Important & Basic Marketing Principles


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Basic Marketing Principles

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Important & Basic Marketing Principles

  1. 1. 1 | P a g e Marketing Research vs. Market Research These terms often are used interchangeably, but technically there is a difference. Market research deals specifically with the gathering of information about a market's size and trends. Marketing research covers a wider range of activities. While it may involve market research, marketing research is a more general systematic process that can be applied to a variety of marketing problems. The Marketing Research Process Once the need for marketing research has been established, most marketing research projects involve these steps: 1. Define the problem 2. Determine research design 3. Identify data types and sources 4. Design data collection forms and questionnaires 5. Determine sample plan and size 6. Collect the data 7. Analyze and interpret the data 8. Prepare the research report Problem Definition The decision problem faced by management must be translated into a market research problem in the form of questions that define the information that is required to make the decision and how this information can be obtained. Thus, the decision problem is translated into a research problem. For example, a decision problem may be whether to launch a new product. The corresponding research problem might be to assess whether the market would accept the new product. The objective of the research should be defined clearly. To ensure that the true decision problem is addressed, it is useful for the researcher to outline possible scenarios of the research results and then for the decision maker to formulate plans of action under each scenario. The use of such scenarios can ensure that the purpose of the research is agreed upon before it commences. Research Design Marketing research can classified in one of three categories:
  2. 2. 2 | P a g e  Exploratory research  Descriptive research  Causal research These classifications are made according to the objective of the research. In some cases the research will fall into one of these categories, but in other cases different phases of the same research project will fall into different categories.  Exploratory research has the goal of formulating problems more precisely, clarifying concepts, gathering explanations, gaining insight, eliminating impractical ideas, and forming hypotheses. Exploratory research can be performed using a literature search, surveying certain people about their experiences, focus groups, and case studies. When surveying people, exploratory research studies would not try to acquire a representative sample, but rather, seek to interview those who are knowledgeable and who might be able to provide insight concerning the relationship among variables. Case studies can include contrasting situations or benchmarking against an organization known for its excellence. Exploratory research may develop hypotheses, but it does not seek to test them. Exploratory research is characterized by its flexibility.  Descriptive research is more rigid than exploratory research and seeks to describe users of a product, determine the proportion of the population that uses a product, or predict future demand for a product. As opposed to exploratory research, descriptive research should define questions, people surveyed, and the method of analysis prior to beginning data collection. In other words- who, what, where, when, why, and how aspects of the research should be defined. Such preparation allows one the opportunity to make any required changes before the costly process of data collection has begun. There are two basic types of descriptive research: longitudinal studies and cross- sectional studies. Longitudinal studies are time series analyses that make repeated measurements of the same individuals, thus allowing one to monitor behavior such as brand-switching. However, longitudinal studies are not necessarily representative since many people may refuse to participate because of the commitment required. Cross- sectional studies sample the population to make measurements at a specific point in time. A special type of cross-sectional analysis is a cohort analysis, which tracks an aggregate of individuals who experience the same event within the same time interval over time. Cohort analyses are useful for long-term forecasting of product demand.  Causal research seeks to find cause and effect relationships between variables. It accomplishes this goal through laboratory and field experiments. Data Types and Sources Secondary Data Before going through the time and expense of collecting primary data, one should check for
  3. 3. 3 | P a g e secondary data that previously may have been collected for other purposes but that can be used in the immediate study. Secondary data may be internal to the firm, such as sales invoices and warranty cards, or may be external to the firm such as published data or commercially available data. The government census is a valuable source of secondary data. Secondary data has the advantage of saving time and reducing data gathering costs. The disadvantages are that the data may not fit the problem perfectly and that the accuracy may be more difficult to verify for secondary data than for primary data. Some secondary data is republished by organizations other than the original source. Because errors can occur and important explanations may be missing in republished data, one should obtain secondary data directly from its source. One also should consider who the source is and whether the results may be biased. There are several criteria that one should use to evaluate secondary data.  Whether the data is useful in the research study.  How current the data is and whether it applies to time period of interest.  Errors and accuracy - whether the data is dependable and can be verified.  Presence of bias in the data.  Specifications and methodologies used, including data collection method, response rate, quality and analysis of the data, sample size and sampling technique, and questionnaire design.  Objective of the original data collection.  Nature of the data, including definition of variables, units of measure, categories used, and relationships examined. Primary Data Often, secondary data must be supplemented by primary data originated specifically for the study at hand. Some common types of primary data are:  Demographic and socioeconomic characteristics  Psychological and lifestyle characteristics  Attitudes and opinions  Awareness and knowledge - for example, brand awareness  Intentions - for example, purchase intentions. While useful, intentions are not a reliable indication of actual future behavior.  Motivation - a person's motives are more stable than his/her behavior, so motive is a better predictor of future behavior than is past behavior.  Behavior Primary data can be obtained by communication or by observation. Communication involves
  4. 4. 4 | P a g e questioning respondents either verbally or in writing. This method is versatile, since one need only to ask for the information; however, the response may not be accurate. Communication usually is quicker and cheaper than observation. Observation involves the recording of actions and is performed by either a person or some mechanical or electronic device. Observation is less versatile than communication since some attributes of a person may not be readily observable, such as attitudes, awareness, knowledge, intentions, and motivation. Observation also might take longer since observers may have to wait for appropriate events to occur, though observation using scanner data might be quicker and more cost effective. Observation typically is more accurate than communication. Personal interviews have an interviewer bias that mail-in questionnaires do not have. For example, in a personal interview the respondent's perception of the interviewer may affect the responses. Questionnaire Design The questionnaire is an important tool for gathering primary data. Poorly constructed questions can result in large errors and invalidate the research data, so significant effort should be put into the questionnaire design. The questionnaire should be tested thoroughly prior to conducting the survey. Measurement Scales Attributes can be measured on nominal, ordinal, interval, and ratio scales:  Nominal numbers are simply identifiers, with the only permissible mathematical use being for counting. Example: social security numbers.  Ordinal scales are used for ranking. The interval between the numbers conveys no meaning. Median and mode calculations can be performed on ordinal numbers. Example: class ranking  Interval scales maintain an equal interval between numbers. These scales can be used for ranking and for measuring the interval between two numbers. Since the zero point is arbitrary, ratios cannot be taken between numbers on an interval scale; however, mean, median, and mode are all valid. Example: temperature scale  Ratio scales are referenced to an absolute zero values, so ratios between numbers on the scale are meaningful. In addition to mean, median, and mode, geometric averages also are valid. Example: weight Validity and Reliability The validity of a test is the extent to which differences in scores reflect differences in the measured characteristic. Predictive validity is a measure of the usefulness of a measuring instrument as a predictor. Proof of predictive validity is determined by the correlation between
  5. 5. 5 | P a g e results and actual behavior. Construct validity is the extent to which a measuring instrument measures what it intends to measure. Reliability is the extent to which a measurement is repeatable with the same results. A measurement may be reliable and not valid. However, if a measurement is valid, then it also is reliable and if it is not reliable, then it cannot be valid. One way to show reliability is to show stability by repeating the test with the same results. Attitude Measurement Many of the questions in a marketing research survey are designed to measure attitudes. Attitudes are a person's general evaluation of something. Customer attitude is an important factor for the following reasons:  Attitude helps to explain how ready one is to do something.  Attitudes do not change much over time.  Attitudes produce consistency in behavior.  Attitudes can be related to preferences. Attitudes can be measured using the following procedures:  Self-reporting - subjects are asked directly about their attitudes. Self-reporting is the most common technique used to measure attitude.  Observation of behavior - assuming that one's behavior is a result of one's attitudes, attitudes can be inferred by observing behavior. For example, one's attitude about an issue can be inferred by whether he/she signs a petition related to it.  Indirect techniques - use unstructured stimuli such as word association tests.  Performance of objective tasks - assumes that one's performance depends on attitude. For example, the subject can be asked to memorize the arguments of both sides of an issue. He/she is more likely to do a better job on the arguments that favor his/her stance.  Physiological reactions - subject's response to a stimuli is measured using electronic or mechanical means. While the intensity can be measured, it is difficult to know if the attitude is positive or negative.  Multiple measures - a mixture of techniques can be used to validate the findings, especially worthwhile when self-reporting is used. There are several types of attitude rating scales:  Equal-appearing interval scaling - a set of statements are assembled. These statements are selected according to their position on an interval scale of favorableness. Statements are chosen that has a small degree of dispersion. Respondents then are asked to indicate with which statements they agree.
  6. 6. 6 | P a g e  Likert method of summated ratings - a statement is made and the respondents indicate their degree of agreement or disagreement on a five point scale (Strongly Disagree, Disagree, Neither Agree nor Disagree, Agree, Strongly Agree).  Semantic differential scale - a scale is constructed using phrases describing attributes of the product to anchor each end. For example, the left end may state, "Hours are inconvenient" and the right end may state, "Hours are convenient". The respondent then marks one of the seven blanks between the statements to indicate his/her opinion about the attribute.  Stapel Scale - similar to the semantic differential scale except that 1) points on the scale are identified by numbers, 2) only one statement is used and if the respondent disagrees a negative number should marked, and 3) there are 10 positions instead of seven. This scale does not require that bipolar adjectives be developed and it can be administered by telephone.  Q-sort technique - the respondent if forced to construct a normal distribution by placing a specified number of cards in one of 11 stacks according to how desirable he/she finds the characteristics written on the cards. Sampling Plan The sampling frame is the pool from which the interviewees are chosen. The telephone book often is used as a sampling frame, but has some shortcomings. Telephone books exclude those households that do not have telephones and those households with unlisted numbers. Since a certain percentage of the numbers listed in a phone book are out of service, there are many people who have just moved who are not sampled. Such sampling biases can be overcome by using random digit dialing. Mall intercepts represent another sampling frame, though there are many people who do not shop at malls and those who shop more often will be over-represented unless their answers are weighted in inverse proportion to their frequency of mall shopping. In designing the research study, one should consider the potential errors. Two sources of errors are random sampling error and non-sampling error. Sampling errors are those due to the fact that there is a non-zero confidence interval of the results because of the sample size being less than the population being studied. Non-sampling errors are those caused by faulty coding, untruthful responses, respondent fatigue, etc. There is a tradeoff between sample size and cost. The larger the sample size, the smaller the sampling error but the higher the cost. After a certain point the smaller sampling error cannot be justified by the additional cost. While a larger sample size may reduce sampling error, it actually may increase the total error. There are two reasons for this effect. First, a larger sample size may reduce the ability to follow up on non-responses. Second, even if there is a sufficient number of an interviewer for follow- ups, a larger number of interviewers may result in a less uniform interview process.
  7. 7. 7 | P a g e Data Collection In addition to the intrinsic sampling error, the actual data collection process will introduce additional errors. These errors are called non-sampling errors. Some non-sampling errors may be intentional on the part of the interviewer, who may introduce a bias by leading the respondent to provide a certain response. The interviewer also may introduce unintentional errors, for example, due to not having a clear understanding of the interview process or due to fatigue. Respondents also may introduce errors. A respondent may introduce intentional errors by lying or simply by not responding to a question. A respondent may introduce unintentional errors by not understanding the question, guessing, not paying close attention, and being fatigued or distracted. Such non-sampling errors can be reduced through quality control techniques. Data Analysis - Preliminary Steps Before analysis can be performed, raw data must be transformed into the right format. First, it must be edited so that errors can be corrected or omitted. The data must then be coded; this procedure converts the edited raw data into numbers or symbols. A codebook is created to document how the data was coded. Finally, the data is tabulated to count the number of samples falling into various categories. Simple tabulations count the occurrences of each variable independently of the other variables. Cross tabulations, also known as contingency tables or cross tabs, treats two or more variables simultaneously. However, since the variables are in a two-dimensional table, cross tabbing more than two variables is difficult to visualize since more than two dimensions would be required. Cross tabulation can be performed for nominal and ordinal variables. Cross tabulation is the most commonly utilized data analysis method in marketing research. Many studies take the analysis no further than cross tabulation. This technique divides the sample into sub-groups to show how the dependent variable varies from one subgroup to another. A third variable can be introduced to uncover a relationship that initially was not evident. Conjoint Analysis The conjoint analysis is a powerful technique for determining consumer preferences for product attributes. Hypothesis testing A basic fact about testing hypotheses is that a hypothesis may be rejected but that the hypothesis never can be unconditionally accepted until all possible evidence is evaluated. In the
  8. 8. 8 | P a g e case of sampled data, the information set cannot be complete. So if a test using such data does not reject a hypothesis, the conclusion is not necessarily that the hypothesis should be accepted. The null hypothesis in an experiment is the hypothesis that the independent variable has no effect on the dependent variable. The null hypothesis is expressed as H0. This hypothesis is assumed to be true unless proven otherwise. The alternative to the null hypothesis is the hypothesis that the independent variable does have an effect on the dependent variable. This hypothesis is known as the alternative, research, or experimental hypothesis and is expressed as H1. This alternative hypothesis states that the relationship observed between the variables cannot be explained by chance alone. There are two types of errors in evaluating a hypothesis:  Type I error: occurs when one rejects the null hypothesis and accepts the alternative, when in fact the null hypothesis is true.  Type II error: occurs when one accepts the null hypothesis when in fact the null hypothesis is false. Because their names are not very descriptive, these types of errors sometimes are confused. Some people jokingly define a Type III error to occur when one confuses Type I and Type II. To illustrate the difference, it is useful to consider a trial by jury in which the null hypothesis is that the defendant is innocent. If the jury convicts a truly innocent defendant, a Type I error has occurred. If, on the other hand, the jury declares a truly guilty defendant to be innocent, a Type II error has occurred. Hypothesis testing involves the following steps:  Formulate the null and alternative hypotheses.  Choose the appropriate test.  Choose a level of significance (alpha) - determine the rejection region.  Gather the data and calculate the test statistic.  Determine the probability of the observed value of the test statistic under the null hypothesis given the sampling distribution that applies to the chosen test.  Compare the value of the test statistic to the rejection threshold.  Based on the comparison, reject or do not reject the null hypothesis.  Make the marketing research conclusion. In order to analyze whether research results are statistically significant or simply by chance, a test of statistical significance can be run. Tests of Statistical Significance The chi-square ( c2 ) goodness-of-fit test is used to determine whether a set of proportions have
  9. 9. 9 | P a g e specified numerical values. It often is used to analyze bivariate cross-tabulated data. Some examples of situations that are well-suited for this test are:  A manufacturer of packaged products test markets a new product and wants to know if sales of the new product will be in the same relative proportion of package sizes as sales of existing products.  A company's sales revenue comes from Product A (50%), Product B (30%), and Product C (20%). The firm wants to know whether recent fluctuations in these proportions are random or whether they represent a real shift in sales. The chi-square test is performed by defining k categories and observing the number of cases falling into each category. Knowing the expected number of cases falling in each category, one can define chi-squared as: c2 = å ( Oi - Ei )2 / Ei Where Oi = the number of observed cases in category i, Ei = the number of expected cases in category i, k = thenumber of categories, thesummation runs from i = 1 to i = k. Before calculating the chi-square value, one needs to determine the expected frequency for each cell. This is done by dividing the number of samples by the number of cells in the table. To use the output of the chi-square function, one uses a chi-square table. To do so, one needs to know the number of degrees of freedom (df). For chi-square applied to cross-tabulated data, the number of degrees of freedom is equal to (Number of columns - 1) (Number of rows - 1) This is equal to the number of categories minus one. The conventional critical level of 0.05 normally is used. If the calculated output value from the function is greater than the chi-square look-up table value, the null hypothesis is rejected. ANOVA Another test of significance is the Analysis of Variance (ANOVA) test. The primary purpose of ANOVA is to test for differences between multiple means. Whereas the t-test can be used to compare two means, ANOVA is needed to compare three or more means. If multiple t-tests were applied, the probability of a TYPE I error (rejecting a true null hypothesis) increases as the number of comparisons increases. One-way ANOVA examines whether multiple means differ. The test is called an F-test. ANOVA calculates the ratio of the variation between groups to the variation within groups (the F ratio).
  10. 10. 10 | P a g e While ANOVA was designed for comparing several means, it also can be used to compare two means. Two-way ANOVA allows for a second independent variable and addresses interaction. To run a one-way ANOVA, use the following steps: 1. Identify the independent and dependent variables. 2. Describe the variation by breaking it into three parts - the total variation, the portion that is within groups, and the portion that is between groups (or among groups for more than two groups). The total variation (SStotal) is the sum of the squares of the differences between each value and the grand mean of all the values in all the groups. The in-group variation (SSwithin) is the sum of the squares of the differences in each element's value and the group mean. The variation between group means (SSbetween) is the total variation minus the in-group variation (SStotal - SSwithin). 3. Measure the difference between each group's mean and the grand mean. 4. Perform a significance test on the differences. 5. Interpret the results. This F-test assumes that the group variances are approximately equal and that the observations are independent. It also assumes normally distributed data; however, since this is a test on means the Central Limit Theorem holds as long as the sample size is not too small. ANOVA is efficient for analyzing data using relatively few observations and can be used with categorical variables. Note that regression can perform a similar analysis to that of ANOVA. Discriminant Analysis Analysis of the difference in means between groups provides information about individual variables, it is not useful for determine their individual impacts when the variables are used in combination. Since some variables will not be independent from one another, one needs a test that can consider them simultaneously in order to take into account their interrelationship. One such test is to construct a linear combination, essentially a weighted sum of the variables. To determine which variables discriminate between two or more naturally occurring groups, discriminant analysis is used. Discriminant analysis can determine which variables are the best predictors of group membership. It determines which groups differ with respect to the mean of a variable, and then uses that variable to predict new cases of group membership. Essentially, the discriminant function problem is a one-way ANOVA problem in that one can determine whether multiple groups are significantly different from one another with respect to the mean of a particular variable. A discriminant analysis consists of the following steps: 1. Formulate the problem. 2. Determine the discriminant function coefficients that result in the highest ratio of between-group variation to within-group variation.
  11. 11. 11 | P a g e 3. Test the significance of the discriminant function. 4. Interpret the results. 5. Determine the validity of the analysis. Discriminant analysis analyzes the dependency relationship, whereas factor analysis and cluster analysis address the interdependency among variables. Factor Analysis Factor analysis is a very popular technique to analyze interdependence. Factor analysis studies the entire set of interrelationships without defining variables to be dependent or independent. Factor analysis combines variables to create a smaller set of factors. Mathematically, a factor is a linear combination of variables. A factor is not directly observable; it is inferred from the variables. The technique identifies underlying structure among the variables, reducing the number of variables to a more manageable set. Factor analysis groups variables according to their correlation. The factor loading can be defined as the correlations between the factors and their underlying variables. A factor loading matrix is a key output of the factor analysis. An example matrix is shown below. Factor 1 Factor 2 Factor 3 Variable 1 Variable 2 Variable 3 Column's Sum of Squares: Each cell in the matrix represents correlation between the variable and the factor associated with that cell. The square of this correlation represents the proportion of the variation in the variable explained by the factor. The sum of the squares of the factor loadings in each column is called an eigenvalue. An eigenvalue represents the amount of variance in the original variables that is associated with that factor. The communality is the amount of the variable variance explained by common factors. A rule of thumb for deciding on the number of factors is that each included factor must explain at least as much variance as does an average variable. In other words, only factors for which the eigenvalue is greater than one are used. Other criteria for determining the number of factors include the Scree plot criteria and the percentage of variance criteria.
  12. 12. 12 | P a g e To facilitate interpretation, the axis can be rotated. Rotation of the axis is equivalent to forming linear combinations of the factors. A commonly used rotation strategy is the varimax rotation. Varimax attempts to force the column entries to be either close to zero or one. Cluster Analysis Market segmentation usually is based not on one factor but on multiple factors. Initially, each variable represents its own cluster. The challenge is to find a way to combine variables so that relatively homogenous clusters can be formed. Such clusters should be internally homogenous and externally heterogeneous. Cluster analysis is one way to accomplish this goal. Rather than being a statistical test, it is more of a collection of algorithms for grouping objects, or in the case of marketing research, grouping people. Cluster analysis is useful in the exploratory phase of research when there are no a-priori hypotheses. Cluster analysis steps: 1. Formulate the problem, collecting data and choosing the variables to analyze. 2. Choose a distance measure. The most common is the Euclidean distance. Other possibilities include the squared Euclidean distance, city-block (Manhattan) distance, Chebychev distance, power distance, and percent disagreement. 3. Choose a clustering procedure (linkage, nodal, or factor procedures). 4. Determine the number of clusters. They should be well separated and ideally they should be distinct enough to give them descriptive names such as professionals, buffs, etc. 5. Profile the clusters. 6. Assess the validity of the clustering. Marketing Research Report The format of the marketing research report varies with the needs of the organization. The report often contains the following sections:  Authorization letter for the research  Table of Contents  List of illustrations  Executive summary  Research objectives  Methodology  Results  Limitations  Conclusions and recommendations  Appendices containing copies of the questionnaires, etc.
  13. 13. 13 | P a g e Concluding Thoughts Marketing research by itself does not arrive at marketing decisions, nor does it guarantee that the organization will be successful in marketing its products. However, when conducted in a systematic, analytical, and objective manner, marketing research can reduce the uncertainty in the decision-making process and increase the probability and magnitude of success. There are many ways to develop and format a marketing plan. The approach taken here is to present a 6-Part plan that includes: 1. Purpose and Mission 2. Situational Analysis 3. Marketing Strategy and Objectives 4. Tactical Programs 5. Budgets, Performance Analysis and Implementation 6. Additional Consideration This plan is aimed at individual products and product lines; however, it can be adapted fairly easily for use in planning one or more strategic business units (SBU). Growing your business o Plan for growth Once your business is established and you’re making a profit on the products and services you sell to customers, you may want to start thinking about how to grow. Many businesses think of growth in terms of increased sales, but it’s also important to focus on how to maintain or improve your profitability. Things you can do to help grow your business include:  Looking into ways of increasing your sales, both to existing customers and new customers  Improving your products and services by researching and testing changes with your customers  Developing new products and services, and selling them to new or existing markets  Taking on staff or training your current staff, including working with apprentices and mentors  Looking for additional sources of funding, such as bringing in new investors  Contact the Business Link Helpline for help and advice on starting or growing your business.
  14. 14. 14 | P a g e o Increase sales to existing customers How you go about increasing sales depends on your circumstances and how your business is performing. You might choose to focus on customers who’ve already bought from you, or you could try to win new customers in your local area, nationally or overseas. The simplest way to increase your sales is to sell more of the products or services you’re selling at the moment to the customers who are already buying them. For most businesses this involves:  persuading one-off customers to become repeat customers  finding customers who’ve stopped buying from you and trying to win them back  selling more of the same products or services to your regular customers By keeping a record of who your customers are and what you sold to them, you can work out who’s stopped buying from you, and who might consider buying more. Targeting these customers is often a cheaper and more effective way to increase sales than trying to find new ones. o Review your prices Regularly reviewing your prices and checking them against your competitors can be an effective way of increasing your sales, profits or both. You should try to estimate the likely effect of different price changes on the sales, cash flow and profitability of your business before making any changes. To do this successfully, you need to understand:  the ‘cost structure’ of your business (including regular ‘fixed’ costs, and ‘variable’ costs that change according to your business’ activity)  the value your customers place on your products and services Watch a video on dealing with cash flow problems, including handling late payments. It’s worth bearing in mind that offering a discount can sometimes reduce your overall profitability, even if your sales go up. Equally, you might be able to make more profit overall by increasing prices, even if you’re selling fewer items. Small changes to pricing like providing loyalty schemes or bulk discounts can increase sales to both existing and former customers.
  15. 15. 15 | P a g e Example A car wash offers free cleaning every tenth visit if customers opt for the deluxe service. Even though they’re giving something away for free, the value of repeat business from loyal customers means that profits go up. It’s likely that it would’ve cost significantly more to generate the same amount of sales with new customers, resulting in less profit. You should also regularly check the price you’re selling products and services at against competitors. This will help you find out if you’re:  losing customers who get the same product or service elsewhere for less money  sacrificing profitability, because customers are willing to pay more than you’re charging them o Attract new customers One way of finding new customers for your products and services is by increasing awareness in your local area. You can do this by:  asking your customers to recommend you to their friends and colleagues  advertising in local media  using other forms of marketing, including online You could also talk to potential customers who don’t use your business at the moment and find out what it would take for them to switch from your competition. o Expanding outside your local area If you want to sell your product or service through new sales channels or markets elsewhere in the UK, there are different organizations you’ll need to work with, including:  wholesalers  retailers, including online retailers  distributors o Improve your products and services If you’re looking to grow your business by improving your products and services, start by focusing your existing customers and their needs. Talk to them, and find out their views on:
  16. 16. 16 | P a g e  what they’re buying from you, and what they value most about it  what you could do to make it more useful and valuable to them  what would encourage them to buy more Watch a video on researching your market to understand your customers’ needs. o Make changes based on feedback Getting customer feedback should help you to identify ways to improve what you’re offering to your current customers. It may also allow you to:  increase the price you charge to your existing customers  attract new customers whose needs you weren’t meeting before Try to ensure that any changes you make will increase your sales and profitability enough make the time and money you’ll need to invest worthwhile. If possible, you should test out prototypes of improved products or services with a few existing customers. By doing this, you can get their feedback and avoid making unpopular changes that could harm your business. Doing this is equally important for all businesses, whether you’re starting up or established, improving an existing product or service, or bringing something new to market. o Develop new products and services If you’re planning to develop new products and services, you should test them with your customers with just as much care and attention as a new business going to market for the first time. By making sure there’s real demand for what you’re planning to sell, you can find out about any problems and fix them before you’ve wasted too much time, effort and money. 1. Talk to existing and potential customers and find out about their needs. 2. If you can, develop a prototype as quickly and cheaply as possible. Work out the minimum investment that lets you find out if you’re meeting a real need. 3. Test it with customers and get feedback. Find out what they’d be willing to pay for it. Try out different prices with different customers in a consistent, realistic way to see what people will really pay. Can you make enough money for a return on the investment you’d need to develop your new product or service? 4. If there are other businesses competing for your market, think about what will make you different. Can you provide something better than what’s already available? And is it significantly different or better to what you’re already offering?
  17. 17. 17 | P a g e o Benefits of development By developing new products and services, you can:  sell more to existing customers (making the most of existing relationships is cheaper than finding new customers)  spread fixed costs like premises or machinery across a range of products  diversify the products you offer so you’re less reliant on certain customers or markets Another way of expanding your product range is by importing goods from overseas to sell in the UK. Make sure you know the rules on things like tax and commodity codes if you’re planning to import. o Business ideas and intellectual property If you’ve invented something or come up with an original idea that you want to turn into a product or service, you should register it to make sure nobody copies it without your permission. Find out about trademarks, copyright and intellectual property. o Hire and train staff As your business expands, you’ll need more capacity to produce or provide your product or service, and a wider range of skills. The easiest ways of achieving this are usually by taking on new staff, or training your existing workforce. o Employing people By taking on new people you can spread your workload, expand production and take advantage of new and different skills and expertise. This applies whether you already have employees, or you started your business on your own as a sole trader and are thinking about taking on staff for the first time. Find out about your responsibilities when employing someone. o Apprenticeships Taking on an apprentice allows you to grow your capacity by investing in people who want to learn. Your business benefits from the skills they develop as they train both on and off the job. Find out about the practical steps involved in taking on an apprentice. o Training your staff You can improve the range and level of skills in your business by training up existing staff. Giving staff training opportunities can increase their loyalty to your company and their productivity - as well as your profits.
  18. 18. 18 | P a g e Schemes and organizations that can help you to grow your business through training include:  finding training courses specific to your business area through the Sector Skills Councils Alliance  using a business improvement framework, like Investors in People o Working with a mentor Business mentors can help you develop your ideas for growth by sharing their skills, expertise, experience and contacts. o Get extra funding Growing your business, whether through increased sales or improved profitability, often means you need to invest more. You can do this by:  investing previous profits back into your business  taking out a loan  selling shares to outside investors  looking for other sources of finance, including government-backed schemes Professional advisers such as accountants can help you to work out whether it makes financial sense to take on loans or investment. You should take legal advice before taking on new investment in your business. o Taking out a loan You should make sure that your business will be able to pay back the debt before you take out a loan. Repayments are often made in instalments over a number of years, and you’ll need to pay off any interest on outstanding debts. If you’re a sole trader looking for a loan, a lender might ask you to provide a personal guarantee or promise to hand over assets like your house or car if you can’t repay the loan. o Selling shares If you’re thinking of bringing in new investors, they’ll want to know how much your business could increase in value if they buy shares. To work this out, they’ll need to know how much their investment will increase your sales and profitability. You’ll need to provide potential lenders and investors with a financial model showing:  how your business will spend the extra money to increase sales and profitability  how initial costs and increased ongoing costs will affect your cash flow
  19. 19. 19 | P a g e Increases in sales usually only happen after taking on additional costs like employing more staff, moving to larger premises or putting in bigger orders for raw materials. You’ll need to take all of these into account in your financial planning. Role of Marketing Manager For the small business, there are several different organizational approaches to marketing. The duty may lie with a single member of the team, or it could be a group responsibility. The great thing about a small team is the ability to quickly instill a marketing led ethos which can become the operational soul of your business. Depending on budget availability and the skills of the team, you may choose to outsource certain elements of the marketing process (such as market research) or decide to do these jobs in-house. Key responsibilities of the marketing manager / director vary according to the business but can include:  Instilling a marketing led ethos throughout the business  Researching and reporting on external opportunities  Understanding current and potential customers  Managing the customer journey (customer relationship management)  Developing the marketing strategy and plan  Management of the marketing mix  Managing agencies  Measuring success  Managing budgets  Ensuring timely delivery  Writing copy  Approving images  Developing guidelines  Making customer focused decisions The marketing role can be diverse or focused but now we'll elaborate further on some key aspects which should be at the heart of the job.  Market research.  Development of marketing strategy and plan.  Management of the marketing mix.  Customer relationship management (CRM)  Managing agencies  Measuring success 
  20. 20. 20 | P a g e Marketing plan - How to write The plan is a detailed written document which can be used to promote a single product, of form the annual business strategy. Stage 1: Research and planning: Understand your customer and the marketing environment, look for opportunities for growth. Stage 2: Developing your marketing strategy: Identify objectives and choose the right path to exploit opportunities highlighted in the research stage. Stage 3: Determining actions and controls : Implement your strategy and track success. Marketing plan The marketing plan should provide direction for all relevant members of the organization and should be referred to and updated throughout the year. The main purpose of the marketing plan is to provide a structured approach to help marketing managers consider all the relevant elements of the planning process.  Statement of your current situation and scope of the plan  Research into potential / current customers  Examining the marketing environment  Identifying opportunities for growth
  21. 21. 21 | P a g e Current business situation Summarize your current position, possible items include:  Financial results  Sale figures and trends  Market share  Customer satisfaction  Level of repeat business The marketing environment Examining both the internal and external marketing environments can identify both opportunities and threats to the business and is a core component of the plan. The whole area is usually broken down into the macro, micro and internal environments as summarized in the diagram below. The macro-environment A commonly used method of quantifying the macro external environment is with a PEST analysis. PEST is an acronym which divides the macro-environment into four areas – Political, Economic, Social, and Technological, examples of which are explained below: 1. Political environmental factors  Trading agreements  Tax rules  Employment regulation  Environmental legislation  Legal issues 2. Economic environmental factors  Recession  Interest rates  Exchange rates  Rate of inflation  Population wealth  Growth of the housing market 3. Social environmental factors  'Green' behavior
  22. 22. 22 | P a g e  Eating habits  Shifts in attitude  Population demographics  Attitudes to career 4. Technological environmental factors  Emergence of new communications channels  Improved production processes  Advances in computing and the internet  New technologies such as electric vehicles  Automation  Reduced cost of materials Micro-environment The micro-environment includes factors which are still not directly under the control of the company, but more directly relevant to strategy such as consumer trends, stakeholders, suppliers and competitors. Some example items are listed below.  Summary of your market segment  Market growth, trends and competition  Potential new markets  Direction from shareholders  Supplier costs and service quality  Changes in consumer behavior Understanding your customers and market Ensuring a thorough knowledge of the consumer is vital for successful marketing planning. Use the primary and secondary (first and second hand) market research information at your disposal to describe your customer. As your understanding of the audience improves, you'll be able to design products which cater for their needs better, and you will be able to communicate with them more directly. If you have a broad customer base, you might need to split your customers into groups (segmentation). Some examples are shown below.  Typical customer demographics  Customer profile  Market size  Market geography Understanding your competitors  Who are your competitors?  What are they likely to be doing?
  23. 23. 23 | P a g e  Strengths  Weaknesses  Reputation and brand equity  How are they using the marketing mix?  Infrastructure and supply chain  Product strategy Competitor analysis Internal environment The internal marketing environment includes factors that the business can directly influence. This can include:  The organizational structure  The strengths and weaknesses of a department  Financial stability and resources  Staff morale  Spare production capacity  Client base  Pricing structure  Selling channels  Staff skills Identifying opportunities in the marketing environment Once you have completed the internal and external environmental audit, you can summaries your findings using a SWOT analysis which can be used to make key decisions.
  24. 24. 24 | P a g e SWOT analysis A 'SWOT analysis' is a useful way of summarizing the results of the environmental audit and presenting the current status of a business. SWOT simply stands for the Strengths, Weaknesses, Opportunities and Threats which have emerged from examining the macro, micro and internal marketing environments. Strengths  Our electric motors are cheap to produce and maintenance free  Charge time is class leading  Production capacity can be increased  R&D department is class leading Weaknesses  Batteries are heavy, slow to charge and provide limited mileage  Dealer network is small  Customer trust in the segment is low  Market is highly competitive Opportunities  Government grants are available  Road tax breaks for electric cars  Market is growing rapidly  Battery technology is evolving Threats  Tesla has secured a large government grant  The big players are investing heavily  Hybrid and diesel technology is evolving fast This section includes the following elements:  Development of a mission statement  Statement of objectives  Strategy and tactics to accomplish the objectives Mission statement Your mission statement is a formal commitment and focus for the business. It should explain to customers concisely what the nature of your business is and where you are going, and also provide a motivational tool for employees. It should be aspirational, something to strive for, yet obtainable and relevant. Once this has been defined it should form the focus for your business strategy.
  25. 25. 25 | P a g e Vision statement A vision statement is a more long term, ideal-world statement which outlines where you would like to take the business in the long run. Objectives Combined with the mission statement, your objectives should be the key statements that drive your business. The most successful goals follow the SMART acronym. Specific, measurable, achievable, realistic and time bound.  What do you want to achieve by the end of this year?  Where do you want to be in one, five, ten years? Objectives must be quantitative in order to measure success accurately. For example, 'sell 600 units in the next year' or 'increase customer retention by 20%'. Selecting a suitable strategy Developing a strategy for growth - the Ansoff Matrix Most businesses need to grow, and the Ansoff Matrix (below) is a method of determining the best course of action if growth is your priority. The Ansoff matrix
  26. 26. 26 | P a g e Market penetration Increasing market share in a current market with a current product. Example tactics:  Aggressive pricing policy (see 'cost leadership' in Porter's model)  Re-branding  Increasing marketing spend Market development Taking existing products into new markets Example tactics:  Finding a new use for an existing product  Expanding the distribution network  Strategic partnerships in international markets Product development Developing a new product for a market that you have already entered. Example tactics:  Creating a range of similar products, for example, shaving foam if you are already manufacturing razors Diversification Developing a new product for a completely new market. Example tactics:  Market research  Product research and development Developing a pricing strategy Once you have determined the product and market you want to be in, the next problem will be setting a price. Porter's model discusses three strategies for competitive advantage based on price. Three generic strategies for competitive advantage - Porter's model
  27. 27. 27 | P a g e  Cost leadership: A good quality product at a lower price than the competitors.  Differential strategy: A product or service which is perceived as unique within a particular market.  Focus strategy: Delivering focused attention to a particular segment to deliver service which competitors cannot compete. Determining which products to invest in If you have a range of products, it is likely that some will do better than others. The Boston Consultancy Group matrix is a method of determining which to invest in, and which to drop, shown below. The Boston Consultancy Group matrix Stars High growth products with a strong market presence. Probably need high investment to maintain position. Cash cows Low growth products with a high market share. Probably don't need much investment, but require management to maintain profitability. Question marks Products which have potential, but may require investment to yield decent profits. Dogs There are rarely worth investing in. Dogs should at least break even to be retained.
  28. 28. 28 | P a g e Tactics - the marketing mix The marketing mix is a selection of customer focused business elements which work together as a toolkit to market your product or service. The tactical section of a marketing plan summarizes how you intend to use each element of the marketing mix, which can be summarized in seven 'Ps' as shown in the illustration below. The marketing mix (7 P model) Product Product refers to the items you are selling or service you are providing. Your product based tactics link back to your overall strategy - if your strategy is market penetration (see the Ansoff matrix), then there may be little need to do anything to the product. However, if you have chosen product development or diversification then a certain amount of research and development, and product design will be needed. Should the product be premium, or good value? Disposable or last a lifetime? Fast or slow? How will it be packaged? Where will it be made? Is it environmentally sound? Price  Pricing is one of the most important factors when deciding your marketing tactics, which could involve the following:  Skimming – low market penetration, high pricing strategy for premium products  Comparable pricing – if you are not the market leader, competitors will have set a price expectation which can be followed  Market penetration strategy – deliberately low pricing in order to enter or control a market quickly. Place Place refers to the method of getting your product to the consumer - this could be a dealership or an online shop.
  29. 29. 29 | P a g e How will you attract more retailers to sell your product? How will you maintain a premium appearance? How will your distribution network function? How many countries should you operate in? Promotion Promotion is much more than just advertising - this is the discipline of marketing communications. What is your branding strategy? Which promotional channels will you use? How will you divide up the budget? Will billboards work better than TV ads? What should be the discount for special offers? How will you generate positive PR? Should you out-source the creative work? People People refer to the entire customer facing staff in your organization, not just the sales staff. What training do they require? Do they know the products well? How much commission should they get? Should you out-source? Do they need a uniform? What incentives can you give? Process Process refers to the procedures which are followed when delivering a service to a customer. For example, for a hotel - how are customers greeted? Who takes the baggage to the room? When are the rooms cleaned? What time is breakfast? This element of the marketing mix should also include your customer relationship management (CRM) process, or in other words, how you manage customers through the purchasing funnel. Physical evidence This element of the marketing mix is mostly used to promote services. If you're not selling anything tangible, how will people know what they're getting? This is where physical evidence becomes important. Examples of physical evidence include a brochure for a holiday tour, customer testimonials for a dentist, or a portfolio for a website design company. Segmentation, targeting & positioning When using the marketing mix, it is important to keep in mind the three generic stages of marketing - segmentation, targeting and positioning. Segmentation is the detailed breakdown of your customers into as much detail as practical, targeting then ensures all elements of the mix
  30. 30. 30 | P a g e are tailored to your identified consumer group. Positioning is the process of ensuring potential and current customers perceive your company in the intended way. How will you monitor progress? Who will do which jobs? When will each element be completed? How will you adjust the plan? What will be the budget? This section discusses action plans, controls, measurements and reporting. Actions Developing an action plan An action plan is core to the marketing process – a constantly evolving document which is cascaded to the relevant people and monitored regularly. Most action plans are relatively short term documents which focus on the coming year, but longer term implications should also be considered. Action planning is a stages approach:  Clarify goals, and ensure they are SMART  Link back to your objectives and tactics  Set criteria for success  Prioritize  Set timings  Determine who will complete each action point  Monitor the progress of the plan and review regularly An example action plan is shown below
  31. 31. 31 | P a g e Measurements, controls and reporting The final stage of the action plan is the implementation of measurements and controls and reporting results. Many models for monitoring the performance of businesses have emerged, many of which address the needs of key stakeholders and allow them to evaluate the overall success of a company. Traditionally, businesses have tracked success based on just one measure – financial results. However, the scorecard system views the business from four external perspectives to gain a more relevant approach to performance metrics.  Learning & growth – how you are innovating and improving to meet your goals  Business process – how critical processes are measuring up  Customer perspective – usually measured in terms of time, quality, performance and cost  Financial perspective – financial performance from the stakeholder point of view Each element is tracked using four items, which are listed individually:  Objectives - as identified in stage 2 of the marketing planning process  Measures - how will success be measured?  Targets - specific quantifiable targets  Initiatives - how to make the targets more readily achievable Key performance indicators (KPIs) Depending on your industry, you may also have certain specific metrics which determine success, these could include:  Market share analysis  Sales analysis  Quality control  Financial results  Market research  Marketing information systems  CRM - New customers acquired, retention  Service levels  Brand awareness  Competitor performance  Benchmarking  Profitability
  32. 32. 32 | P a g e Gap analysis Gap analysis is another useful tool which answers two questions: Where are you? Where do you want to be? It can be useful to identify where you are with the following facets of the business:  Organization  Business direction and marketing mix  Business processes  Information technology  Requirements vs capability  Market potential vs existing usage  Your business vs competition Feedback Now that you have an accurate picture your plan's success it is important to feedback this information in order to fine tunes the strategy and updates your actions accordingly. Final words The marketing planning process is a comprehensive method for examining your business, your market and the environment in order to develop a strategy to exploit opportunities. This is a vital process which should be used by almost every company to ensure a profitable and sustainable future.