CHAPTER OUTLINE Spotlight: Mayan Pigments (http://mayanpigments.com) 1 What Is Small Business Marketing Describe small business marketing. Definitions Small business Marketing - business activities that direct the creation, development, and delivery of a bundle of satisfaction from the creator to the targeted user Core product/service The fundamental benefit or solution sought by customers Actual product/service The basic physical productand/or service that delivers those benefits Augmented product/service The basic productand/or service plus any extra or unsolicited benefits to the consumer that may prompt a purchase Marketing Philosophies Make a Difference Three different marketing perspectives Production-oriented philosophy emphasizes the product as the single most important part of the business Sales-oriented philosophy emphasizes pushing the product Consumer-oriented philosophy centers on the consumer and his/her needs A Consumer Orientation The Right Choice This philosophy is most consistent with long-term success Why might a business choose not to use this philosophy State of competition Weak in marketing ability Too focused on the present Market analysis The process of locating and describing potential customers Marketing mix The combination of product, pricing, promotion, and distribution activities 2 The Formal Marketing Plan Identify the components of a formal marketing plan. Market Analysis describes target market Customer profile A description of potential customers in a target market Actual sales forecast should include the most likely, best case, and worst case scenarios The Competition Existing competitors key management personnel profiles, competitors overall strengths and weaknesses Existing related products or those possibly in the pipeline SWOT Analysis Marketing Strategy 69
Market analysis and information on competition provide the basis of the marketing strategy Marketing mix should be addressed (the 4 Ps ) Product/service Place (distribution activities) Pricing Promotion The Product And/Or Service Section Name of product and/or service Name of business Why they were selected Packaging should be presented via drawings Register names selected (business and/or product/service) Customer service plans Unique features of product Intellectual property original intellectual creations, including inventions, literary creations, and works of art, that are protected by patents or copyrights The Distribution Section The process of getting the product to the consumer Exporting issues The Pricing Section At minimum price must cover the cost of bringing it to customers Check competitors prices Develop a break-even computation Other issues such as niche The Promotion Section Should describe the approach to creating customer awareness of product/service Why customers will be motivated to buy 3 Marketing Research for the New Venture Discuss the nature of the marketing research process. The Nature of Marketing Research Marketing Research- The gathering, processing, interpreting, and reporting of market information Estimate projected costs and compare costs with benefits Steps in the Marketing Research Process Step One: Identifying the Informational Need Step Two: Searching for Secondary Data market information that has been previously compiled Step Three: Collecting Primary Data Primary data new market information that is gathered by the firm conducting the research Observational Methods Oldest form of research 70
Mystery shopping Internet Major industry trade shows Questioning Methods Surveys mail, telephone the Web, personal interview Questionnaire pre-test before using (see Exhibit 7-3) Step Four: Interpreting The Data Gathered - Must be transformed into usable information 4 Understanding Potential Target Markets Define market segmentation and discuss its related strategies Market a group of customers or potential customers who have purchasing power and unsatisfied needs Market Segmentation and Its Variables Market segmentation The division of a market into several smaller groups with similar needs Segmentation variables The parameters used to distinguish one form of market behavior from another Benefit variables The specific characteristics that distinguish market segments according to the benefits sought by customers Demographic variables - The specific characteristics that describe customers and their purchasing power Marketing Strategies Based on Segmentation Considerations The Unsegmented Strategy (mass marketing) - a strategy that defines the total market as the target market (see Exhibit 7.4) The Multi-Segment Strategy A strategy that recognizes different preferences of individual market segments and develops a unique marketing mix for each The Single-Segment Strategy A strategy that recognizes the existence of several distinct market segments but focuses on only the most profitable segment 5 Estimating Market Potential Explain the different methods of forecasting sales The Sales Forecast Prediction of how much of a product or service will be purchased within a given market during a specified time period Differing periods of time Essential component of business plan because is critical to assessing the feasibility of a new venture Limitations to Forecasting Used less frequently by small businesses inexperience along with a new idea causes difficulty in forecasting situation Business manager may be unfamiliar with methods of quantitative analysis; quantitative methods have proven value in forecasting Forecasting process unfamiliar to management team The Forecasting Process The Starting Point 71
Breakdown process (chain-ratio method) begins with a larger-scope variable and works down to the sales forecast Buildup process all potential buyers in a target market s submarkets are identified and then the estimated demand is added up The Predicting Variable Direct forecasting sales is the estimated variable Indirect forecasting variables related to sales are used to project future sales SOURCES OF VIDEO AND OTHER INSTRUCTIONAL MATERIALS The Small Business Administration and the USPS have produced a videotape entitled Marketing 101. This video is available at http://www.sba.gov/tools/audiovideo/deliveringsuccess/index.html. The SBA also offers free online courses in many topics on entrepreneurship. ANSWERS TO END-OF-CHAPTER DISCUSSION QUESTIONS 1. What is the scope of small business marketing? What do you think the differences in marketing might be if you were a manager in a large corporation? Small business marketing consists of those business activities that related directly to (1) identifying a target market, (2) determining target market potential, and (3) preparing, communicating, and delivering a bundle of satisfaction to the target market. Marketing in the small business might be less extensive and not use as much follow-through, but this depends on the size of the business. Some small businesses are quite large and a have enough staff to do more than others. 2. How do the three marketing philosophies differ? Select a product and discuss marketing tactics that could be used to implement each philosophy. The philosophies differ in the degree of emphasis placed on the consumer and the point at which this concern is manifested. Because students will likely choose different products, the marketing tactics they offer will have to be scrutinized individually. Students may also emphasize different areas of marketing. For example, marketing information tactics for a business that markets refrigerators might be expressed as follows: Philosophy Marketing Information Tactic 72
Production oriented Let s survey our distribution system to find out why it costs so much. Sales oriented Let s survey customers to find out how we can motivate them to buy our product. Consumer oriented Let s survey customers to learn what benefits they seek from refrigeration so we can satisfy their needs. If pricing is emphasized, a student might answer as follows: Philosophy Pricing Tactic Production oriented We must charge $X.XX because our production costs have already been figured to be $X.XX. Sales oriented We need to discount the current price in order to sell more. Consumer oriented Customers are willing to pay about $X.XX for a product offering these benefits. 3. What are the obstacles to adopting a consumer orientation in a small firm? In most cases, the failure of small firms to adopt a consumer orientation can be explained by one or more of the following three factors. First, a firm is likely to adopt a production efficiency emphasis if competitive pressure is weak and/or demand exceeds supply. Under these conditions, firms have little motivation to focus on customer needs because they can already sell all of the product they can produce. Second, if small business managers have particularly strong production skills, the firm is naturally prone to lean toward a production emphasis. As a parallel, if these managers have strong selling skills, these will be manifest in a sales-orientation philosophy. Third, some managers are too focused on the present to adopt a consumer orientation. For example, they may emphasize a high pressure selling approach in order to move merchandise, which is likely to have a negative effect on consumer satisfaction in the long run. 4. Briefly describe each of the components of a formal marketing plan. A formal marketing plan should contain detailed information regarding market analysis, the competition, and marketing strategy. The four areas of marketing strategy are the description of the total product or service, the promotional plan, the distribution plan, and the pricing plan. 5. What are the steps in the marketing research process? Which step do you feel would be the hardest for you to take? Why? 73
There are typically four steps in marketing research: Identify the informational needs. Search for secondary data. Collect primary data. Interpret the data gathered. Individual student answers will be developed for the rest of this question. 6. What are the major considerations in designing a questionnaire? The questionnaire developer should keep several considerations in mind. First, ask only those questions that relate to the issue of concern. Then, select the form of question (e.g., open-ended, multiple choice) that is most appropriate for the questionnaire and its application. Developers should also consider the order in which questions are presented (since one question can bias responses to subsequent questions), and sensitive questions should always come last. Next, carefully word questions so they are as simple, clear, and objective as possible. Finally, pretest the questionnaire using a representative sample. 7. Briefly explain the three components of the definition of a market, as presented in this chapter. A market has been defined as a group of customers or potential customers who have purchasing power and unsatisfied needs. A market must have all three components customers, purchasing power, and unsatisfied needs. The components of a market have a multiplicative relationship, which can be expressed as Market = Customers Purchasing power Unsatisfied needs If any one component is zero, the value of the market is also zero. For example, assume potential customers have no purchasing power. Then Market = Customers 0 Unsatisfied needs = 0 8. What types of variables are used for market segmentation? Would a small firm use the same variables as a large business? Why or why not? Segmentation variables are used to identify particular dimensions of a market. The two basic types of segmentation variables are benefit variables and demographic variables. Since resources are limited and the products and services of a small firm are usually specialized, use of segmentation variables is more important for small firms than for large businesses. 9. Explain the difference between a multi-segment strategy and a single-segment strategy. Which one is more likely to be appealing to a small firm? Why? 74
A multi-segmentation strategy involves approaching two or more homogeneous market segments with a tailor-made strategy for each segment. The singlesegmentation strategy targets one segment that the firm believes will be most profitable. The single-segmentation strategy usually allows small firms to use their limited resources more efficiently. 10. Explain why forecasting is used more widely by large firms than by small ones. First, forecasting circumstances in a new business are unique. Second, a small business manager is likely to be less familiar with methods of quantitative analysis. Finally, the typical entrepreneur lacks familiarity with the forecasting process. COMMENTS ON CHAPTER YOU MAKE THE CALL SITUATIONS Situation 1 1. What businesses do you think would benefit most from being on a local website in your hometown? Students should list related businesses such as restaurants and local tourist locations. 2. How do businesses that provide such local Web services differ from newspapers and Yellow Pages? Much more information is available on the Web than in a newspaper or the Yellow Pages. Additional information could include reviews from previous guests at the Bed and Breakfast, pictures of the differing aspects of the business including such things as rotating views, and pictures of the owners and guests. Situation 2 1. Do you think that infomercials might work better for certain market segments than others? If so, describe those segments? Since infomercials must be observed to be useful, the market segments must watch TV and/or attend movies, Depending on the product itself, the location of the infomercial must reach the target market when they are likely to be watching. For example, older people who might be retired could be reached for infomercials dealing with products specifically appealing to them such as products that make gardening easier. Young people might watch in infomercial dealing with a new concept cell phone that was run on MTV. Students will come up with products and market segments on their own. 2. Do you watch infomercials? If so, did you ever purchase a product as a result? If not, why not? 75
Students will have individual answers to these questions. Situation 3 1. Identify a minority group to which you do not belong. What steps could you take to learn about that market segment in order to sell the consumers a product or service? -First, identify their informational need. That is, donduct a survey to ascertain this groups product preferences. -Second, gather data. Exhaust available sources of secondary data before going further in to the research process. -Third, collect primary data. If you find that you don t haves sufficient data from your secondary data collection, engage in either observational or questioning methods for gather more data. -Fourth, interpret the data gathered. Perform statistical calculations. Make inferences from the data collected. Using all this information, put together a marketing strategy to sell your product to this market segment. -Finally, divide this marketfor a proeduct or service into smaller groups with smaller needs so that each group is likely to repond favorable to your specific marketing strategy. 2. Suppose your small business were contacted by a company in another country that wanted to sell your products in its market. What would you want to know about that market before going into it? Choose any country besides the United States and determine what changes you would have to make to your marketing plan to adjust to the different culture. First, create customer profile describing the the potential customers in this target market. Second, evaluate the competition. Third, formulate a marketing strategy to identify why customers in this market will buy your product. For your chosen culture, focus on the 4P s of of marketing---(product, place, pricing, and promotion) and tailor these to the uniqe attributes of your chosen culture. SUGGESTED SOLUTION TO CASE 7: READYMADE MAGAZINE 1. How does ReadyMade communicate the demographics of its reader base to advertisers who want to see specific statistics about ReadyMade s target market? ReadyMade positions their message specifically to the audience they are speaking to in order to serve them the information in a way they can understand. They use their covers to target a confined set of variables: couples doing a project, a 76
project, and the magazine covers things familiar to the audience (sneakers, movies, cars, do-it-yourself projects, Home Depot, Lowes, etc.). Different attributes are important to different advertisers. 2. What sort of segmentation does ReadyMade use when it markets to businesses and investors? ReadyMade may have begun by using single segmentation strategy, but over time needed to utilize multi-segment strategies when marketing to advertisers. Investors would also be interested in results of such statistics, but would also want sales and forecasting details. 3. What ideas do you have that would help ReadyMade reach out to new subscribers without alienating its loyal base? The magazine has already been changing as the Gen-Nesters have changed over time, and as a result some younger subscribers have been lost. However, it is important not to change too drastically or suddenly in order to keep its base, and to continue to market according to benefits and demographics. 77