Small Business Management Chapter 7 PowerPoint

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CHAPTER
7
The Marketing Plan

LEARNING OBJECTIVES
By studying this chapter, you should be able to…
7-1 Describe small business marketing.
7-2 Identify the components of a formal marketing plan.
7-3 Discuss the nature of the marketing research
process.
7-4 Define market segmentation, and discuss its related
strategies.
7-5 Explain the different methods of forecasting sales.

7-1 WHAT IS SMALL
BUSINESS MARKETING?
• Marketing – Business activities that direct the
creation, development, and delivery of a
bundle of satisfaction from the creator to the
targeted user.
• The product or service as a bundle of satisfaction
has three levels:
1. Core product/service – The fundamental benefit or
solution sought by customers.
2. Actual product/service – The basic physical product
and/or service that delivers those benefits.
3. Augmented product/service – The basic product and/or
service plus any extra or unsolicited benefits to the
consumer that may prompt a purchase.

7-1a Marketing Philosophies
Make a Difference (slide 1 of 2)
• A firm’s marketing philosophy determines how
its marketing activities are developed in the
marketing plan and used to achieve business
goals.

7-1a Marketing Philosophies
Make a Difference (slide 2 of 2)
• Three different marketing philosophies guide most
small businesses:
1. Production-oriented philosophy.
• A production-oriented philosophy emphasizes the product as the
single most important part of the business.
• The firm concentrates resources on developing the product in the
most efficient manner, while promotion, distribution, and other
marketing activities are given less attention.
2. Sales-oriented philosophy.
• A sales-oriented philosophy deemphasizes customer preferences and
production efficiencies in favor of a focus on “pushing the product.”
3. Consumer-oriented philosophy.
• A consumer-oriented philosophy believes that everything,
including production and sales, centers on the consumer and his
or her needs.

7-1b A Consumer Orientation
—the Right Choice (slide 1 of 2)
• A small business should adopt a consumer
orientation to marketing, as that philosophy is
most consistent with long-term success.
• There are many examples of both production- and
sales-oriented philosophies that generate short-
term success.
• However, a consumer orientation not only recognizes
production efficiency goals and professional selling but
also adds concern for customer satisfaction.
• This requires the company to define the value customers will
gain from the products and services offered.

7-1b A Consumer Orientation
—the Right Choice (slide 2 of 2)
• Once a small firm makes a commitment to a
customer orientation, it is ready to develop a
marketing strategy to support this goal.
• Activities involved in creating a marketing strategy
include analyzing the market and determining the
marketing mix.
• Market analysis – The process of locating and describing
potential customers.
• Marketing mix – The combination of product and/or
service, pricing, promotion, and distribution (place)
activities.

7-2 THE FORMAL
MARKETING PLAN
• After an entrepreneur completes a feasibility
study and determines that the venture idea is a
viable opportunity, he or she is ready to
prepare the formal marketing plan.
• Each business venture is different, so each
marketing plan must be unique.
• However, certain subjects—market analysis, the
competition, and marketing strategy—must be covered.

7.1 The Marketing Plan and Supporting Marketing Activities

7-2a Market Analysis (slide 1 of 2)
• The market analysis should include a customer profile.
• Customer profile – A description of potential customers in a
target market.
• A customer profile identifies the key demographic and
psychological characteristics of the customers you consider
most likely to be qualified purchasers of your products or
services.
• Marketing research information, compiled from both secondary
and primary data, can be used to construct this profile.
• If a business owner envisions several target markets, each
segment must have a corresponding customer profile.

7-2a Market Analysis (slide 2 of 2)
• A detailed discussion of the major benefits to
customers provided by the new product or
service should be included in this section of the
plan.
• Another major component of market analysis is
the actual sales forecast.
• It is usually desirable to include three sales
forecasts covering “most likely,” “best-case,” and
“worst-case” scenarios.

7-2b The Competition
• A SWOT analysis is helpful in assessing the
competition.
• It is important that your company has a clear understanding of
its strengths, its weaknesses, available market opportunities,
and threats from competitors as well as from changes in the
company’s operating environment (social, technological,
economic, political, and other environmental variables).
• A SWOT analysis only has value if you use the information
that comes out of it.
• A SWOT analysis should tell you:
• Where your business stands relative to the competition.
• How competitors are likely to react when you change or try a new
marketing tactic.
• What actions you might take when you cannot overcome a
weakness or avoid a threat.

7-2c Marketing Strategy (slide 1 of 5)
• The information on marketing strategy forms the most detailed
section of the marketing plan and, in many respects, is subject to
the closest scrutiny from potential investors.
• Marketing strategy plots the course of the marketing actions that
will make or break the owner’s vision.
• The marketing mix of the “4 Ps” highlights the areas that a
company’s marketing strategy should address:
1. Product decisions that will transform the basic product or service into
a bundle of satisfaction.
2. Place (distribution) activities that will determine the delivery of the
product to customers.
3. Pricing decisions that will set an acceptable exchange value on the
total product or service.
4. Promotional activities that will communicate the necessary
information to target markets.

THE PRODUCT/SERVICE SECTION
• The product/service section of the marketing plan should include
the following components:
• The name of the product and/or service and why it was selected.
• The name of the business and why it was selected.
• A description of any legal protection that has been obtained for the
names.
• An explanation of the logic behind the name selection.
• Photos, drawings, or other representations of components of the total
product, such as the packaging.
• Customer service plans such as warranties and repair policies.
• A description of any patents, trademarks, and copyrights, which are
used to differentiate products and images from those of competitors
and to prevent rivals from stealing a competitive advantage.

PLACE—THE DISTRIBUTION SECTION
• The place (distribution) section of the marketing plan should
include the following components:
• How intermediaries will be persuaded to carry the new product (if the
business if planning to use intermediaries to handle the distribution of
the product).
• Supply chain issues.
• Licensing.
• Importing or exporting.
• Layouts and configurations of retail outlets.
• Knowledge of exchange rates between currencies and distribution
options.

• Questions to be addressed in the distribution section include:
• Will the customer get the product by regular mail or express delivery?
• Wil the service be provided from the entrepreneur’s home or office or
from the location of a licensed representative?
• How long will it take between order placement and actual delivery?
THE PRICING SECTION
• The pricing section should cover the cost of bringing the product
or service to the customer and include calculations for:
• Production costs.
• Marketing costs.
• Customer acquisition costs – The amount spent to attract each
new customer who makes a purchase from the company.
• Break-even computations, which indicate the points where revenues
and costs are equal, should be included for alternative pricing.

THE PROMOTION SECTION
• The promotion section of the marketing plan should include the
following:
• A description of the entrepreneur’s approach to creating customer
awareness of the product or service.
• An explanation of why customers will be motivated to buy the product
or service.
• An outline of how many salespeople will be employed and how they
will be compensated (if personal selling is to be used).
• A list of the specific media to be employed and a description of
advertising themes (if advertising is to be used).
• The name and credentials of the advertising agency, as well as a
brief mention of successful campaigns supervised by the agency (if
the services of an advertising agency will be used).

7-3 MARKETING RESEARCH
FOR THE SMALL BUSINESS
• Many small business owners base their
marketing plans on intuition or on their
personal, limited experiences and
observations.
• However, marketing research data should be
collected and evaluated before writing the
marketing plan.

7-3a The Nature of
Marketing Research
• Marketing research – The gathering, processing,
interpreting, and reporting of market information.
• A small business typically conducts less marketing
research than a big business does, partly because of
the expense involved but also because the
entrepreneur often does not understand the basic
research process.
• A word of caution: Using research techniques that you’ve
heard about but haven’t really studied can result in bad
decisions.

7-3b Steps in the Marketing
Research Process (slide 1 of 8)
• The cost of marketing research should be evaluated against its
benefits.
• Such analysis will help the entrepreneur to decide how much and
what kind of research should be conducted.
• As important as marketing research is, it should be viewed as a
supplement to, not as a replacement for, good judgment and
cautious experimentation in launching new products and services.
• The typical steps in the marketing research process are as
follows:
1. Identify the informational need.
2. Search for secondary data.
3. Collect primary data.
4. Interpret the data gathered.

STEP ONE: IDENTIFY THE INFORMATIONAL NEED
• Identify and define what you need to know.
• Be specific, as broad statements will do little to guide the research
process.
• Develop a hypothesis, and then test the hypothesis.
• The results will guide the marketing plan.
• The marketing plan has to fit with the entire business strategy;
thus, the following questions will need to be answered:
• What resources do I have to draw from?
• How efficient are my operations?
• What is my current competitive advantage, and how long will it last?
• Who are/should be my customer segments?
• What relationships do I want to build with those customers?

STEP TWO: SEARCH FOR SECONDARY DATA
• Secondary data – Market information that has already been
compiled.
• Generally, collecting secondary data is less expensive than
gathering new, or primary, data.
• Examples of secondary data include:
• Libraries.
• Software programs.
• The Internet.
• The U.S. Small Business Administration (SBA).
• The use of secondary data has several drawbacks:
• The information may be outdated.
• The units of measure in the secondary data may not fit with the
current problem.
• Some sources are less trustworthy than others.

STEP THREE: COLLECT PRIMARY DATA
• Primary data – New market information that is
gathered by the firm conducting the research.
• Observational methods and questioning
methods are two techniques used in
accumulating primary data.

• Observational methods avoid interpersonal contact
between respondents and the researcher.
• Example: Mystery shopping.
• Mystery shoppers gather observational data by going into a
store and looking at how items are displayed, checking out
in-store advertising, and assessing other features of the
store.
• The results of such activities are used to make important
changes in store design and merchandising.

• Questioning methods involve some type of
interaction with respondents.
• Examples: Surveys (online, mail, telephone, personal
interview) and focus groups.
• Mail surveys usually yield low response rates.
• Telephone surveys and personal interview surveys achieve
higher response rates.
• Personal interview surveys are very expensive.
• For many target-market segments, Internet surveys are the
preferred approach.
• A questionnaire is the basic instrument guiding the
researcher who is administering the survey and the
respondent who is taking it.

• The following are several considerations to keep in mind
when designing and testing a questionnaire:
• Ask questions that relate directly to the issue under
consideration.
• Select the form of question, such as open-ended or multiple-
choice, that is most appropriate for the subject and the
conditions of the survey.
• Carefully consider the order of the questions.
• Asking questions in the wrong sequence can produce
biased answers to later questions.
• Ask the more sensitive questions near the end of the
questionnaire.
• The words in each question should be as simple, clear, and
objective as possible.
• Pretest the questionnaire by administering it to a small sample of
respondents who are representative of the group to be surveyed.

STEP FOUR: INTERPRET THE DATA GATHERED
• After the necessary data have been gathered, they
must be transformed into usable information.
• Without interpretation, large quantities of data are only isolated
facts.
• Methods of summarizing and simplifying information for users
include tables, charts, and other graphics.
• Descriptive statistics (e.g., the average response) are most
helpful during this step in the research procedure.

7-4 UNDERSTANDING POTENTIAL
TARGET MARKETS
• Market – A group of customers or potential
customers who have purchasing power and
unsatisfied needs.
• There are three ingredients in the definition of a
market:
1. A market must have buying units, or customers.
• These units may be individuals or business entities.
2. Customers in a market must have purchasing power.
• Those who lack money and/or credit do not constitute a
viable market because no transactions can occur.
3. A market must contain buying units with unsatisfied needs.
• Customers will not buy unless they are motivated to do so—
and motivation can occur only when a customer recognizes
his or her unsatisfied needs.

7-4a Marketing Segmentation
and Its Variables (slide 1 of 2)
• A focus strategy is a type of competitive
strategy in which cost- and differentiation-
based advantages are achieved within narrow
market segments.
• A focus strategy relies on market segmentation.
• Market segmentation – The division of a market into
several smaller groups, each with similar needs.

7-4a Marketing Segmentation
and Its Variables (slide 2 of 2)
• In order to divide the total market into appropriate
segments, an entrepreneur must consider
segmentation variables.
• Segmentation variables – The parameters used to
distinguish one form of market behavior from another.
• Two broad sets of segmentation variables that represent the
major dimensions of a market are:
1. Benefit variables – Specific characteristics that distinguish
market segments according to the benefits sought by customers.
2. Demographic variables – Specific characteristics that describe
customers, their purchasing power, their consumption patterns,
and other factors.

7-4b Marketing Strategies Based on
Segmentation Considerations (slide 1 of 4)
• Three types of market segmentation strategies
are:
1. The unsegmented approach.
2. The multisegment approach.
3. The single-segment approach.

THE UNSEGMENTED STRATEGY
• Unsegmented strategy (mass marketing) – A
strategy that defines the total market as the target
market.
• This strategy assumes that all customers desire the
same basic benefit from the product or service.
• With an unsegmented strategy, a firm develops a
single marketing mix—one combination of product,
price, promotion, and place.
• Its competitive advantage must be derived from either
a cost- or a differentiation-based advantage.

THE MULTISEGMENT STRATEGY
• Multisegment strategy – A strategy that recognizes
different preferences of individual market segments
and develops a unique marketing mix for each.
• A multisegment strategy may be based on:
• Demographic segments.
• Example: A clothing store that markets to men and women.
• Geographic segments.
• Example: A group of banks that offers services in multiple
states.
• Behavioral segments.
• Example: A company that owns several restaurant chains
may have customers who choose a restaurant based on
price and others who are loyal to a brand.

THE SINGLE-SEGMENT STRATEGY
• Single-segment strategy – A strategy that recognizes
the existence of several distinct market segments but
focuses on only the most profitable segment.
• A competitive advantage is achieved through a cost- or
differentiation-based strategy.
• The single-segment approach is probably the wisest
strategy for small businesses to use during initial
marketing efforts.
• It allows a small firm to specialize and make better use of its
limited resources.
• Then, once its reputation has been established, the firm will find it
easier to enter new markets.

7-5 ESTIMATING
MARKET POTENTIAL
• A sales forecast is a typical indicator of market
adequacy, so it is particularly important to
complete this assessment prior to writing the
marketing plan.

7-5a The Sales Forecast
• Sales forecast – A prediction of how much of
a product or service can be sold within a given
market during a specified period of time.
• Both short-term and long-term forecasts are
needed for a well-constructed marketing plan.
• A sales forecast is an essential component of
the marketing plan because it is critical in
assessing the feasibility of a new venture.
• If the market is insufficient, the business is destined
for failure.

7-5b Limitations of Forecasting
(slide 1 of 2)
• Entrepreneurial inexperience, coupled with a
new idea, represents the most difficult
forecasting situation.
• An ongoing business that requires only an
updated forecast for its existing product is in
the most favorable forecasting position.

7-5b Limitations of Forecasting
(slide 2 of 2)
• The owners of some small firms attempt to keep in
touch with industry trends through contacts with
appropriate trade associations.
• The professional members of a trade association are
frequently better qualified to engage in sales forecasting.
• Entrepreneurs can also obtain current information
about business trends by regularly reading trade
publications and magazines focused on small business
ownership.
• Subscribing to professional forecasting services is
another way to obtain forecasts of general business
conditions or specific forecasts for given industries.

Key Terms
actual product/service
augmented product/service
benefit variables
core product/service
customer acquisition costs
customer profile
demographic variables
market
market analysis
marketing
marketing mix
marketing research
market segmentation
multisegment strategy
primary data
sales forecast
secondary data
segmentation variables
single-segment strategy
unsegmented strategy (mass
marketing)

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