Individual Assignment

Chapter 7 Marketing Plan

Introduction

This chapter builds on  Chapter 6 , which discussed the market analysis. Whereas the market analysis focused on describing a firm’s target market, customers, competitors, and potential sales, this chapter focuses on how the firm will actually find customers and close sales. It deals with the nuts and bolts of marketing in terms of price, promotions, distribution, and sales. For example, GreatCall ( www.greatcall.com ), the firm that makes the jitterbug cell phone for older users, may have a great product, a well-defined target market, a good understanding of its customers and competitors, and a sizeable market, but it still has to find customers and persuade them to buy its product. The marketing plan section communicates your specific plans for meeting these objectives.

The best way to describe a company’s marketing plan is to start by articulating its marketing strategy, positioning, and points of differentiation, and then talk about how these overall aspects of the plan will be supported by price, promotional mix and sales process, and distribution strategy. If you haven’t discussed your product yet, it should be talked about here. Most business plans provide a description of their product or service in an earlier section of the plan, however.

The marketing section must lay out specifically how you plan to make your target market aware of the existence of your product or service. Many business plans do a good job of describing the size of a company’s target market and the merits of its product but do a poor job of dealing with the practicalities of how the product will be sold. Obviously, it’s not possible to include a full-blown marketing plan in the four to five pages permitted in a business plan for the marketing section, but you need to provide your reader a sense of how you’ll market and sell your product within the confines of a reasonable budget. It’s also important to reinforce how your product provides its user unique value and differs from similar products in the marketplace.

There are two things to be mindful of as you write this section. First, all of the elements of a firm’s marketing plan should be developed with the customer plainly in mind. This notion extends beyond producing a product or service that accommodates your customers’ needs, to knowing the amount of disposable income they have, the periodicals they read, the media they watch, and so on, depending on the type of business you have. Knowledge of these, and similar factors, helps you to find-tune your marketing strategy and lower expenses. An example of the potential benefits involved is provided by Ron Boire, the president of sales for Sony consumer electronics. In 2000, Sony ( http://www.sony.com ) ran an advertising campaign to try to resurrect the Sony Walkman, the original portable music player. The campaign, titled “The Walkman Has Landed,” featured an alien mascot that looked like a cross between E.T. and Smurf. Sony ran its ads in print and media outlets that specifically catered to its target market—Generation Y consumers (13–30 years old). During the campaign, Boire was reminded of the value of restricting his ad dollars to media most likely to be seen by his target market:

I think that our experience with the Walkman alien campaign that was started in 2000 best captures it. We were spending tens of millions of dollars on media and I had friends (over 30 years old) say, “You know, I’ve never seen the ads.” It’s like, “Good. That’s a good thing that we’ve run hundreds and hundreds of slots and you’ve never seen one, because you’re not the target. That means I’m targeting razor sharp.” 1

Although Sony is a large, multinational firm, the same logic applies to a startup. By knowing your customers and tailoring your marketing efforts specifically to them, you can deliver a sharper message and avoid the expenses associated with reaching people less likely to buy your product. The “Buyer Behavior” section in  Chapter 6  contains information that, along with other insights you are able to accumulate, should inform all of your marketing-related decisions.

The second thing to be mindful of as you write this section is that you must detail exactly who will sell your product and how your sales process will work. Many business plans provide an overview of how their product will be priced and promoted but never zero in on how it will actually be sold. This is a critical issue that is often missing from business plans. You should describe your sales process and the methods that you’ll use to sell your product, whether it is via a direct sales force, through distributors or wholesalers, through an alliance with companies that sell complementary products, or through some other means. If you plan to field a direct sales force, you should describe how you plan to recruit salespeople, how their jobs will be structured, and how they will be compensated. Knowing that you have thought through these issues will bolster the confidence your readers have in the plan.

This marketing chapter of the business plan contains four sections: overall marketing strategy, pricing strategy, sales process and promotions mix, and distribution and sales. The overall marketing strategy of the Prime Adult Fitness business plan is shown in  Figure 7-1 .

Overall Marketing Strategy

The overall objective of Prime Adult Fitness’s marketing strategy is to make people 50 years old and older aware of the benefits of exercise and to sell them on the idea that our fitness center is the best place for them to either start or continue exercising. We don’t plan to accomplish this objective through splashy ads. Our overall approach will be to generate grassroots support and word-of-mouth referrals through a series of marketing tactics that will demonstrate how exercise and membership in Prime Adult Fitness enhances the lives of our members.

Our marketing strategy is also based on the notion that marketing is everyone’s responsibility—our staff, our employees, our directors, our advisory board members, and even our members. Every program, every class, every piece of equipment we buy, and every interaction with our members will be based on the goal of fulfilling our mission, which is expressed through our tagline, “Meet Your Dreams.” We so strongly believe that people 50 years old and older want to be fit and lead healthy lives that we’ve created a fitness center just for them. We want our target market to know how much we care. That sentiment will be reflected through our marketing strategy and tactics.

We are also keenly aware that we must reach our membership goals. The number 2,100 is our membership goal for 2014. That number will be a motivational tool and will be the central metric we use to hold ourselves accountable for translating our caring attitudes into business results. The slogan “Let’s Care Enough to Reach 2,100” will appear on all our internal documents and will be a central part of our employee motivation program.

Positioning

Prime Adult Fitness’s target market is the health and fitness club market for people 50 years old and older. Its position in the market is to offer a tailored offering (meaning its facilities and programs will be specifically geared to people 50 years old and older) at the high end of the market, in terms of amenities and price.

Points of Differentiation

· Only fitness center in our target market exclusively for people 50 years old and older

· Strong emphasis placed on the social aspect of belonging to a fitness center

· Well-trained staff that cares about the needs and lives of older people

Product Attribute Map

Prime Adult Fitness’s positioning strategy and its primary point of differentiation are illustrated in the product attribute map shown below. As shown, Prime Adult Fitness will be the only fitness center in its trade area that ranks high on both (1) the degree to which it is tailored specifically to the needs of its clientele and (2) the extent to which it offers a high range of amenities for its members. It ranks slightly lower than generic fitness centers in terms of range of amenities. There are several aspects of general fitness centers, like large weight rooms (for free weights), that will be scaled down by Prime Adult Fitness, given our clientele.

Prime Adult Fitness’s second and third points of differentiation, a strong emphasis on socialization and a trained and caring staff, brings its positioning strategy and primary point of differentiation to life (and makes them sustainable). Its objective is to not only open and run a fitness center for 50+ individuals but also open and run a center that makes them feel safe, secure, welcome, and at home.

Figure 7-1 Overall Marketing Strategy (Prime Adult Fitness Business Plan)

Overall Marketing Strategy

Marketing strategy refers to a firm’s approach to marketing its products and services stated in broad terms, which forms the basis of all of its marketing-related activities. It’s a good idea to begin the marketing plan section of a business plan by articulating your marketing strategy because it sets the tone for the entire section. It also reassures your reader that your various marketing activities are part of an overall approach or plan. All firms have constraints regarding the resources they have to devote to their marketing and sales efforts. As a result, it’s extremely important that a firm have an overall philosophy or approach to marketing that enables it to deploy resources in a purposeful and consistent manner.

Another important reason for having a marketing strategy and for articulating it in a business plan is to make sure that a firm’s marketing efforts are consistent with its overall mission and understanding of the market. This desired congruence is clearly seen in Prime Adult Fitness’s marketing strategy, which is shown in  Figure 7-1 . The company’s marketing strategy is clearly a reflection of how the company feels about its target market (which is reflective of its mission) and what it learned in completing its industry analysis and market analysis.

There are two additional parts to this section: positioning strategy and points of differentiation.

Positioning Strategy

After selecting a target market, the next step is for a firm to select a “position” in the market. Position is concerned with how a firm is situated relative to its rivals (or potential rivals). In a sense, a position is the part of a specific target market that a firm is claiming for its own. To understand a firm’s market position, you need to study the features of its goods or services. For example, BMW’s position (luxury) in the automobile market differs from Chevrolet’s position (functional). Clearly, these products differ from one another in substantial ways. Even within the luxury automobile market, BMW’s position (more sports-driving oriented) differs from that of Lexus (more luxury-features oriented).

As shown earlier in  Figure 7-1 , Prime Adult Fitness has positioned itself at the top end of the fitness market, in terms of the range of amenities offered for its target market (people 50 years old and older). It will offer its members access to a premier selection of exercise equipment, fitness classes, and other programs in a modern comfortable 21,600 square foot facility. In exchange for these amenities, Prime Adult Fitness will charge a monthly membership fee that is also at the top end of the market. This is Prime Adult Fitness’s position. There are other positions in its target market that it could have occupied. For instance, Prime Adult Fitness could offer a much more limited set of amenities to its members and charge a lower monthly fee, as 24 Hour Fitness and Curves have done in their target markets. Both positions may be viable and profitable. Determining which position to occupy and compete in is simply a judgment call on the part of a company based on its mission, its overall approach to the marketplace, and its competitive landscape.

Points of Differentiation

You should also clearly articulate your specific points of differentiation early in the marketing plan section of your business plan. These points were illustrated in your competitive analysis grid in  Chapter 6 . It’s typically best to limit the points of differentiation that you talk about to two or three points, to make them memorable and distinct. Also, make sure that the value of these points is easy for your reader to see. For example, ZUCA ( www.zuca.com ), the backpack on rollers, has two distinct points of differentiation: It relieves back pain by putting the backpack on rollers, and it’s sturdy enough for either a child or an adult to sit on. Laura Udall, ZUCA’s founder, confirmed the meaningfulness of these points of differentiation through focus groups. 2  She even has a picture of her teenage son sitting on the ZUCA’s seat, which anyone could imagine might be handy for kids waiting for the school bus. You should also make sure your points of differentiation aren’t liabilities, if a discerning reader starts playing devil’s advocate. For instance, if Udall said that the ZUCA will be offered in 20 different colors, on the face of it, that sounds good. But think about the ramifications of offering 20 different colors: complicated production process, limited channels through which the product is sold, and few retailers with enough shelf space to carry 20 different colors of a backpack. This type of disconnect or naivety undermines the credibility of a business plan.

There are many other potential sources of differentiation. The most compelling forms of differentiation are created through innovations that are difficult to imitate because they are created by competencies unique to a firm. Starbucks creates this type of differentiation through the ambiance of its restaurants. Apple does it through product design. Google does it through the speed and accuracy of its search results. Prime Adult Fitness hopes to create meaningful differentiation through its singular focus on servicing people who are 50 years old and older.

A useful way for a startup to visually depict its primary point of differentiation is through a product attribute map. A product attribute map is created by articulating two of a product’s most important attributes, one on the x-axis of the map and the other on the y-axis. A firm then simply plots itself relative to its major competitors. Prime Adult Fitness’s product attribute map is shown in  Figure 7-1 . The map clearly illustrate that Prime Adult Fitness is the only fitness center in its trade area that ranks high on both the degree to which it is tailored specifically to the needs of its clientele and the extent to which it offers a high range of amenities for its members. In the product attribute map assessment, the firm makes the further point that it plans to protect its primary source of differentiation (highly tailored service/high level of amenities) through its two other sources of differentiation—a strong emphasis on socialization and a trained and caring staff.

Pricing Strategy

This section should explain how you plan to price your product or service. Price is an important issue because it determines how much money a company can earn. The price a company charges for its products also sends a clear message to its target customers. For example, Oakley ( www.oakley.com ) positions its sunglasses as innovative, state-of-the art products that are both high quality and visually appealing. This position in the market suggests the premium price that Oakley charges. If Oakley advertised innovative, state-of-the art products but charged a bargain basement price, it would send confusing signals to its customers. Its customers would wonder, “Are Oakley sunglasses high quality or aren’t they?” In addition, the lower price wouldn’t generate the sales revenue Oakley needs to continuously differentiate its sunglasses from competitors’ products in ways that create value for its customers.

In this section, you should state how you plan to price your product or service and provide a brief rationale for your pricing philosophy. The Prime Adult Fitness business plan, shown in  Figure 7-2 , plainly states its pricing policy and then shows a comparison of the pricing structure to direct competitors and national averages. Although at first glance, price seems like a straightforward topic, it is actually quite complex. There are different methods for determining a product’s price, and a variety of other issues are involved.

Pricing Strategy

Prime Adult Fitness will adopt a policy of value-based (opposed to cost-based) pricing and will price its initial enrollment fee and monthly membership fee on two criteria:

· Current prices charged by director competitors in its trade area

· The perceived value of its service by its target clientele

Prime Adult Fitness’s Prices vs. Direct Competitors and National Averages

Sources: Direct Competitors, Prime Adult Fitness Survey

National Averages: International Health, Racquet & Sportsclub Association

Summary

The pricing schedule shown above demonstrates that Prime Adult Fitness’s prices are on par with its direct competitors and national averages. The schedule was subjected to scrutiny in three focus groups, and no serious objections were raised.

Figure 7-2 Pricing Strategy (Prime Adult Fitness Business Plan)

This part of the marketing plan includes two sections: cost-based pricing versus value-based pricing and other pricing-related issues.

Cost-Based Pricing versus Value-Based Pricing

The two methods for determining the price of a product or service are cost-based pricing and value-based pricing. In cost-based pricing, the list price is determined by adding a markup percentage to a product’s cost. The markup percentage may be standard for the industry or may be arbitrarily determined by you. The advantage of this method is that it’s straightforward, and it’s relatively easy to justify the price of a good or service. For this reason, many regulated utilities use cost-based pricing. The disadvantage is that it’s not always easy to estimate what the costs of a product will be, particularly for a startup. After a price is set, raising the price is difficult, even if a company’s costs increase. In addition, cost-based pricing is based on what a company thinks it should receive rather than what the market thinks a good or service is worth. Companies are finding it increasingly difficult to dictate prices to their customers, given customers’ ability to comparison shop, even for industrial goods, on the Internet to find what they believe is the best price. 3

In value-based pricing, the list price is determined by estimating what consumers are willing to pay for a product and then backing off a bit to provide a cushion. What a customer is willing to pay is determined by the perceived value of the product and by the number of choices available in the marketplace. Sometimes, to make this determination, a company has to conduct focus groups or try different pricing options in test markets. A firm influences its customers’ perception of value through positioning, branding, promotions, and the other elements of its marketing plan.

Whether you choose cost-based pricing or value-based pricing is an important call. Most experts recommend value-based pricing because it hinges on the perceived value of a product or service rather than cost plus markup, which is a formula that ignores the customer. Value-based pricing also frequently produces a higher gross margin. A gross margin (a company’s net sales minus its cost of goods sold) of 60 to 80 percent is not uncommon in high-tech industries. An Intel chip that sells for $300 may cost $50 to produce. This type of markup reflects the perceived value of the chip. If Intel had used a cost-based pricing method instead of a value-based approach, it would probably charge much less for its chip.

Of course, regardless of whether you choose cost-based or value-based pricing, your price must make sense given the realities of your market. Prime Adult Fitness included the table that compares its price to its direct competitors and national averages to reassure its readers that the target market will see the price as fair and reasonable given the alternatives.

Other Pricing-Related Issues

Most experts warn startups to resist the temptation to charge a low price for their products in the hopes of capturing market share. This approach can win a sale but generates little profit. In addition, most consumers make a price–quality attribution when looking at the price of a product. This means that consumers naturally assume that the high-priced product is also the better-quality product. If a firm charges a low price for its products, it sends a signal to customers that the product is low quality regardless of whether it really is.

A vivid example of the association between price and quality is provided by SmugMug ( www.smugmug.com ), an online photo-sharing site that charges a $40 per year base subscription fee. According to its Web site, the company has “Billions of Happy Photos” and “Millions of Happy Customers.” What’s interesting about the company is that most of its competitors, including Photobucket ( www.photobucket.com ), Flickr ( www.flickr.com ), and Picas Web Albums (https://picasweb.google.com) offer a similar service for free. Ostensibly, the reason SmugMug is able to charge a fee is that it offers higher levels of customer service and has a more user-friendly interface (in terms of how you view your photos online) than its competitors. But the owners of SmugMug feel that its ability to charge goes beyond these obvious points. Some of the free sites have closed abruptly, and their users have lost photos. SmugMug, because it charges, is seen as more reliable and dependable for the long term. (Who wants to lose their photos?) In addition, the owners believe that when people pay for something, they innately assign a higher value to it. As a result, SmugMug users tend to treat the site with respect, by posting attractive, high-quality photos that are in good taste. SmugMug’s users appreciate this facet of the site, compared to the free sites, where unseemly photos often creep in. 4

The overarching point of this example and the preceding discussion is that the price you’re able to charge is largely a function of (1) the objective quality of your product or service and (2) the perception of value that you create in the minds of your customers relative to completing products in the marketplace. You should carefully assess each of these criteria as you set your prices and develop your pricing philosophy.

The next section focuses on a firm’s sales process and its promotional mix. This section of Prime Adult Fitness’s business plan is shown in  Figure 7-3 .

Sales Process (or Cycle)

A foundational aspect of Prime Adult Fitness’s sales and promotional strategy is its sales process. This is the process the company will use to recruit members and is the process that the in-house staff will follow when people walk into the center and inquire about membership. At times, the process will take weeks to unfold if Prime Adult Fitness personnel have multiple contacts with a prospect, and at times the process will unfold in a few minutes, as an employee provides a prospect a tour of the facility and answers questions.

The company has devised specific marketing tactics to support each step in the sales process. These tactics are a work in process and will invariably be enhanced and revised as Prime Adult Fitness learns more about the characteristics of its target market.

Stage in Process	Ways Prime Adult Fitness Will Support Each Phase of the Process
1. Prospecting (or sales lead)	· Referrals from current members · Direct mail (targeting households that meet Prime Adult Fitness’s demographic profile) · Partnership with Central Florida Health Food * · Partnership with Oviedo Doctor’s and Surgeon’s Medical Practice * · Downloads from company Web site * · Responses from the company’s radio and print advertisements
2. The initial contact	· All employees will be provided training in building rapport with prospects. · Prospects are provided an information packet about Prime Adult Fitness. · Radio and print ads will direct prospects to Prime Adult Fitness’s Web site, which contains a short video and other promotional material.
3. Qualifying the lead	· All employees will be trained to assess whether a prospect represents a qualified lead. Prospects that are qualified as good leads will be offered a tour of Prime Adult Fitness’s facilities. · If a qualified lead does not join initially, he or she will be contacted by phone as a follow-up three days after the visit.
4. Sales presentation	· Qualified leads will be provided a facility tour. · Qualified leads will be shown a short film (nine minutes) featuring Prime Adult Fitness’s facility and programs and the benefits of fitness for older people. · A packet of testimonials will be developed over time and provided to prospects as part of the sales presentation process.
5. Meeting objections and concerns	· Employees will be trained on how to meet the most common and obvious objections and concerns. · In regard to price objections, a brochure has been prepared that compares (1) Prime Adult Fitness’s initial (one-time) enrollment fee and monthly membership fee to other fitness centers and (2) the cost of joining and belonging to a fitness center as opposed to other forms of recreation and entertainment (i.e., boating, golfing). · A similar brochure has been prepared to compare Prime Adult Fitness’s amenities to the amenities of other fitness centers.
6. Closing the sale	· All employees will be trained to ask qualified prospects to join.
7. Follow-up	· Each new member will be contacted by phone 30 days after they join as a courtesy to see how things are going. After that, they will be contacted by phone once a year. Each phone call will also be used to ask for names of referrals. · Prime Adult Fitness will produce a monthly newsletter that will be mailed to each member. · Prime Adult Fitness’s staff and employees will be trained to engage members and to thank them for their membership and solicit suggestions for improvement on a continual basis.
* Described under promotional activities.

Promotional Activities

Other promotional activities and tactics are planned as follows:

· Partnership with Central Florida Health Food. Prime Adult Fitness has entered into a cobranding relationship with Central Florida Health Food. Central Florida Health Food will periodically place coupons in its shopping bags that provide access to premiums for taking a tour of Prime Adult Fitness’s facilities.

· Partnership with Oviedo Doctor’s and Surgeon’s Medical Practice. Prime Adult Fitness has entered into a cobranding relationship with Oviedo Doctor’s and Surgeon’s medical practice, which will cover a range of activities. For example, the practice will periodically show a film that features Prime Adult Fitness and the benefits of exercise for older people in the waiting room of its facility.

· Downloads from Web Site. Prime Adult Fitness will place information on its Web site that can be downloaded. Some of the richest information will require a free registration prior to the download. The names and addresses taken from the registrations will be used as sales leads.

· Radio Advertising. Prime Adult Fitness will create radio ads that will be periodically run on WMFE, the public radio station that services Prime Adult Fitness’s trade area.

· Print Advertising. Select print advertisements will be run.

· Membership Drive. Prime Adult Fitness will execute a membership drive in January and February of each year. January, February, and March are the three biggest months for new memberships in fitness clubs.

Annual Marketing Budget

Item	Budget
Promotional material (brochures, handouts)	$12,000
Radio advertising	$16,000
Print advertising	$12,000
Web site material, updating, and support (50% of cost of supporting site)	$6,000
Updating film portraying Prime Adult
Fitness and the benefit of fitness for older people	$4,000
Other (including local sponsorships and community support)	$6,000
Total	$56,000

Figure 7-3 Sales Process and Promotional Mix (Prime Adult Fitness Business Plan)

Sales Process and Promotions Mix

A firm’s sales process (or cycle) depicts the steps it goes through to identify prospects and close sales. A firm’s promotions mix refers to the specific tactics it uses, such as advertising and public relations, to support the sales process and enhance its overall brand. The entirety of this process is typically scrutinized carefully by discerning readers of a business plan. Sales and promotions is one area where hard work and ingenuity can make up for a lack of funds. It is also an area where money can be easily wasted if the sales process is not carefully thought through and executed, and promotional tactics, such as print and media advertising campaigns, are poorly conceived or badly implemented.

This section includes two subsections: sales process and promotions mix.

Sales Process

A firm’s sales process (or cycle) refers to the steps it goes through to establish relationships with customers and close sales. It doesn’t matter whether a business is selling directly to customers or through an intermediary such as a distributor or a wholesaler; it still has a process through which it makes sales. The process varies by firm, but normally includes the following steps:

1. Prospect for (or gather) sales leads.

2. Make the initial contact.

3. Qualify the lead.

4. Make the sales presentation.

5. Meet objections and concerns.

6. Close the sale.

7. Follow up.

Ostensibly, following a structured process to generate and close sales benefits a company in four ways. First, it enables a firm to fine-tune its approach to sales and build uniformity into the process. Second, if the process is clear, selling becomes a set of clearly defined steps, rather than an awkward process where salespeople are always unsure about what to do next. Third, the process helps qualify leads, so the firm can spend its time and money pursuing the most likely buyers of the product or service. Finally, a fine-tuned sales process facilitates a company’s growth. By having a repeatable process that works, a company can bring new salespeople on board who can get up to speed quickly and help ramp up overall sales. Most well-managed firms have a formal sales process, similar to the one shown previously, and train their employees accordingly.

Prime Adult Fitness articulates its sales process in its business plan (refer to  Figure 7-3 ), which mirrors the process shown in the preceding list. The business plan also indicates Prime Adult Fitness’s general plans for supporting each stage in the process. As indicated in the plan, the sales process is an early prototype of what it will most likely become because Prime Adult Fitness will invariably tweak the process as it gains experience in the marketplace. Still, the process shown in the business plan is an important starting point for developing a customized and effective sales process for the company. 5

Promotions Mix

A firm’s promotions mix includes the specific tactics that a firm uses to communicate with potential customers. The approaches to promotions discussed here include advertising, public relations, social media, and other promotion-related activities.

Advertising

Advertising is making people aware of a product in hopes of persuading them to buy it. The major goals of advertising are to raise customer awareness of a product, explain a product’s comparative features and benefits, and create an association between a product and a certain lifestyle (or a certain objective in a business-to-business context). These goals can be accomplished through a number of media, including direct mail, magazines, newspapers, radio, the Internet, television, and billboard advertising. The media used normally depends on a firm’s target market. For example, a new piece of industrial equipment typically would be advertised through an industry trade magazine, whereas a consumer product would be advertised through the medium most likely to be viewed by the company’s target audience.

Although selective forms of advertising may be appropriate for your business, there are many downsides to conventional forms of advertising, which steers most startups away from advertising on a broad basis. The major weaknesses include the following:

· Low credibility

· The possibility that a high percentage of the people who see the ad will not be interested

· Message clutter (meaning that after hearing or reading so many ads, people simply tune out)

· Relative costliness compared to other forms of promotions

· The perception that advertising is intrusive

· The possibility that a poorly crafted ad runs the risk of irritating the firm’s target market

Because of these weaknesses, most startups do not advertise broadly. Instead, they tend to be very frugal and selective in their advertising efforts, such as limiting their print ads to industry trade journals or using highly focused pay-per-click advertising provided by Google or Bing or highly targeted ads on Facebook, Twitter, or other Web sites.

Despite the potential downsides, you shouldn’t be reluctant to use advertising if it makes sense, given your target market, and you can clearly explain its rationale. For example, if you launched a Web site to sell plus-sized clothing for children, the only way to reach a specific audience and achieve the sales volume you desire may be via targeted pay-per-click advertising on the Internet. Many of the better pay-per-click programs, such as Google AdWords ( www.google.com/adwords ) and BingAds ( bingads.microsoft.com ), also helps businesses strictly control the amount of money they spend through their programs.

Public Relations

Public relations refers to efforts to establish and maintain a company’s image with the public. The major difference between public relations and advertising is that public relations isn’t paid for. As a result, many startups emphasize public relations over advertising because it’s free and helps build the firm’s credibility. Many techniques fit the definition of public relations. Some of the more common techniques are as follows:

· Press release

· Event sponsorship

· Traditional media coverage (such as articles in newspapers and magazines)

· Articles in industry periodicals, such as trade journals

· Monthly newsletter

· Social media

· Blogging

· Civic, social, and community involvement

In most cases, firms believe that generating favorable public relations about their company is better than advertising because it is more grassroots and doesn’t seem to be as self-serving. The key to getting public relations that’s created by others, such as a newspaper or magazine article written about your company, is to create a human interest story that’s associated with your firm. It also helps to be proactive in regard to speaking out on behalf of your industry and talking to trade groups and civic groups about your industry or area of expertise.

Lisa Druxman, the founder of FIT4MOM ( http://fitformom.com ), a franchise organization for new mothers, provides an example of how these efforts come together to create positive public relations for a firm. FIT4MOM (originally called Stroller Strides) is a concept that Druxman created to get herself back in shape after she had her first baby. It is an organized workout class where women push strollers, power walk, and exercise outdoors to meet their fitness goals and socialize with other new mothers. Prior to starting FIT4MOM, Druxman was the general manager of a health club. Druxman’s story is a classic illustration of how public relations works and the potential payoffs are involved:

When I (was) the general manager at the health club, I would regularly go on the news promoting new workouts. One day the TV station called me and asked, “Would you mind coming in with your baby and giving (some) tips on how to get back in shape?” So I did, and I promoted my class as if it were this big business—I gave out my home e-mail and personal cell phone number. By the time I got home from the station, I had 75 calls and e-mails from all over San Diego from people who were interested in taking my class. I had my grand opening class 3 weeks after that, with 40 people there and more news coverage. 6

The key to Druxman’s success, in this instance, was that she was able to tell her story through an unbiased third party, the TV program. Sometime you’ll get lucky, like Lisa Druxman, and an opportunity to talk about your startup will fall in your lap. The more common way to garner the attention of a newspaper or magazine is via a press kit. A press kit is a prepackaged set of promotional material for a business that is distributed to the media. It includes information about a startup such as the story of where the business idea from the company came from, press releases highlighting the current accomplishments of the company, digital photos of the company’s products, and so on. Media outlets, such as newspapers, magazines, blogs, radio programs, and television shows use press kits to formulate stories. The key to getting coverage is having an interesting story to tell, rather than simply extolling the value of your product or service. If you think your company has the potential to generate good public relations, you should make a press kit part of your promotions strategy. 7

Social Media

Social media consists primarily of blogging and establishing a presence and connecting with customers and others through social networking sites like Twitter, Facebook, and Google+. 8  The number one rule for determining whether to use social media is if the customers in a business’s target market are active social media users. The largest group of social media users for men is in the 45–54-year age group and for women in the 25–34 years age group. Only 11 percent of men and 10 percent of women age 55 and older are active social media users. 9  Although Prime Adult Fitness may have some social media presence, these statistics suggest that putting substantial effort into a social media marketing campaign for Prime Adult Fitness is not a good choice. Most investors and others have a general notion of who the heaviest social media users are, and would not be surprised to see a lack of a social media strategy in Prime Adult Fitness’s business plan. In fact, if Prime Adult Fitness proposed an aggressive social media strategy, it would send the wrong message. It would demonstrate that its founders were not looking closely at the data in regard to the demographic breakdown of social media users.

For startups that have discerned that customers in their target market are active social media users, social media can be a very effective. The idea behind blogs is that they familiarize people with a business and help build an emotional bond between a business and its customers. Similarly, businesses use social networking sites like Facebook, Twitter, and Google+ to build communities around their products and services. The benefits include brand building, engaging customers, lead generation, and online sales. An example of a company that makes effective use of blogging and social media is ModCloth ( www.modcloth.com ), an online retailer of vintage clothing for women. ModCloth’s blog ( http://blog.modcloth.com ) not only draws attention to the company’s products but also posts fun, entertaining, and informative articles and photos of interest to its target market. The blog also features contests that provide cash prizes and photos of customers wearing ModCloth products. The company is also active on social media, including Facebook and Twitter. Several times a day, ModCloth and its friends post fashion information, fun facts, and a variety of related information on its Facebook wall. This pace of activity makes people come back and creates a community of engaged customers. Extensive use of social media makes perfect sense for ModCloth. Its target market is 18–34-year-old women who are heavy social media users.

Other Promotion-Related Activities

Many other activities can help a firm promote and sell its products. Some firms, for example, give away free sample or trial memberships as a way of exposing potential customers to their product or service. Many food companies distribute free samples in grocery stores and discount centers. Red Bull ( www.redbull.com ), the highly successful energy drink company, created interest in its product by initially offering free samples through sports clubs and other places in which athletes congregated. This type of initiative is often pursued to try to create “buzz” or word-of-mouth advertising for a product or service. Creating buzz means creating awareness and a sense of anticipation about a company and its offerings. 10  This process can start during feasibility analysis, when a company shows its concept statement or product prototype to prospective buyers or industry experts. Unless a company wants all activities kept secret (to preserve its proprietary technology or its first-mover advantage), the goal is to get people talking about the company and the exciting new product or service. You should investigate the many techniques for creating buzz or word-of-mouth marketing at a low cost.

Business Plan Insight Selling Benefits Rather Than Features

Many startups make the mistake of promoting the features rather than the benefits of their product or service. A promotional strategy that focuses on the features of a product, such as its technical merits, is usually much less effective than a campaign focusing on the merits of what the product can do. Consider an ad for Prime Adult Fitness that reads something like this, “Our fitness center, which is just for adults, has 16 exercises classes, a pool that is available for water aerobics and open swims, and a full spa and massage service.” These are all features, and while features are nice, they typically don’t entice someone to join a health club. A better way for Prime Adult Fitness to promote itself would be to say, “Our fitness center, which is just for adults, will feature classes and exercise equipment that help adults maintain their fitness, avoid the onset of certain alignment, and lead healthier lives.” This statement focuses on benefits by telling prospects how joining Prime Adult Fitness will enhance their lives.

As a general rule of thumb, it’s more effective to tote the benefits of a product or service rather than the features.

One issue that is particularly important in executing a promotions plan is to focus on the benefits of a product or service rather than the features. The importance of this issue is explained in the Business Plan Insights box.

In most cases, putting together a specific budget for promotional activities is helpful. Prime Adult Fitness includes a promotional budget in its business plan as shown earlier in  Figure 7-3 .

The next section of this portion of the business plan focuses on distribution.

Distribution and Sales

Distribution encompasses all the activities that move a firm’s product from its place of origin to the consumer. For a company like Prime Adult Fitness, distribution is not a major issue because it’s a service business that provides for its own sales functions. As a result, the company relies on working through the sales process and on promotional activities to gain memberships to its fitness center—so there is no separate distribution and sales section in this business plan. The landscape is much different for other companies. When Laura Udall first invented the ZUCA (backpack on wheels), she had to decide how the product would be distributed and sold. There were many choices. ZUCA could hire and field its own sales force, or work through intermediaries, such as wholesalers, distributors, or manufacturing representatives, as will be explained in more detail later in this chapter.

This section of your business plan should clearly identify your distribution and sales plan, in terms of who will make the sales. To assist you with thinking through these issues, this part of the chapter includes two sections: distribution and sales alternatives, and sales strategy and related issues.

Distribution and Sales Alternatives

The first step in determining a distribution and sales strategy, for a firm that is more complex than Prime Adult Fitness on this dimension, is to sort through the choices. For example, imagine you are starting a company that produces electronics products for consumers. You could opt to field a sales force that approaches companies such as Best Buy and Walmart to persuade them to carry your product. You could also sell direct to consumers without the need for salespeople, through catalogue or Internet sales. Another option is to sell through an intermediary, such as a distributor, a wholesaler, or a manufacturer’s representative. If you decided to go this route, your intermediary would call on Best Buy and Walmart to try to persuade them to carry your product on your behalf.

A similar set of choices would apply if you were selling a service rather than an electronics product. Hotels, for example, sell their services (typically rooms) directly through their Web sites and telephone reservation services, and also through intermediaries, such as travel agents, tour operators, airlines, and so forth. For example, if you were planning a trip to Walt Disney World in Orlando, Florida, you could book your flight, rental car, and hotel through Orbitz ( http://www.orbitz.com ), Travelocity ( http://www.travelocity.com ), or many other similar services. In this instance, Orbitz and the others are acting as intermediaries for the service providers.

There are also blended approaches, regardless of whether you are selling a product or service. Many firms sell direct plus through intermediaries. For example, many businesses sell their product via their Web site (direct) and also through distributors (intermediaries) who help them secure shelf space in retail stores. If handled awkwardly, this approach can cause what’s called “channel conflict.” Channel conflict occurs when a business sells online (capturing all the profits itself) and also wants retailers to sell its products through their stores. The retailers may be less motivated to carry or push the business’s product thinking that customers might see the product in their store and then go online to buy it. Despite this potential complication, many businesses sell both online and through distributors and manage the potential conflict effectively.

The key to making the right choices among these alternatives is to think carefully first about where people in your target market shop, and then about the most effective and economical ways to get your products some shelf space in those outlets. You also need to think about the operational ramifications of your choices. Although it might sound good to get your product placed in Best Buy or Walmart from the outset, few startups are prepared to ramp up production fast enough to satisfy these types of retailers. In addition, you need to carefully weigh the choice of retail outlets and other resellers (such as Orbitz and Travelocity) with your brand and the image you want to convey to your target market.

Sales Strategy and Related Issues

The description of your distribution and sales plan should make it clear whether you plan to field your own sales force. If you do decide to employ sales personnel, you should describe how many salespeople you will initially need, how their numbers will be ramped up as your company grows, and how they will be compensated. You will probably need to talk to industry experts and study industry trade journals and reports to make these calls. You’ll also rely heavily on the sales projections for your firm created in  Chapter 6  to assess your needs.

If you plan to see direct, through Internet or catalog sales, you should report whether you plan to inventory your product and fulfill orders yourself or whether you plan to use a fulfillment service like Shipwire or Amazon Fulfillment. Traditionally, businesses that have produced physical goods have managed the fulfillment and shipping of orders themselves. There are now other options. For example, a company that sells medical products can contract with a fulfillment service such as Shipwire ( www.shipwire.com ) to receive, warehouse, and ship its products. The sale would still be made through the medical products company’s Web site, but the site would be electronically monitored by the fulfillment service, and when an order came in, the fulfillment service would process and ship the order. The order could even be shipped in a box with the medical products company’s logo on it. Of course, there is a fee for this service, but an increasingly number of small businesses are opting in favor of this option rather than managing the fulfillment and shipping of orders themselves.

If you plan to distribute your products through intermediaries, you should briefly explain how the intermediaries will be chosen, and the ways in which the intermediaries will interface with the sales outlets in your industry. In most cases, you will have to support your distributors and other intermediaries with training, technical support, shipping, point-of-sale advertising material, and other forms of sales support. If any out-of-the ordinary levels of support apply in your case, they should be identified.

An exciting element of distribution and sales strategy for new firms is that the conventional forms of distribution and sales don’t always have to be followed. One way a new firm can innovate and provide unique value in the marketplace is via distribution and sales. For example, Dell ( www.dell.com ) revolutionized the computer industry by deciding to sell directly to the consumer, first over the phone and later via the Internet, rather than through retail stores, which was the conventional method for selling computers in 1984 when Dell was founded. Similarly, IKEA ( www.ikea.com ), the Swedish furniture company, introduced a new concept in the furniture industry by opening retail outlets that are essentially display stores, and after an item is selected, the purchaser is directed to a loading dock where a boxed and unassembled version of the item is provided. Both of these companies have succeeded, in part, because their approach to distribution and sales were novel and fit their respective target markets. Dell’s target market is the business customer who doesn’t need help from a salesperson in a retail store to buy a computer and who are glad to avoid a trip to the store. IKEA’s target market is singles and young families who don’t mind trading off some home assembly work for a lower price.

Again, if any of these special circumstances apply in regard to your distribution and sales strategy, they should be discussed in this portion of your business plan.

Chapter Summary

1. The best way to describe a company’s marketing plan is to start by articulating a marketing strategy, positioning, and points of differentiation, and then talk about how these overall aspects of the plan will be supported by price, promotional mix and sales process, and distribution strategy. If you haven’t discussed your product yet, it should be talked about here.

2. There are two things to be particularly mindful of as you write the marketing section of your business plan. First, all the elements of a firm’s marketing plan should be developed with the customer plainly in mind. Second, you must detail exactly who will sell your product or service.

3. This marketing section of the business plan contains four subsections: overall marketing strategy, pricing strategy, sales process and promotions mix, and distribution and sales.

4. A firm’s marketing strategy is its approach to marketing products or services stated in broad terms, which forms the basis of all of its marketing-related activities.

5. After selecting a target market, the next step is for a firm to select a “position” in the market. Position is concerned with how a firm is situated relative to its rivals. In a sense, a position is a part of the market or a specific target market that a firm is claiming for its own.

6. Price is an important issue because it determines how much money a company can earn. The price a company charges for its products also sends a clear message to its target customers.

7. The two methods for determining the price of a product or service are cost-based pricing and value-based pricing. In cost-based pricing, the list price is determined by adding a markup percentage to a product’s cost. In value-based pricing, the list price is determined by estimating what consumers are willing to pay for a product and then backing off a bit to provide a cushion. Most experts recommend value-based pricing because it hinges on the perceived value of a product or service rather than cost plus markup, which is a formula that ignores the customer.

8. A firm’s sales process (or cycle) refers to the steps it goes through to establish relationships with customers and to close sales.

9. Advertising is making people aware of a product in hopes of persuading them to buy it. The major difference between public relations and advertising is that public relations isn’t paid for. As a result, many startups emphasize public relations over advertising because it’s free and helps build the firm’s credibility.

10. One issue that is particularly important in executing a promotions plan is to focus on the benefits of a product or service rather than the features.

11. Distribution encompasses all the activities that move a firm’s product from its place of origin to the consumer.

Review Questions

1. Describe the difference between the market analysis section of a business plan and the marketing section.

2. Why is it important for the marketing plan to be developed with the customer plainly in mind?

3. What is a company’s marketing strategy, and why is it important?

4. What is meant by a company’s “positioning” strategy?

5. What is the purpose of a product attribute map?

6. Describe the difference between cost-based pricing and value-based pricing.

7. What is the price–quality attribution?

8. Describe the differences between advertising and public relations? Which of the two alternatives do startups tend to prefer?

9. Provide several examples of public relations strategies.

10. Describe how firms should approach the topic of distribution and sales.

Application Questions

1. Spend some time looking at jitterbug’s Web site ( www.greatcall.com/jitterbug ). Comment on each element of jitterbug’s marketing plan (product, price, promotion, and distribution and sales). On a scale of 1 to 10 (10 is high), rate the strength of jitterbug’s overall marketing plan. Justify your rating.

2. Spend some time studying the Web site of ModCloth ( www.modcloth.com ), an online company that makes apparel products for women. Describe ModCloth’s position strategy and its points of differentiation from its competitors.

3. Study the Web site of Game Truck ( www.gametruckparty.com ), a franchise organization that will bring a video game party in especially equipped trucks directly to your home or business. Make a list of the types of public relations activities that the owners of Game Truck and their franchisees could engage in to promote the company.

4. Brainstorm a business idea of your own. Write an elevator speech for your business idea following the guidelines for preparing an elevator speech provided in  Chapter 1 . Next, develop a sales process for your business following the outline provided in  Figure 7-3 .

5. Think of a company, other than Netflix, Dell, or IKEA, which has innovated in a very meaningful way in regard to how it distributes and sells its product or service. Write a short critique of how this innovative distribution or sales strategy has contributed to the company’s success.

Endnotes

1. N. Capon, The Marketing Mavens (New York: Crown Business, 2007), 131.

2. “Laura Udall” (Mom Inventor’s Inc.), http://www.mominventors.com, Posted June 25, 2007 (accessed September 17, 2013).

3. M. J. Silverstein, Treasure Hunt (New York: Portfolio, 2006).

4. Don MacAskill, CEO of SmugMug (nPost), Posted January 16, 2007 (accessed September 17, 2013).

5. Sara Williams, Business Start Up 2010 (Harlow, England: Pearson, 2010).

6. Ladies Who Launch homepage,  http://www.ladieswholaunch.com  (June 27, 2007).

7. B. Barringer, Launching a Business: The First 100 Days (New York: Business Expert Press, LLC).

8. B. Barringer and R. Duane Ireland, Entrepreneurship Successfully Launching New Ventures (Upper Saddle River, NJ: Pearson, 2012).

9. “Who Likes Social Media,” KISSMetrics ( http://blog.kissmetrics.com/social-media-by-demographic ), Posted February 2, 2011 (accessed September 15, 2013).

10. M. Schindehutte, M. Morris, and L. Pitt, Rethinking Marketing (Upper Saddle River, NJ: Pearson, 2009).