Entrepreneurship

Entrepreneurship

Marketing an Entrepreneurial Company

Marketing Plans try to build customer relationshipsIntroduce the company and its productsCreate market awareness and positioningIntroduce new products and servicesGrow the business in a new direction

Most marketing plans aren’t followed long enough to achieve the desired results

Customers must see an ad 15-20 times before they will buy

A marketing plan is an investment in the future of the business

A Marketing Plan in a Single Paragraph

The purpose of your marketing plan The benefits of your product or service The primary customer The company’s convictions - its identity The market niche...how differentiated? The marketing tactics to be used The percentage of sales that the

marketing budget represents (8-12%)Getty Images

Marketing Mix = the 4 Ps1. Product2. Price3. Place4. Promotion

Goal: Bring the right product to the right place at the right price with the right promotion.

Products (and Services) Products & services are defined by:

Physical attributes Performance characteristics Positioning Branding Packaging Delivery Pricing

Understanding the Product/Service

Positioning How customers view your product vs the

competition...is it higher quality, less expensive, or more attractive?

Branding Building loyalty and connection to the company

and products/services by communicating a unique image or philosophy

Packaging and Labeling Another way to get attention and to

differentiate your product...a form of advertising and promotion

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Testing the Product Positioning

Peer review. Asks friends to give an opinion on the positioning statement for the product

Distribution channel review. Salespeople, distributors, and retailers are asked what they think of the position statement.

Focus groups. A group of potential customers give feedback on blind product reviews.

Test marketing. Produce a limited amount of product and sell it in a defined geographic region to determine if the product positioning is correct.

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Branding An image that is unique...that stands for

something distinctive...that “rings a bell” in your mind.

Today branding must represent the qualities and philosophy of the company as much as the product.

For companies that participate in the “war of the images,” the battle is everything. But, in many television ads today, viewers don’t even know which brand is being promoted...often the name appears only briefly at the end of the ad.

BrandingA counter-movement: A number of very successful companies, such as Ben and Jerry’s Homemade, Smith and Hawkens, and Starbucks Coffee are resisting image positioning as the way to communicate their message.

Instead of promoting brand names, they choose to communicate the philosophy of their company, which is at the core of all their products and by its very nature differentiates these companies from others in the market.

Focus the Brand The primary product benefit is “owned”

by the company Ford’s Edsel – lacked focus, too many

features failure Ford’s Mustang – tightly focused on

target market of 20-30 year olds success

Use the trademark as an adjective in the name of the product …for example, Sanka Brand Decaffeinated Coffee

Ways to Build a Great Brand

Pick a name that is descriptive and easy to remember Frigidaire, Craftsman, Whirlpool

Create a logo/trademark that symbolizes your business Nike’s “swoosh” or McDonald’s “golden arches” Purchase your domain name and get it trademarked (safeauto.com)

Develop a good reputation Create and advertise a brand “personality”

Youthful and casual = GAP, Safe and serious = Volvo Seven ways to build your brand and its reputation

Provide high-quality products/services Maintain the highest ethical standards Define the product/service clearly…focus! Treat your employees well Make ads positive & informative Associate your company with a charity Be actively involved in your community

Packaging and Labeling Just like the product, the packaging must be designed and tested for consumer response. It should serve the functions for which it was designed. In general, packaging should...

Tell what the product is. This description can range from product features to directions for use, ingredients, remedies for misuse, and warranty information.

Describe the key benefits to the customer, such as convenience, price, level of quality, and features.

Highlight the company philosophy....“Our customers come first with us.”

Be distinctive and attractive enough that customers can recognize the product from the package design alone without having to read anything.

Use safe and recyclable materials wherever possible.

Place Where do your customers shop? How do they prefer to have their

products/services delivered?

Our goal is to find a location which is…a) affordable for us, and also b) convenient for our customers

The Supply/distribution ChainStrategically, how integrated do you want your

business to be? Do all the supply/distribution functions yourself or outsource?

Backward integration decisions whether the owner wants to contract with others to provide the inputs (raw

materials, components, and supplies) needed in your business, or whether s/he wants to own and control the supply network

Forward integration decisions whether the business owner should hire others to handle the distribution

function, or whether s/he wants to directly manage the distribution network all the way down to the end user

SUPPLY CHANNEL CHOICES

BACKWARD INTEGRATION CHOICESOutsourcing

Use long-term contracts to assure/guarantee your supply needs

Quasi integrationHold a minority ownership position in your supplier organizations

Tapered integrationSupply yourself with some (but not all) of your own internal needs

Full backward integrationProduce all your own supplies and components internally

DISTRIBUTION CHANNEL CHOICES

FORWARD INTEGRATION ISSUES

Indirect distribution channels There are intermediaries between the producer (the manufacturer) and

the consumer (end user) The challenge is selecting the best channel members to handle product

distribution and delivery for the small business Using agents, quasi and tapered forward strategies are possibilities

Direct distribution channels The manufacturer does not use intermediaries and sells directly to

consumers (full forward integration)

Illustration of Indirect Distribution Channels

Distribution channel partners

are really your customers Distribution channel members are really

the small business owner’s customers, because they are the ones who provide the revenues to the business.

Channel members can be segmented into types...dealers, sales agents, retailers, wholesalers and so forth. Each of these channel members may perform a different function and has different requirements

Multiple Channels of Distribution

Multiple channels enable many customer touch-points or points where products and services can be purchased or serviced, and they enable the customer to take more control of the transaction 1.

Technology has made it possible for companies with multiple channels to gather important customer data across channels that identify new customer needs and provide feedback on current products and services. 1. Stone, M., Hobbs, M. & M. Khaleeli. (2002). “Multichannel Customer Management: The Benefits and Challenges.” Journal of Database Management. 10(1):39.

How to Use the Internet: Four Distribution Strategies

1. functional decomposition: the small business uses the Internet to provide information or display the products, but the customer still makes the final purchase transaction through a distributor.

Becomes a cost center...no direct sales here

Four Internet Distribution Strategies -2

2. cloning: duplicates the small business’s distribution strategy on the Internet...we now have dual channels.

Motel 6 ... You can make reservations via the phone or via the internet

coordination and competition issues

Four Internet Distribution Strategies -3

3. forward integration: bypasses its intermediaries in the channel and sells directly to the customer/end user.

builds stronger relationship with customers able to more quickly meet customer needssaves costs of intermediariesdevelopment of e-commerce is high-costupsets intermediaries...do you still need them?

Four Internet Distribution Strategies - 4

4. strategic industry alliance: complementary businesses join forces to provide a common distribution channel to customers who demand a variety of choices and volume prices

example = MovieLink

requires a lot of coordination among alliessaves on costs, synergisticno single firm has to own/control everythingprovides a variety of products and channels to customers

Intermediaries

1. Suppliers 2. Wholesalers and

Distributors 3. Logistics Firms 4. Agents and

Manufacturer’s Reps

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SuppliersGood PricesGood Quality ... cutting edge

products/suppliesStability ... been in business a long timeReliability

- shipping ... costs and timing- use more than one supplier

Partnership- build close relationship - working together

Wholesalers / DistributorsFind customers and outlets for your

products

Provide...warehousing and storage of productstransportation to retailersadvertising and promotionpackaging and displaystraining of retail sales personnelservice backuprestocking of retailers’ shelves

Logistics FirmsIf you can’t afford your own distribution

center...outsource these services...

Logistics Firms Provide...packing and packagingwarehousinginventory controltransportation and trucking

Agents/Manufacturer’s Representatives

Agents do not buy or hold inventory...but act as brokers between manufacturers and distributors or retailers. The manufacturer only pays a commission on what the agent sells.

A manufacturer’s representative is an independent sales agent paid on a commission who handles the manufacturer’s business in exclusive, specific territories.

Import/Export StrategiesFind the Best Global Market

International trade statistics yearbookAttend foreign trade shows

Export FinancingBanks, internal cash flows, venture capital, prepayment or progress payments from the foreign company making the orderGuaranty from Import-Export Bank, or large deposit from buyer

Letters of CreditA bank document that guarantees a customer’s bank drafts up to a certain amount for a limited time

Foreign Agents, Distributors, Trading CompaniesAgents buy goods at discount, then sell and collect on their own

Choosing a Freight Forwarder

A freight forwarder handles all aspects of delivering the product to the customer.

The ability to fill a shipping container to capacity is crucial to reducing costs

Freight forwarders prepare shipping documentsIncludes bill of lading (contract between shipper and carrier) exporter declaration form (details contents of the shipment)present documents to the company’s bank for collection

Pricing decisions...do you have a strategy?

We just charge the same amount as everybody else...that must be the correct price...

1. Cost-based versus market-based pricingcharge to cover costs plus add something for profitfocus on demand, competitor prices, and your marketing strategy

2. Reactive versus proactiverespond quickly to competitor price changes by matching themnovel or aggressive pricing moves; pioneering price moves

3. Standardization versus flexibility. charge everyone the same price, regardless of competitor’s pricingprices vary to meet the needs of specific customers or different contexts

What Does your Price Tell Consumers About Your Product/Service?

Strategies: Keystoning: double the costs to set price…100%

markup Cost plus: cost plus profit margin Penetration: low price early in PLC to gain market

share Skimming: high price early in PLC before

competitors enter market Meet or beat the competition: constant changes

in priceMark-ups

Cost x Markup% = Markup $30. x 50% = $15.00 … = Selling Price = $45.00

Pricing Structure It is important to understand what customers are willing to pay based on the perceived value of the product.

Long-term Pricing Objectives

The company must have a long-term pricing objective ... What is it?

Consider...The level of sales you want to achieveThe profit margin you seek

Long-term goals are statements of position in the market

Examples of Long-term Pricing Objectives

Be the lowest-priced supplier in the industry Create the widest price range Maximize penetration of a market Create price leadership in the industry Position the firm in a specific market

segment Obtain a specific market share Maximize profits

Four Pricing Conditions - 1New Product Pricing

You can price high (Premium Pricing) relative to the market...at least for a time because there isn’t any competition yet

Price skimming - charge the maximum, recover development costsPenetration pricing - low price initially, but raises it as market share builds Experience-curve pricing – start with high price, drops as production costs drop

Competitive PricingLeader pricing – enjoy the greatest market share; they set the pricesParity pricing – constantly adjusts prices to be in-line with competitors Low-price supplier - has superior cost controls, offers low prices & make profits

Four Pricing Conditions - contd

Product Line PricingComplimentary pricing – price the core product low; make profits on accessories, supplies, or services Price bundling – several products bundled together; price set is lower than individual items...but we sell more Customer value pricing – modify the product/service to customer specifications/needs and price accordingly

Cost-based PricingMost common approach ... Ignores market influences and what the customer is willing to pay...just be sure we at least cover our direct costs

Mark-up pricing – Cost-plus pricing; determine actual costs and add something additional for profitRate of return pricing – All prices are set as a percentage of costs; ...example, all book prices are marked up 33% above costs.

Pricing Strategy Increase sales

Lower prices to increase volume sold

Increase market share Lower prices increases volume, thus increasing market share

Maximize cash flow Raise prices and reduce direct costs and overhead

Maximize profit. Raise prices, lower prices and raise volume, decrease overhead

Set up entry barriers to competition Lower prices based on efficiency, economies of scale, keeping overhead low

Define an image Raise prices based on higher perceived quality

Control demand Don’t have enough resources to meet demand, so raise prices

Price TacticsTactics have to do with the actual price that is

assigned to a product or service.

Price is often used to convey positioning. For example: a price of $3.99 suggests a bargain; a price of $4.00 does not.

Rebates, coupons, discounts, and promotions are all tactics to drive the customer to the product based on price.

“Make your product easier to buy than your competition, or you will find your customers buying from them, not you.”

-Mark CubanOwner of the Dallas MavericksChairman of HDNet and 2929 Entertainment

Warning Signs of Pricing Problems

Prices are always based on costs. Different people in the organization set

prices with no agreement among them. Prices always follow the competition. New prices are generally a percentage

increase over the previous year’s prices. Prices to all customers are the same. Discounts are standardized.

Promotion Building relationships and repeat sales Using advertising + publicity to get

your market message to your customer

Advertising (…purchased) Billboards, radio and TV ads, magazine ads

Publicity and Public Relations (…free) News media articles, stories on TV, etc.

The Promotional Mix Advertising

Publicity

Sales Promotion

Personal Selling Tactics

Budgeting for PromotionEstimating the funds needed for promotion...

A percentage of salesIn this industry, firms spend about 5 percent of their sales on the promotion effort

Keeping up with the competitorsEntrepreneurs may copy the promotional mix of their competitors and spend what they spend. This may not be necessary if the entrepreneur has a defined niche that is not being served

Calculating what is needed to achieve the company’s goalsSome products and services require more promotion than others to create awareness. A brand new product requires a lot more promotional effort to create awareness and educate customers

Advertising to Reach Customers

Companies advertise to create product awareness or company awareness

Good advertising attracts the right customers and builds an excellent image

If done effectively, advertising also increases sales

Three advertising media choices...

Print MediaNewspapers, magazines, direct marketing (mail, catalogs, coupons, internet), yellow pages, signs

Broadcast MediaRadio, television, cable TV, infomercials

Miscellaneous MediaT-shirts, caps, mugs, pens, in-store demonstrations, videos, seminars

Advertising

1. Target the correct audience2. Present a positive picture3. Reflect the vision and culture of the

company4. Ask for the sale

To be successful, advertising must accomplish four things:

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Promotional Ideas Advertising specialties Banner ads Billboards Blogs Broadcast media Brochures Business cards Catalogs Coupons Direct mail Directories Flyers

NetworkingNewslettersPrint mediaPromotional clothingPublic speakingSamples/demosSpecial eventsSponsorshipsTelemarketingToll free numbersWeb sites

Publicity Use media to generate publicity Mail/fax pitch letter and press release Pitch letter “pitches” the story of your

business Press release provides facts to answer:

who, what, when,where, why, how? Follow up with phone call

Philanthropy Giving money, time, advice, skills to help

minimize or eliminate social, environmental or political problems

Foundations are nonprofits that raise funds for charities that assist people, animals, the environment, and other causes.

Many philanthropic foundations were started by entrepreneurs.

Philanthropy creates goodwill: reputation, name recognition, positive customer relations

Cause-Related Marketing Inspired by commitment to a social,

environmental or political cause Simple way to work philanthropy

into your business Examples:

1. Donate fixed % of revenue to charity2. Donate product/service3. Encourage employees to volunteer

Marketing as a Fixed Cost Marketing costs are money that is

needed to drive sales Should not be budgeted as a percent of

sales Calculate Breakeven Units to determine

whether the business is selling enough to cover the marketing costs Breakeven units = Fixed Costs (per month or per

year)/Gross profit per unit