, along with an explanation of the impact on the profitability of the line
and of the “fit” in the overall positioning and product strategy.

Advertising Strategy

The advertising section could be quite long if several types of advertising are
used. The national (or regional) advertising directed at the end-customer would
require a different message and media than does advertising directed at the trade.
Therefore, separate campaigns will need to be developed. In any case, the product
manager must make sure the media and messages are coordinated to match the
positioning statement and overall marketing objectives stated in the annual plan.

The media planning part of the strategy should list, in calendar format, the
media vehicles used to convey the message. (See Figure 7.4) The rationale should
explain why this mix of media and insertions would accomplish the
reach/frequency/cost goals of the campaign.

Promotion Strategy

Sales promotion refers to tools, other than advertising, used to stimulate

short-term demand. This includes coupons, free samples, contests, premiums, point-
of-purchase material, and so on. Customer, trade, and sales force promotions can be
included in this section, along with budgets and calendars (similar to the examples
mentioned previously).

Sales support materials can be covered in this section or in the field sales
section. Also, any trade show strategies, merchandising, or publicity that the
company is involved in should be addressed.

Field Sales Plan

The field sales plan is usually beyond a product manager’s control, but there
might be activities for which product managers are responsible or activities that must
be performed to attain product goals. In those cases, they should be included in this
portion of the annual marketing plan.

Distribution Strategy

The distribution strategy section should contain a statement on general

policies and the desired penetration or coverage. If there are any planned changes,
such as adding/deleting intermediaries or creating programs to improve relationships,
they should be mentioned here along with the “fit” into the positioning and overall
marketing objectives.

Product Support

The product support section should provide a general statement on the

policies for warranty/guarantee and repair service as well as any anticipated
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changes. As always, this should be coordinated with the rest of the marketing
program so that the positioning and marketing objectives are achieved.
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Checklist: Hints on Writing the Annual Product Marketing Plan

 Word your annual product marketing objectives so that they indicate what you want to
accomplish during the next fiscal year to take advantage of identified opportunities and
to overcome potential problems.

 Be sure the objectives are consistent with the long-term vision of the product line and
company.

 Identify the group(s) of customers you are going to focus your energies and resources
on during the next fiscal year. This becomes your target market(s).

 Since many competitors could be going after this same group of customers, use your
positioning statement to explain how you want customers to view you as better than the
competition and how you can provide evidence of this difference.

Consider the impact that pricing, advertising, field selling, distribution strategy, and product
support have on one another as well as on the success of your product. Write the marketing
plan with th