Chapter 11


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Chapter 11

  1. 1. Chapter 11 Building the Business: Marketing
  2. 2. Marketing <ul><li>Must make consumers aware of the product/service that the firm is selling </li></ul><ul><li>Must AGRESSIVELY make target market aware </li></ul><ul><li>Must build a credible case as to why the new business will be better, cheaper, higher quality, and more attentive than the current offerings. </li></ul>
  3. 3. Introduction <ul><li>Developing a marketing plan is not an easy endeavor </li></ul><ul><li>Consulting companies are available to help develop a marketing plan </li></ul><ul><ul><li>Consulting companies are expensive </li></ul></ul><ul><ul><li>Hard to justify cost with low levels of cash at the onset of operations. </li></ul></ul>
  4. 4. Developing a Marketing Plan <ul><li>Must develop a working marketing plan that includes: </li></ul><ul><ul><li>Identifying your market </li></ul></ul><ul><ul><li>Ideal and general target customer </li></ul></ul><ul><ul><li>Determine a pricing strategy in-line with the firm’s strategy </li></ul></ul><ul><ul><li>Promotion </li></ul></ul><ul><ul><li>Sales management procedures </li></ul></ul><ul><ul><li>Sales forecasting. </li></ul></ul>
  5. 5. Identifying Target Market <ul><li>Marketing efforts need to be as focused as the small business’s mission </li></ul><ul><li>The small business is trying to reach those people “most likely” to buy </li></ul><ul><li>Remember that people will only travel short distances </li></ul><ul><ul><li>Do not market too broadly – financial implications are not good. </li></ul></ul>
  6. 6. Geographic Area <ul><li>How will the small business reach potential customers in the area? </li></ul><ul><ul><li>Flyers </li></ul></ul><ul><ul><li>Contacting local HR Departments of local companies </li></ul></ul><ul><ul><li>Sponsoring events </li></ul></ul><ul><li>Try to maximize the marketing effort at all times. </li></ul>
  7. 7. Target Customer <ul><li>Must understand the market that is served and the targeted customers are critical to the success of marketing the new small business </li></ul><ul><li>Look towards finding the “ideal” customer </li></ul><ul><li>Should ask the following questions: </li></ul><ul><ul><li>How many “ideal” individuals live within your market area? </li></ul></ul><ul><ul><li>What is a realistic percentage of customers to attract? </li></ul></ul><ul><ul><li>Are the projections consistent with cash flow projections? </li></ul></ul><ul><ul><li>If not, what needs to be changed? </li></ul></ul>
  8. 8. Exercise 2 <ul><li>Who is your ideal customer? </li></ul><ul><li>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? </li></ul>
  9. 9. Market Pricing <ul><li>One approach to setting prices is to value the product(s) at price levels that you believe they are worth on the market </li></ul><ul><li>Good when there is very little, if any, competition </li></ul><ul><li>Only direction for price of a new entry is downward in the future </li></ul>
  10. 10. Cost-Plus Pricing <ul><li>Determine the total cost (breakeven point) of the product—don’t forget to include “overhead costs” </li></ul><ul><li>Add a “mark-up” to the total cost of the product to make a profit </li></ul><ul><li>“ Mark-up” is what should be tempered by comparison with competition </li></ul>
  11. 11. Loss Leaders <ul><li>Not uncommon to sell a “loss-leader” </li></ul><ul><li>Main purpose is to get customers into the store </li></ul><ul><li>Do not employ a “loss-leader” until the small business has a solid foundation and momentum </li></ul><ul><li>“ Loss-leaders” require considerable skill to implement and involve tremendous risk… </li></ul>
  12. 12. Pricing <ul><li>Do not make the mistake of pricing each individual item that is available for sale </li></ul><ul><ul><li>Too time consuming </li></ul></ul><ul><li>Place products in reasonable categories to ease the pricing process. </li></ul><ul><li>Use attractive pricing $99.99 instead of $100 </li></ul>
  13. 13. Pricing of a Service <ul><li>More complex than pricing goods </li></ul><ul><li>Time becomes the base operating cost </li></ul><ul><li>Closely examine the pricing policies of your competitors (Market Pricing) </li></ul><ul><li>Pricing can be a valuable tool to juggle customer flow and available time. </li></ul>
  14. 14. Important Points to Remember About Pricing <ul><li>A small business starting out will need to offer an even greater value for the money charged to build a customer base </li></ul><ul><li>Only after the company has developed a positive reputation can the value offered be changed to provide a greater financial benefit for the firm </li></ul><ul><li>Remember that consumers rarely want to change their supplier of goods and services…(brand loyalty) </li></ul>
  15. 15. Important Points to Remember About Pricing <ul><li>Small increments of money should be avoided – regardless of what that means to margins </li></ul><ul><li>The difference in appeal between an item being priced at $1.01 and $0.99 is substantial </li></ul><ul><li>Offering a quantity discount depends on the business </li></ul><ul><ul><li>Most likely not going to be used in a retail business. </li></ul></ul>
  16. 16. Pricing Strategy <ul><li>Some people say that when a very famous company lowered its price on its high quality television sets, that it ruined the company </li></ul><ul><li>People perceived that the lowered price meant the company had lowered quality and they refused to buy the product </li></ul><ul><li>The result was that the company actually sold fewer television sets and lost money. </li></ul>
  17. 17. Pricing Strategy <ul><li>Can you think of other examples of products that would suffer fewer sales if they lowered their prices? </li></ul><ul><li>Can you think of any products or services where lowering prices could result in enough increase in sales to result in higher profits? </li></ul>
  18. 18. Exercise 3 <ul><li>How will you price your product/service? Why? </li></ul><ul><li>What do your competitors charge? Should your price vary from the industry standard? </li></ul>
  19. 19. Promotion <ul><li>Promotion is the means in which a product or service is advanced </li></ul><ul><li>Promotion must be targeted to the market and customer groups within the industry </li></ul><ul><li>Successful promotion reaches the target customer in the most efficient manner possible. </li></ul>
  20. 20. Pure Promotions <ul><li>Includes any form of advertising that costs and is purely designed to promote the products/services of the company </li></ul><ul><li>Examples: </li></ul><ul><ul><li>Signs </li></ul></ul><ul><ul><li>Flyers </li></ul></ul><ul><ul><li>Web pages </li></ul></ul><ul><ul><li>Newspaper </li></ul></ul><ul><ul><li>Radio </li></ul></ul><ul><ul><li>Television. </li></ul></ul>
  21. 21. Signs <ul><li>Often-overlooked means of advertising a company </li></ul><ul><li>Catchy-name, well-designed logo, and substantial effort to promote the visibility of the name and logo can provide significant benefits </li></ul><ul><li>Simple but distinctive is an important part of a customer, or potential customer, remembering the firm. </li></ul>
  22. 22. Flyers <ul><li>Effective if able to target a very specific geographic area and customer profile </li></ul><ul><li>Flyers can be changed frequently </li></ul><ul><li>Low cost to produce </li></ul><ul><li>Delivered with low labor-cost </li></ul><ul><li>Tend to have a smaller impact on customers. </li></ul>
  23. 23. Web Page <ul><li>A web page is no longer a competitive advantage, but is now an expectation </li></ul><ul><li>Primary resource for reaching customers outside of the firm’s “target region” </li></ul><ul><li>Look towards a professional to develop anything beyond the most basic of web pages. </li></ul>
  24. 24. Newspapers <ul><li>Involves two steps: </li></ul><ul><ul><li>Designing the ad </li></ul></ul><ul><ul><li>Placing it in the newspaper </li></ul></ul><ul><li>Downside to newspaper advertisements is that the firm will pay for “views” by individuals who most likely will never be customers. </li></ul>
  25. 25. Radio and Television <ul><li>Unlike newspapers, there are numerous radio and television stations available to “run” your ad </li></ul><ul><li>An advertising agency is recommended in developing and placing the advertisement </li></ul><ul><li>A genre of advertisement that is more difficult and financially demanding </li></ul><ul><li>Be cautious to not upset any person or group with your advertisement. </li></ul>
  26. 26. Mixed Promotions and Community Support <ul><li>Schools are always in the need for constant sponsorship </li></ul><ul><ul><li>Provides maximum exposure to the potential client base in a relatively inexpensive manner </li></ul></ul><ul><li>Allows to put a stamp on positive activities and reach parents and/or children that you are trying to reach </li></ul><ul><li>Another potential source is sponsoring local youth sports teams. </li></ul>
  27. 27. Virtually Free Promotion <ul><li>Promotions that have a very limited financial cost but have a time commitment requirement from someone in the firm </li></ul><ul><li>Bootstrap marketing — efforts that require little capital </li></ul><ul><li>Speaking opportunities to civic organizations, schools, churches, clubs. </li></ul>
  28. 28. Exercise 4 <ul><li>List some of the promotional activities that are relevant in the area where you live. </li></ul><ul><li>2. Which of these would be most economical for a small business? </li></ul>
  29. 29. Sales Management <ul><li>Refers to the method, means, and individuals that constitute the relationship with the customer </li></ul><ul><ul><li>Encompasses the entire process of how the sales process is managed. </li></ul></ul>
  30. 30. Sales Management Issues <ul><li>How many contact points will the business have with each customer </li></ul><ul><li>How will each customer be greeted </li></ul><ul><li>What is the process for managing the customer once an order has been placed </li></ul><ul><li>What look will the sales force present </li></ul><ul><li>What controls are in place to ensure the quality of the product delivery </li></ul><ul><li>How much information will be collected on each customer </li></ul><ul><li>What will the business do with the information collected… </li></ul>
  31. 31. Sales Management <ul><li>Designing and maintaining a successful sales management system requires a consistent approach and an image that is designed around the firm’s mission statement </li></ul><ul><li>The small business’s relationship with the customer is critical for success. </li></ul>
  32. 32. Forecasting Sales <ul><li>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 </li></ul><ul><ul><li>Data is modified by a likely percentage of those customers that will use the business </li></ul></ul><ul><li>Customer demand method estimates how many customers the business can handle given their location, staffing, etc. </li></ul><ul><ul><li>Estimates center on the number of customers needed to breakeven. </li></ul></ul>
  33. 33. Distribution Channels <ul><li>Independent sales agents </li></ul><ul><li>Contract sales force </li></ul><ul><li>Web-based business </li></ul><ul><li>Mail order/catalog. </li></ul>
  34. 34. Independent Sales Agents <ul><li>Used to sell industrial products </li></ul><ul><li>Independent representative agrees to sell the product for a percentage of the sales price </li></ul><ul><li>Securing the right representatives for the right price can be crucial to success. </li></ul>
  35. 35. Contract Sales Force <ul><li>Contract sales companies provide independent salespeople with a wide variety of experiences and contacts </li></ul><ul><li>Relatively expensive means of jump starting sales </li></ul><ul><ul><li>Can be the difference between the firm’s success and failure </li></ul></ul><ul><li>The effort is to lock up long term contracts. </li></ul>
  36. 36. Web-Based Business <ul><li>Web page displays the products, the means for the customer to ask questions, and allows the customer to purchase the product </li></ul><ul><li>Dependent upon the design of the website to present information about the products and their benefits </li></ul><ul><li>Web page design is critical. </li></ul>
  37. 37. Mail Order and Catalog Business <ul><li>Catalogs are mailed to the homes of customers </li></ul><ul><li>Provide a consistent set of products and provide a means to order those products </li></ul><ul><li>Understanding and targeting your customer is critical </li></ul><ul><li>Be wary of credit card fraud </li></ul><ul><ul><li>Plagued the industry. </li></ul></ul>
  38. 38. Chapter Exercises <ul><li>What channels do you intend to use to market your product/service? </li></ul><ul><li>What are the costs for each? </li></ul>