BUSINESS DISCUSSION 4

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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.

7-2c Marketing Strategy (slide 2 of 5)

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.

7-2c Marketing Strategy (slide 3 of 5)

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.

7-2c Marketing Strategy (slide 4 of 5)

• 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.

7-2c Marketing Strategy (slide 5 of 5)

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.

7-3b Steps in the Marketing Research Process (slide 2 of 8)

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?

7-3b Steps in the Marketing Research Process (slide 3 of 8)

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.

7-3b Steps in the Marketing Research Process (slide 4 of 8)

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.

7-3b Steps in the Marketing Research Process (slide 5 of 8)

• 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.

7-3b Steps in the Marketing Research Process (slide 6 of 8)

• 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.

7-3b Steps in the Marketing Research Process (slide 7 of 8)

• 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.

7-3b Steps in the Marketing Research Process (slide 8 of 8)

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.

7-4b Marketing Strategies Based on Segmentation Considerations (slide 2 of 4)

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.

7-4b Marketing Strategies Based on Segmentation Considerations (slide 3 of 4)

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.

7-4b Marketing Strategies Based on Segmentation Considerations (slide 4 of 4)

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)

�CHAPTER�7��The Marketing Plan
LEARNING OBJECTIVES
7-1 WHAT IS SMALL �BUSINESS MARKETING?
7-1a Marketing Philosophies �Make a Difference (slide 1 of 2)
7-1a Marketing Philosophies �Make a Difference (slide 2 of 2)
7-1b A Consumer Orientation�—the Right Choice (slide 1 of 2)
7-1b A Consumer Orientation�—the Right Choice (slide 2 of 2)
7-2 THE FORMAL �MARKETING PLAN
7.1 The Marketing Plan and Supporting Marketing Activities
7-2a Market Analysis (slide 1 of 2)
7-2a Market Analysis (slide 2 of 2)
7-2b The Competition
7-2c Marketing Strategy (slide 1 of 5)
7-2c Marketing Strategy (slide 2 of 5)
7-2c Marketing Strategy (slide 3 of 5)
7-2c Marketing Strategy (slide 4 of 5)
7-2c Marketing Strategy (slide 5 of 5)
7-3 MARKETING RESEARCH �FOR THE SMALL BUSINESS
7-3a The Nature of �Marketing Research
7-3b Steps in the Marketing Research Process (slide 1 of 8)
7-3b Steps in the Marketing Research Process (slide 2 of 8)
7-3b Steps in the Marketing Research Process (slide 3 of 8)
7-3b Steps in the Marketing Research Process (slide 4 of 8)
7-3b Steps in the Marketing Research Process (slide 5 of 8)
7-3b Steps in the Marketing Research Process (slide 6 of 8)
7-3b Steps in the Marketing Research Process (slide 7 of 8)
7-3b Steps in the Marketing Research Process (slide 8 of 8)
7-4 UNDERSTANDING POTENTIAL TARGET MARKETS
7-4a Marketing Segmentation �and Its Variables (slide 1 of 2)
7-4a Marketing Segmentation �and Its Variables (slide 2 of 2)
7-4b Marketing Strategies Based on Segmentation Considerations (slide 1 of 4)
7-4b Marketing Strategies Based on Segmentation Considerations (slide 2 of 4)
7-4b Marketing Strategies Based on Segmentation Considerations (slide 3 of 4)
7-4b Marketing Strategies Based on Segmentation Considerations (slide 4 of 4)
7-5 ESTIMATING �MARKET POTENTIAL
7-5a The Sales Forecast
7-5b Limitations of Forecasting �(slide 1 of 2)
7-5b Limitations of Forecasting �(slide 2 of 2)
Key Terms