Chapter 04.ppt

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Chapter 04.ppt

  1. 1. Chapter 4 Volume and Volume Strategies
  2. 2. 4-1 Introduction <ul><li>The total revenue generated by a venture is a function of a simple equation: </li></ul><ul><ul><li>Revenue = Price × Volume </li></ul></ul><ul><li>Volume is a difficult aspect of business for many entrepreneurs to master because it involves both logic and creativity. </li></ul><ul><ul><li>The logic of volume refers to the need to conduct market research to understand the consumer needs that drive demand for the venture’s products and services. </li></ul></ul><ul><ul><li>The creativity aspect of volume generation is often referred to as marketing. </li></ul></ul>
  3. 3. 4-1 Introduction (cont.) <ul><li>In standard marketing classes, students are taught the so-called Four Ps: </li></ul><ul><ul><li>Product </li></ul></ul><ul><ul><li>Price </li></ul></ul><ul><ul><li>Placement </li></ul></ul><ul><ul><li>Promotion </li></ul></ul><ul><li>Creative volume strategy is required in the early days of a venture to make sure that the venture’s precious resources are well spent and that sales volume, in short order, takes on a life of its own. </li></ul>
  4. 4. 4-1 Introduction (cont.) <ul><li>Entrepreneurs have a multitude of tools to generate sales volume. The most used tool is price. </li></ul><ul><ul><li>It is the process by which the tools are applied that determines the revenue achievements of the venture. </li></ul></ul><ul><ul><li>Three primary steps are involved in driving volume to achieve revenue goals: </li></ul></ul><ul><ul><ul><li>Identify the venture’s target market </li></ul></ul></ul><ul><ul><ul><li>Communicate with the target market </li></ul></ul></ul><ul><ul><ul><li>Persuade the target market to do business with the company rather than a competitor or substitute </li></ul></ul></ul>
  5. 5. 4-2 Identifying the Target Market <ul><li>The difference between the market and a venture’s target market is profound. </li></ul><ul><ul><li>Target market: Consists of the subset of potential customers who can be made aware of the venture’s products and services and who can be persuaded to purchase those offerings. </li></ul></ul><ul><ul><ul><li>It is defined as some fraction or portion of the overall market. </li></ul></ul></ul><ul><ul><ul><li>Defining the target market is a logical process: </li></ul></ul></ul><ul><ul><ul><ul><li>It starts with an understanding of who the customers are </li></ul></ul></ul></ul><ul><ul><ul><ul><li>It drives their desire to buy a product or service. </li></ul></ul></ul></ul>
  6. 6. 4-2 Identifying the Target Market (cont.) <ul><li>The venture must also understand its own product or service offerings. </li></ul><ul><ul><li>First step in determining the venture’s target market is to segment the overall market. The venture’s market can be segmented using a variety of criteria. </li></ul></ul><ul><ul><ul><li>One of these is demographics, which refers to age, gender, ethnic background, household income, and number of children. </li></ul></ul></ul><ul><ul><ul><li>Entrepreneurs can use the data generated by these sources to segment their market and to adjust their product or service offering to match the needs of the target market. </li></ul></ul></ul>
  7. 7. 4-2 Identifying the Target Market (cont.) <ul><li>Another strategy used in segmenting markets is to determine the relative size of the various segments. </li></ul><ul><li>Other criteria that entrepreneurs use to segment markets and identify a target market are: </li></ul><ul><ul><ul><ul><li>Geographic location of the market </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Psychographic profile of the market </li></ul></ul></ul></ul><ul><li>Understanding these characteristics of a market segment is an important part of developing a volume strategy, whether or not the target market is chosen for psychographic reasons. </li></ul>
  8. 8. Exhibit 4-1 Steps in Market Segmentation, Targeting, and Positioning
  9. 9. 4-3 Communicating with the Target Market <ul><li>Once target market has been identified, the next step in the volume process is to choose the method of communicating with that market segment. </li></ul><ul><ul><li>Entrepreneurs can use many techniques to communicate with potential customers. </li></ul></ul><ul><ul><li>Most entrepreneurs elect to use a variety of volume tools to maximize exposure to potential customers. </li></ul></ul><ul><ul><ul><li>The variety of tools selected to communicate with customers is referred to as the marketing mix. </li></ul></ul></ul><ul><ul><ul><li>A major constraint on the new venture’s marketing mix, like limits on its market size, will be the scarcity of resources — mainly, money. </li></ul></ul></ul>
  10. 10. 4-3 Communicating with the Target Market (cont.) <ul><li>Today, many of the firms that invested in that volume strategy are no longer around. </li></ul><ul><li>As a rule of thumb, entrepreneurs should not invest in a communication strategy unless they can be reasonably sure that the strategy will generate more money than it cost. </li></ul>
  11. 11. 4-3a Direct Salespeople <ul><li>Probably the most effective of the volume tools, but they are also the most expensive. </li></ul><ul><ul><li>They are effective because they have personal contact with customers, so they can build relationships with customers and sell themselves as well as the venture’s products and services. </li></ul></ul><ul><ul><li>Most new ventures find that the use of a direct sales force is not feasible from a cost perspective unless the venture’s offering is a big-ticket item or unless the initial sale generates a large repeat purchase series. </li></ul></ul>
  12. 12. 4-3b Employees <ul><li>One often neglected yet very effective volume tool is the employees of the venture—especially those on the front line who have customer-facing jobs. </li></ul><ul><ul><li>Customer-facing employees are the venture’s ambassadors. </li></ul></ul><ul><ul><li>It is wise for entrepreneurs to make sure that people in these key roles are: </li></ul></ul><ul><ul><ul><li>Well versed in the company’s products </li></ul></ul></ul><ul><ul><ul><li>Motivated to treat customers right </li></ul></ul></ul>
  13. 13. 4-3c Television Advertising <ul><li>An effective volume tool for many new ventures. </li></ul><ul><ul><li>Combines visual impressions with audio to focus the attention of the viewer on the important aspects of the product or service. </li></ul></ul><ul><ul><li>Ventures that have defined their target market using geography can take advantage of television’s limited reach. </li></ul></ul><ul><ul><li>For ventures that don’t have a target market defined by geography, a mass-market approach may be effective. </li></ul></ul><ul><ul><li>Prime time of day or evening will result in the highest advertising charges. </li></ul></ul>
  14. 14. 4-3d Radio Advertising <ul><li>This has many of the same characteristics of television advertising but is generally less expensive than television, although consolidation in ownership of television and radio broadcasting has resulted in higher radio rates in recent years. </li></ul><ul><ul><li>It is sold in much the same way that television ads are sold. </li></ul></ul><ul><ul><li>Most stations have sales representatives who provide the entrepreneur with a rate sheet. </li></ul></ul><ul><ul><li>Entrepreneurs who launch nonprofit ventures are able to save money on advertising by using a public service announcement (PSA). </li></ul></ul>
  15. 15. 4-3e Print Publications <ul><li>Newspapers and magazines present entrepreneurs with a more targeted volume tool than radio or television advertising. </li></ul><ul><ul><li>Entrepreneurs who have done their demographic homework find a straightforward choice of which print publication will be most effective. </li></ul></ul><ul><ul><li>Research indicates that for situations in which responses are required, the best advertisements are those that offer an impressive, relevant benefit to the reader. </li></ul></ul><ul><ul><li>On the low end of the print advertising spectrum is classified advertising. </li></ul></ul>
  16. 16. 4-3e Print Publications (cont.) <ul><li>Magazines are usually national in distribution, but many regional magazines have been established in recent years. </li></ul><ul><ul><li>Some publications are distributed for free at local businesses. </li></ul></ul><ul><ul><li>Entrepreneurs have many choices in print publications and must be careful to monitor the return on each investment. </li></ul></ul><ul><ul><li>Other less expensive print media can also be effective volume tools like neighborhood newspapers, trade magazines. </li></ul></ul><ul><ul><li>Each of these publications circulates within a narrow interest group. </li></ul></ul>
  17. 17. 4-3f Telemarketing <ul><li>Another way that businesses can advertise their products and offer their services. </li></ul><ul><ul><li>Businesses often use professional telemarketers or call centers to make telephone calls and send faxes to potential customers on their behalf. </li></ul></ul><ul><ul><li>Today, many firms use inexpensive foreign call center firms. </li></ul></ul><ul><ul><li>Telemarketing and telemarketers have received criticism in recent years. </li></ul></ul><ul><ul><ul><li>Millions of consumers registered through the national Do Not Call Registry. </li></ul></ul></ul><ul><ul><li>Telemarketing is still a very useful tool in business-to-business relationships, where the restrictions do not apply. </li></ul></ul>
  18. 18. 4-3g The Internet <ul><li>The Internet as a tool of volume is still developing. </li></ul><ul><ul><li>Entrepreneurs must understand how the market evaluates and purchases a venture’s products to create the most effective Web presence. </li></ul></ul><ul><ul><li>One of the biggest differences between Internet marketing and traditional marketing is the time and space considerations. </li></ul></ul><ul><ul><li>The best way for a business to encourage repeat visits to its website is by establishing contact with the people who do visit the site. </li></ul></ul><ul><ul><li>One effective way to collect personal information is to offer educational and interesting content via an e-zine. </li></ul></ul>
  19. 19. 4-3g The Internet (cont.) <ul><li>E-zines use a technique known as opt-in marketing. </li></ul><ul><ul><li>After a business makes contact with people, the next step is to build a relationship with them. </li></ul></ul><ul><ul><ul><li>Personal contact is wonderful but limited and time consuming. </li></ul></ul></ul><ul><ul><li>Finally, to build their brand and inform customers of their offerings, many companies use banner ads on websites other than their own company website. </li></ul></ul>
  20. 20. 4-3h Direct Mail <ul><li>This is an especially effective tool if it can be targeted to a reasonably specific market. </li></ul><ul><ul><li>The largest drawback for this approach is the large number of users has made the customer more insensitive to receipt of the communication. </li></ul></ul>
  21. 21. 4-3i Marketing Collateral <ul><li>The term refers to a company’s communications material that can be physically distributed and left behind. </li></ul><ul><ul><li>Includes such items as brochures, handbills, and business cards </li></ul></ul>
  22. 22. 4-3j Billboards <ul><li>An effective tool of volume if they are located in a high-volume traffic route. </li></ul><ul><ul><li>The great strength is constant repetition to the potential customers who drive past the billboard regularly. </li></ul></ul><ul><ul><li>Limitation is commitment of resources. </li></ul></ul><ul><ul><li>Entrepreneurs who have a geographically defined target market can use billboards to great effect. </li></ul></ul>
  23. 23. 4-3k Location <ul><li>The real estate broker’s mantra is that property value is based on three things: location, location, location. </li></ul><ul><ul><li>It can impact customer behavior. </li></ul></ul><ul><ul><ul><li>Entrepreneurs can reduce the impact of location by enabling customers to order without having to visit the business. </li></ul></ul></ul><ul><ul><ul><li>Internet has been the solution for this. </li></ul></ul></ul><ul><ul><ul><li>The wise entrepreneur presents customers with multiple ways to interact with the company and to purchase its products and services. </li></ul></ul></ul>
  24. 24. 4-3l Signage <ul><li>Signage at the business location is vital when the location of a business is important to the business’s success. </li></ul><ul><ul><li>The size, color, and design of the company’s signs communicate a first impression of the business and its product. </li></ul></ul><ul><ul><li>Point-of-sale (POS) displays are used by businesses whose products are sold through retail outlets. </li></ul></ul>
  25. 25. 4-3m Strategic Alliances <ul><li>Occurs between two companies whose products do not compete but whose customers are the same </li></ul><ul><ul><li>The company that does not pay for the salespeople pays a commission to the company providing the personnel. </li></ul></ul>
  26. 26. 4-3n Trade Shows <ul><li>An excellent volume tool for new products because the audience is targeted to the specific type of product or service. </li></ul><ul><ul><li>It is an expensive tool, but because of its audience characteristics, it is effective for building volume in a new company. </li></ul></ul><ul><ul><li>They are particularly effective for an entrepreneur who is introducing new products or establishing new dealership or distributorships. </li></ul></ul>
  27. 27. 4-3o Promotions <ul><li>When they are creative, can be most effective and can have the highest payoff of any volume tool. </li></ul><ul><ul><li>Not only is this media coverage free, but because it is covered as news, it is accepted by the observers as more genuine than a paid advertisement covering the same product or service. </li></ul></ul>
  28. 28. 4-3p Credit <ul><li>A potent volume tool. </li></ul><ul><ul><li>Allows consumers to purchase many products that would otherwise not be available to them. </li></ul></ul><ul><ul><li>Credit has allowed the United States to become a consumer-driven economy. </li></ul></ul><ul><ul><li>The new venture uses volume tools to communicate with its target market. </li></ul></ul>
  29. 29. 4-4 Persuading the Target Market <ul><li>Persuading the target market to respond to the venture’s communication is the third step in the volume process. </li></ul><ul><ul><li>Persuasive message must be responsive to the characteristics of the customers in the target market. </li></ul></ul><ul><ul><li>Persuasive messages should help differentiate the entrepreneurial venture from existing competitors and at the same time accurately communicate the offering. </li></ul></ul><ul><li>Marketers have very few choices about how to differentiate their offering from those of competitors. </li></ul>
  30. 30. 4-4 Persuading the Target Market (cont.) <ul><li>Research into product differentiation has defined three strategies for differentiating a product: </li></ul><ul><ul><li>Cost/price leadership strategy </li></ul></ul><ul><ul><li>Quality leadership strategy </li></ul></ul><ul><ul><li>Niche strategy </li></ul></ul><ul><ul><li>Each strategy has advantages and disadvantages. </li></ul></ul><ul><li>Many entrepreneurs hire marketing consultants, advertising agencies, or public relations firms to assist in the development of a persuasive message. </li></ul><ul><li>The marketing vendor has been trained to ask penetrating questions that force the entrepreneur to think differently and in a more focused manner about the true value proposition of the venture’s offerings. </li></ul>
  31. 31. 4-4 Persuading the Target Market (cont.) <ul><li>Marketing scholarship has identified three basic value propositions: </li></ul><ul><ul><ul><li>Operational excellence </li></ul></ul></ul><ul><ul><ul><li>Product leadership </li></ul></ul></ul><ul><ul><ul><li>Customer intimacy </li></ul></ul></ul><ul><li>Level of customer service and the depth of its relationship with the customer will lead the industry. The persuasive message should appeal to as many human senses as possible. </li></ul><ul><li>For a persuasive message to be effective, the ordering instructions should be simple and clear. </li></ul><ul><li>It’s important that the message be repeated. </li></ul>

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