Entrepreneurship

Entrepreneurship Chapter 5 Building the Opportunity: Developing the Right Marketing Mix

Marketing an Entrepreneurial Company Marketing Plans try to build customer relationships Introduce the company and its products Create market awareness and positioning Introduce new products and services Grow 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 Ps • Product • Price • Place • 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 • Packagingand Labeling • Another way to get attention and to differentiate your product...a form of advertising and promotion Getty Images

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. Producea limited amount of product and sell it in a defined geographic region to determine if the product positioning is correct. Getty Images

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.

Branding A 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 benefitsto the customer, such as convenience, price, level of quality, and features. • Highlight the company philosophy.... “Our customers come first with us.” • Be distinctive and attractiveenough that customers can recognize the product from the package design alone without having to read anything. • Use safe and recyclable materialswherever 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 Chain Strategically, 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 CHOICES Outsourcing Use long-term contracts to assure/guarantee your supply needs Quasi integration Hold a minority ownership position in your supplier organizations Tapered integration Supply yourself with some (but not all) of your own internal needs Full backward integration Produce 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 transaction1. • 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 • 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. • www.realtor.com Becomes a cost center...no direct sales here

Four Internet Distribution Strategies -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 • 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 needs saves costs of intermediaries development of e-commerce is high-cost upsets intermediaries...do you still need them?

Four Internet Distribution Strategies - 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 allies saves on costs, synergistic no single firm has to own/control everything provides a variety of products and channels to customers

Intermediaries • Suppliers • Wholesalers and Distributors • Logistics Firms • Agents and Manufacturer’s Reps Getty Images

Suppliers Good Prices Good Quality ... cutting edge products/supplies Stability ... been in business a long time Reliability - shipping ... costs and timing - use more than one supplier Partnership - build close relationship - working together

Wholesalers / Distributors Find customers and outlets for your products Provide... warehousing and storage of products transportation to retailers advertising and promotion packaging and displays training of retail sales personnel service backup restocking of retailers’ shelves

Logistics Firms If you can’t afford your own distribution center...outsource these services... Logistics Firms Provide... packing and packaging warehousing inventory control transportation and trucking

Agents/Manufacturer’s Representatives Agentsdo 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 Strategies Find the Best Global Market International trade statistics yearbook Attend foreign trade shows Export Financing Banks, internal cash flows, venture capital, prepayment or progress payments from the foreign company making the order Guaranty from Import-Export Bank, or large deposit from buyer Letters of Credit A bank document that guarantees a customer’s bank drafts up to a certain amount for a limited time Foreign Agents, Distributors, Trading Companies Agents 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 documents Includes 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... • Cost-based versus market-based pricing charge to cover costs plus add something for profit focus on demand, competitor prices, and your marketing strategy • Reactive versus proactive respond quickly to competitor price changes by matching them novel or aggressive pricing moves; pioneering price moves • Standardization versus flexibility. charge everyone the same price, regardless of competitor’s pricing prices vary to meet the needs of specific customers or different contexts

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 price • Mark-ups • Cost x Markup% = Markup • $30. x 50% = $15.00 … = Selling Price = $45.00 What Does your Price Tell Consumers About Your Product/Service?

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 achieve The 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 - 1 New 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 costs Penetration pricing - low price initially, but raises it as market share builds Experience-curve pricing – start with high price, drops as production costs drop Competitive Pricing Leader pricing – enjoy the greatest market share; they set the prices Parity 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 Pricing Complimentary 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 Pricing Most 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 profit Rate 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 Tactics Tactics 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 Cuban Owner of the Dallas Mavericks Chairman 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 Promotion Estimating the funds needed for promotion... • A percentage of sales In this industry, firms spend about 5 percent of their sales on the promotion effort • Keeping up with the competitors Entrepreneurs 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 goals Some 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 Media Newspapers, magazines, direct marketing (mail, catalogs, coupons, internet), yellow pages, signs • Broadcast Media Radio, television, cable TV, infomercials • Miscellaneous Media T-shirts, caps, mugs, pens, in-store demonstrations, videos, seminars

Advertising To be successful, advertising must accomplish four things: • Target the correct audience • Present a positive picture • Reflect the vision and culture of the company • Ask for the sale Getty Images

Advertising specialties Banner ads Billboards Blogs Broadcast media Brochures Business cards Catalogs Coupons Direct mail Directories Flyers Networking Newsletters Print media Promotional clothing Public speaking Samples/demos Special events Sponsorships Telemarketing Toll free numbers Web sites Promotional Ideas

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: • Donate fixed % of revenue to charity • Donate product/service • Encourage employees to volunteer

Entrepreneurship