Entrepreneurship Chapter 5

Entrepreneurship Chapter 5

Market Your Business

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Develop Marketing Plan

Section 5-1 • Goals:

– Explain the importance of marketing a business.– Discuss how to develop a marketing strategy for

a business.– Describe what information is included in a

marketing plan.

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What is Marketing?

• Marketing: is all of the processes used to determine and satisfy the needs of customers and the company.

Planning Pricing Promoting Distributing Selling

–Why is it important? It’s the process needed to reach the TARGET MARKET.

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• Marketing Concept:–Uses the needs of customers as

the primary focus of a product or service during the stages of:• Planning • Production • Distribution • Promotion

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Marketing Concept

• A successful marketing concept will:

– Identify what will satisfy the customers’ needs and wants

– Develop and market products or services that customers consider better than other choices

– Operate profitably

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Marketing Mix

Marketing Mix– Helps meet customer needs and enables the

business to earn a profit.

– reaching target market through a blend of:

• Product Chapter 5• Price

• Distribution Chapter 6• Promotion

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The Marketing Strategy

• Marketing Strategy– a plan that identifies how business goals will

be achieved by outlining:• product introduction or innovation• pricing• distribution• promotion• projected profitability• sales or market share

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The Marketing Strategy

• Marketing Goals Should:– consistent with overall goals for your business– be achievable with your available resources– reflect short, medium and long-term goals– written to follow SMART guidelines (CH1)

• S - Specific• M - Measurable• A - Attainable• R - Realistic• T - Timely

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Short Term Goals

• Achievements for the next year• Can be stated in terms of:

– number of customers– level of sales– level of profits

• Helps determine how to target your marketing

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Medium-Term Goals• Achievements for the next two to five years• Strategy determined largely by short term

– Important to make sure your marketing strategy will help you achieve medium too.

Long-Term Goals• Achievements for a 5, 10, or even 20 years.• Long-term goals can help define current

marketing plans.

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Checkpoint Questions

• Why is goal setting important when developing a marketing strategy?

– Establishing goals ensures that the marketing you do today fits in with the total vision you have for your business tomorrow.

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Write Your Marketing Plan

• After goals & marketing strategy determined

• A marketing plan will define:– your market– your customers and competitors– outline a strategy for attracting & keeping customers– identify & anticipated changes

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Write Your Marketing Plan• Written Marketing Plan:

– helps determine whether it is solid and consistent – may help obtain financing

• Becomes a guiding document to operate your business.

• Can always make adjustments to marketing

• Marketing Plan becomes part of Business Plan

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Investor will expect answers to the following questions:

1. What product will I offer?

2. Who are my prospective customers?

3. Is there a constant demand for this product?

4. How many competitors are providing the same product?

5. Can I create a demand for the product I want to offer?

6. Can I compete effectively in price, quality and delivery for my product?

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To Answer Those Questions The marketing plan must include

information on the following topics:1. Product or Service 2. Target Market3. Competition4. Marketing Budget5. Business Location6. Pricing Strategy7. Promotional Strategy8. Distribution Strategy

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• Marketing plans should include performance standards that measure effectiveness.

• Actual results should be compared to performance standards quarterly.– Am I meeting sales forecasts?– Is my promotional campaign reaching the target

market?– Is my company doing everything it can to meet

customers’ needs?– Is it easy for my customers to locate my product

and is it competitively priced?

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Checkpoint Question

• Why is it important to put your marketing plan in writing?

– Helps you determine whether it is solid– All parts are consistent– Guiding document to operate business– Becomes part of your business plan– May help obtain finances

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The Marketing Mix - ProductSection 5-2

• Goals:– Explain how the marketing concept affects

decisions regarding the product mix.

– Define and describe the importance of product features, branding, and positioning.

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Marketing Concept & The Product

• The Marketing Concept: – The belief that the wants and needs of

customers are the most important consideration when developing any product or marketing effort.

• The U.S. market is consumer-driven.– Consumers more educated– Competition increased (Global)

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• Product Mix: the different products and services a business sells

• Entrepreneurs may carry some products that are not profitable because they provide a convenience for customers.

• Often a small % of the product selection makes up the majority of sales revenue.

Product Mix5.1

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• How does the marketing concept affect decisions made about the product mix?

– When applying the marketing concept, you will select a mix of products that you feel will most appeal to your target customers.

Checkpoint Question

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• Consumers buy a product because it meets their buying needs.

• But there is more to a product than many consumers may realize. Companies spend a lot of time developing:

Features • Branding • Packaging Labeling • Positioning

Development of Features,Branding & Positioning

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Selecting Product Features

• Features: product characteristics that will satisfy customer needs including:

Color • Size • Quality • Hours Warranties • Delivery • Installation

• The target market should be considered when selecting product features.

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Branding, Packaging & Labeling • Branding: the name, symbol, or design used to

identify your product

• Package: the box, container, or wrapper in which the product is placed

• Label: where information about the product is given on the package

• The brand, package & label you choose for a product helps differentiate it from others.

Makes your product stand out from the rest!5.2

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Position Your Products or Services

• Different products/services within the same category serve different customer needs.

• Examples: Honda & BMW– Both Automobiles (transportation)– Positioned very differently

• Positioning: creating an image for the product in the customer’s mind

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Position Your Products or Services

• Businesses position a product with the customers in mind.

• Positioning can focus on:– Features– Price– Quality

• BMW – Desire high quality and status• Honda – Inexpensive family safe car

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Checkpoint Question

• Why are product features, branding and positioning important?

• Product feature, branding and positioning:– make a product “stand out” from others– differentiate it in the market.

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The Marketing Mix - PriceSection 5-3

• Goals:– Identify pricing objectives for a business.– Calculate the price for products using various

methods.– Discuss factors to consider when pricing

services.– List and describe various pricing techniques.

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Set Pricing Objectives

• Price– Actual amount a customer pays for a product

– Needs to be LOW enough that customers buy from you and not from your competitors

– Needs to be HIGH enough so your revenues will exceed your expenses

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Price Strategy• Objectives for a pricing program should be

established prior to selecting a pricing strategy.• Objectives might include:

• maximize sales• discourage competition• establish an image• increase profits• attract customers

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Return on Investment• Investment

– the costs of making and marketing a product• Return on Investment (ROI)

– amount earned as a result of the investment• usually expressed as a percentage

• Example – Smoothie Stand– Invest $5000, want a 15% ROI (5000x.15=750)– You need to price your product to earn $750

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Market Share

• Market Share: a business’s percentage of the total sales generated by all companies in the same market

• Must know total market for a product in order for market share to be determined.

Amount of Sales ÷ Total Market Size = Market Share$192,500 ÷ $1,750,000 = 11%

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Market Share• Your market share will depend on the level of

competition in your market.

• If you create a market for an entirely new product, your market share will be 100%

• Multiple ways to increase market share including:– lowering prices – advertising and promotion – attract more customers– networking with potential customers – networking: establish informal ties w/ people who can

help the business grow – attend trade shows meetings

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Checkpoint Question

• Why is it important to determine pricing objectives before pricing goods and services?

• You must decide if you want to:– maximize sales– increase profits– discourage competition– attract customers – establish an image

• Your price must help you meet the determined objectives.

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Determine a Price for a Product

• Once pricing objectives have been determined Determine your Price

– There is usually more than one price that can be charged for a product.

– Pricing may be based on:• Demand• Cost• Amount of Competition

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Demand-Based Pricing

• Demand-Based Pricing: pricing that is determined by how much customers are willing to pay for a product or service

• Survey customers to determine what they would be willing to pay for a product.

• The highest price identified is the maximum price that can be charged.

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Cost-Based Pricing

• Cost-Based Pricing: determined by using the wholesale cost of an item as the basis for the price charged

– Markup Prices– Markdown Prices

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Cost-Based Pricing

• Markup Price: determined by adding a % amount to the wholesale cost of an item

Markup Amt = Wholesale cost × Percentage markupRetail Price = Wholesale cost + Markup amount

• Markdown Price: determined by subtracting a percentage amount from the retail price

Markdown Amt = Retail price × Percentage markdown

Markdown Price = Retail Price - Markdown amount

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Competition-Based Pricing

• Competition-Based Pricing: pricing that is determined by considering what competitors charge for the same product

• What does your competitor charge?– Charge the same price?– Charge slightly more?– Charge slightly less?

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Checkpoint Question

• List three methods for determining the price to charge for a product.

• Three methods:• Demand-Based Pricing• Cost-Based Pricing• Competition-Based Pricing

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Price a Service

• To set a price for a service, you must consider the following:

– cost of items used in providing the service

– amount of time required to produce the service

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Time-Based Pricing

• The amount of time it takes to complete a service will be the basis for determining the price of the service.

• Providers must decide whether the cost of materials will be:– included in the price– listed as a separate charge

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Time-Based Pricing Examples

• Plumber – charges $100/hr– completes a job in an 1 ½ hours– $100 x 1.5 = $150

• Hair dresser– Cost of a hair highlight included the hair

stylist’s time and the price of materials

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Bundling

• Bundled Pricing– when all services are combined under one

charge

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Checkpoint Question

• Which pricing method would be the best for a housepainter to use to price services?

• And Why?

• Would probably use time-based pricing

• But might charge separately for paint & materials.

• Competition-based pricing may also be used.

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Pricing Techniques

• Pricing can make or break a business.• Pricing techniques may change over time.

1. Introductory Pricing2. Psychological Pricing3. Discount Pricing

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#1 ~ Introductory Pricing• At product introduction, sale will be low,

marketing costs high and earn little, if any, profit

• Price Skimming: – used for products that are new and unique– high price charged to cover product development costs– Competition with similar product will lower cost

• Penetration Pricing:– low intro price charged to build a strong customer base– low price also discourages competition

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Psychological Pricing

Psychological Pricing: certain prices have animpact on how customers perceive a product

– used most commonly in retail

Techniques used include the following:1. Prestige Pricing

• a high price to create a feeling of superiority (status)

2. Odd/Even Pricing• prices ending in odd numbers are perceived to be bargains

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Techniques Continued…

3. Price Lining• Offering different prices for a specific category of

products based on specific features and qualities4. Promotional Pricing

• temporarily offering lower prices to increase sales (limited-time sales)

5. Multiple-Unit Pricing• pricing items in multiples (10 for $10)• consumers buy more if they perceive a bargain

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Discount PricingDiscount Pricing: offers customers a reduced price

– encourages purchases

Techniques used include the following:1. Cash Discounts

• encourages early payment of invoices • 2/10, net 30 ~ 2% discount if paid within 10 days, full due in 30

2. Quantity Discounts (volume discounts)• offers lower prices based on the purchase of a large quantity

3. Trade Discount• when a manufacturer offers a discount to wholesaler or buyer

in the same trade4. Seasonal Discounts

• used to sell seasonal merchandise out of season

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Checkpoint Question

• Name two techniques used in psychological pricing and provide an example of each.

1. Prestige Pricing2. Odd/Even Pricing3. Price Lining4. Promotional Pricing5. Multiple-Unit Pricing

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Checkpoint Question

• Name two techniques used in discount pricing and provide an example of each.

1. Cash Discounts2. Quantity Discounts 3. Trade Discount4. Seasonal Discounts