Chapter 11 Chapter 11 Building the Business: Building the Business: MarketingMarketing

MarketingMarketingMust make consumers aware of

the product/service that the firm is selling

Must AGRESSIVELY make target market aware

Must build a credible case as to why the new business will be better, cheaper, higher quality, and more attentive than the current offerings.

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IntroductionIntroductionDeveloping a marketing plan is

not an easy endeavorConsulting companies are

available to help develop a marketing plan ◦Consulting companies are expensive◦Hard to justify cost with low levels of

cash at the onset of operations.

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Developing a Marketing Developing a Marketing PlanPlanMust develop a working

marketing plan that includes:◦Identifying your market◦Ideal and general target customer◦Determine a pricing strategy in-line

with the firm’s strategy◦Promotion◦Sales management procedures◦Sales forecasting.

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Identifying Target MarketIdentifying Target MarketMarketing efforts need to be as

focused as the small business’s mission

The small business is trying to reach those people “most likely” to buy

Remember that people will only travel short distances◦Do not market too broadly – financial

implications are not good.5

Geographic AreaGeographic AreaHow will the small business reach

potential customers in the area?◦Flyers◦Contacting local HR Departments of

local companies◦Sponsoring events

Try to maximize the marketing effort at all times.

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Target CustomerTarget CustomerMust understand the market that is served

and the targeted customers are critical to the success of marketing the new small business

Look towards finding the “ideal” customerShould ask the following questions:

◦ How many “ideal” individuals live within your market area?

◦ What is a realistic percentage of customers to attract?

◦ Are the projections consistent with cash flow projections?

◦ If not, what needs to be changed?

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Exercise 2Exercise 2

1. Who is your ideal customer?2. What is the geographical range

of your business? How far can you reasonably expect people to travel for your product or call you to serve them?

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Market PricingMarket PricingOne approach to setting prices is to

value the product(s) at price levels that you believe they are worth on the market

Good when there is very little, if any, competition

Only direction for price of a new entry is downward in the future

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Cost-Plus PricingCost-Plus PricingDetermine the total cost

(breakeven point) of the product—don’t forget to include “overhead costs”

Add a “mark-up” to the total cost of the product to make a profit

“Mark-up” is what should be tempered by comparison with competition

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Loss LeadersLoss LeadersNot uncommon to sell a “loss-

leader”Main purpose is to get customers

into the storeDo not employ a “loss-leader” until

the small business has a solid foundation and momentum

“Loss-leaders” require considerable skill to implement and involve tremendous risk…

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PricingPricingDo not make the mistake of

pricing each individual item that is available for sale◦Too time consuming

Place products in reasonable categories to ease the pricing process.

Use attractive pricing $99.99 instead of $100

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Pricing of a ServicePricing of a ServiceMore complex than pricing goodsTime becomes the base

operating costClosely examine the pricing

policies of your competitors (Market Pricing)

Pricing can be a valuable tool to juggle customer flow and available time.

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Important Points to Remember Important Points to Remember About PricingAbout PricingA small business starting out will need

to offer an even greater value for the money charged to build a customer base

Only after the company has developed a positive reputation can the value offered be changed to provide a greater financial benefit for the firm

Remember that consumers rarely want to change their supplier of goods and services…(brand loyalty)

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Important Points to Remember Important Points to Remember About PricingAbout PricingSmall increments of money

should be avoided – regardless of what that means to margins

The difference in appeal between an item being priced at $1.01 and $0.99 is substantial

Offering a quantity discount depends on the business◦Most likely not going to be used in a

retail business.

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Pricing StrategyPricing StrategySome people say that when a very

famous company lowered its price on its high quality television sets, that it ruined the company

People perceived that the lowered price meant the company had lowered quality and they refused to buy the product

The result was that the company actually sold fewer television sets and lost money.

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Pricing StrategyPricing Strategy Can you think of other examples

of products that would suffer fewer sales if they lowered their prices?

Can you think of any products or services where lowering prices could result in enough increase in sales to result in higher profits?

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Exercise 3Exercise 3 How will you price your

product/service? Why?

What do your competitors charge? Should your price vary from the industry standard?

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PromotionPromotionPromotion is the means in which

a product or service is advancedPromotion must be targeted to

the market and customer groups within the industry

Successful promotion reaches the target customer in the most efficient manner possible.

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Pure PromotionsPure PromotionsIncludes any form of advertising that

costs and is purely designed to promote the products/services of the company

Examples:◦ Signs◦ Flyers◦ Web pages◦ Newspaper◦ Radio◦ Television.

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SignsSignsOften-overlooked means of

advertising a companyCatchy-name, well-designed logo,

and substantial effort to promote the visibility of the name and logo can provide significant benefits

Simple but distinctive is an important part of a customer, or potential customer, remembering the firm.

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FlyersFlyersEffective if able to target a very

specific geographic area and customer profile

Flyers can be changed frequentlyLow cost to produceDelivered with low labor-costTend to have a smaller impact on

customers.

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Web PageWeb PageA web page is no longer a

competitive advantage, but is now an expectation

Primary resource for reaching customers outside of the firm’s “target region”

Look towards a professional to develop anything beyond the most basic of web pages.

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NewspapersNewspapersInvolves two steps:

◦Designing the ad◦Placing it in the newspaper

Downside to newspaper advertisements is that the firm will pay for “views” by individuals who most likely will never be customers.

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Radio and TelevisionRadio and Television

Unlike newspapers, there are numerous radio and television stations available to “run” your ad

An advertising agency is recommended in developing and placing the advertisement

A genre of advertisement that is more difficult and financially demanding

Be cautious to not upset any person or group with your advertisement.

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Mixed Promotions and Mixed Promotions and Community SupportCommunity SupportSchools are always in the need for

constant sponsorship◦ Provides maximum exposure to the

potential client base in a relatively inexpensive manner

Allows to put a stamp on positive activities and reach parents and/or children that you are trying to reach

Another potential source is sponsoring local youth sports teams.

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Virtually Free PromotionVirtually Free Promotion Promotions that have a very

limited financial cost but have a time commitment requirement from someone in the firm

Bootstrap marketing — efforts that require little capital

Speaking opportunities to civic organizations, schools, churches, clubs.

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Exercise 4Exercise 4

1. List some of the promotional activities that are relevant in the area where you live.

2. Which of these would be most economical for a small business?

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Sales ManagementSales ManagementRefers to the method, means,

and individuals that constitute the relationship with the customer◦Encompasses the entire process of

how the sales process is managed.

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Sales Management IssuesSales Management IssuesHow many contact points will the business

have with each customerHow will each customer be greetedWhat is the process for managing the

customer once an order has been placedWhat look will the sales force presentWhat controls are in place to ensure the

quality of the product deliveryHow much information will be collected on

each customerWhat will the business do with the

information collected…

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Sales ManagementSales ManagementDesigning and maintaining a

successful sales management system requires a consistent approach and an image that is designed around the firm’s mission statement

The small business’s relationship with the customer is critical for success.

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Forecasting SalesForecasting Sales

Market potential methods (also known as “top-down” approach) estimate the potential sales of the firm based on the number of potential customers in the area◦ Data is modified by a likely percentage of those

customers that will use the business Customer demand method estimates how

many customers the business can handle given their location, staffing, etc.◦ Estimates center on the number of customers

needed to breakeven.

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Distribution ChannelsDistribution ChannelsIndependent sales agentsContract sales forceWeb-based businessMail order/catalog.

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Independent Sales AgentsIndependent Sales AgentsUsed to sell industrial productsIndependent representative

agrees to sell the product for a percentage of the sales price

Securing the right representatives for the right price can be crucial to success.

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Contract Sales ForceContract Sales ForceContract sales companies provide

independent salespeople with a wide variety of experiences and contacts

Relatively expensive means of jump starting sales◦Can be the difference between the

firm’s success and failureThe effort is to lock up long term

contracts.35

Web-Based BusinessWeb-Based BusinessWeb page displays the products,

the means for the customer to ask questions, and allows the customer to purchase the product

Dependent upon the design of the website to present information about the products and their benefits

Web page design is critical.

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Mail Order and Catalog Mail Order and Catalog BusinessBusinessCatalogs are mailed to the homes

of customersProvide a consistent set of

products and provide a means to order those products

Understanding and targeting your customer is critical

Be wary of credit card fraud◦Plagued the industry.

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Chapter ExercisesChapter Exercises

What channels do you intend to use to market your product/service?

What are the costs for each?

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