Perreault−McCarthy: Basic
Marketing: A
Global−Managerial
Approach, 14/e- Evaluating Opportunities
in the Changing Marketing
Environment
Text © The McGraw−Hill
Companies, 2002116 Chapter 4
Opportunities that pass the screening criteria should be evaluated in more detail
before being accepted as theproduct-market strategic plans for implementation.
Usually, a firm has more opportunities than resources and has to choose among
them—to match its opportunities to its resources and objectives. The following
approaches help firms select among possible plans.In the total profit approach, management forecasts potential sales and costs dur-
ing the life of the plan to estimate likely profitability.
Managers may evaluate the prospects for each plan over a five-year planning
period, using monthly and/or annual sales and cost estimates. This is shown graph-
ically in Exhibit 4-6.
Note that managers can evaluate different marketing plans at the same time.
Exhibit 4-6 compares a much improved product and product concept (Product A)
with a “me-too” product (Product B) for the same target market. In the short run,
the me-too product will make a profit sooner and might look like the better choice—
if managers consider only one year’s results. The improved product, on the other
hand, will take a good deal of pioneering—but over its five-year life will be much
more profitable.Besides evaluating the profit potential of possible plans, firms may also calculate
the return on investment (ROI) of resources needed to implement plans. One plan
may require a heavy investment in advertising and channel development, for exam-
ple, while another relies primarily on lower price.
ROI analyses can be useful for selecting among possible plans because equally
profitable plans may require vastly different resources and offer different rates of
return on investment. Some firms are very concerned with ROI, especially those
that borrow money for working capital. There is little point in borrowing to imple-
ment strategies that won’t return enough to meet the cost of borrowing.Exhibit 4-5 An Example of Product-Market Screening Criteria for a Small Retail and Wholesale Distributor
($10 million annual sales)
- Quantitative criteria
a. Increase sales by $1,500,000 per year for the next five years.
b. Earn ROI of at least 25 percent before taxes on new ventures.
c. Break even within one year on new ventures.
d. Opportunity must be large enough to justify interest (to help meet objectives) but small enough so company can
handle with the resources available.
e. Several opportunities should be pursued to reach the objectives—to spread the risks. - Qualitative criteria
a. Nature of business preferred.
(1) Should take advantage of our online Internet order system and website promotion.
(2) New goods and services for present customers to strengthen relationships and revenue.
(3) “Quality” products that do not cannibalize sales of current products.
(4) Competition should be weak and opportunity should be hard to copy for several years.
(5) There should be strongly felt (even unsatisfied) needs—to reduce promotion costs and permit “high” prices.
b. Constraints.
(1) Nature of businesses to exclude.
(a) Manufacturing.
(b) Any requiring large fixed capital investments.
(c) Any requiring many support people who must be “good” all the time and would require much supervision.
(2) Geographic.
(a) United States, Mexico, and Canada only.
(3) General.
(a) Make use of current strengths.
(b) Attractiveness of market should be reinforced by more than one of the following basic trends: technological,
demographic, social, economic, political.
(c) Market should not be bucking any basic trends.
Total profit approach
can help evaluate
possible plans
Return-on-investment
(ROI) approach can
help evaluate possible
plans too