Marketing 101 For Business Plans Presented by: Leslie Kendrick JHU Marketing Lecturer January 2007
Presenter’s Bio: • B.A., Advertising, M.B.A., Marketing. • 12 years as a marketing practitioner. • Worked in Sales and Marketing Management for 2 major publishers (Harper & Row, LWW Medical) and a major apparel manufacturer (Londontown). • 3 years experience in business-to-business sales support (sold to pharmaceutical companies). • 5 years experience reviewing JHU student business plans, attending finalist presentations & hearing judges’ feedback!
Test Your Marketing “IQ” Answer True or False to the following statements: 1) __“Marketing” and “selling” are the same thing. 2) __The best way to sell a product is “direct” (without an intermediary). 3) __My “target market” and “buyer” are always the same. 4) __Devoting most of my promotion budget to magazine advertising will guarantee my success. 5) __Budgeting $30,000 for the “marketing” budget, without breaking down this amount by promotional vehicle is sufficient. 6) __Budgeting $50,000 for a sales rep. is more than enough. 7) __The sales process is similar for consumer and business products. 8) __I can develop a marketing plan and budget without quantifying the size of my target market. 9) __I can convince the judges of the feasibility of my idea and its market potential without incorporating end-customer research or channel research into my plan.
Scoring Your Marketing “IQ” Test • If you answered “TRUE” to any of the statements on the prior slide, you need to stay for this presentation! • If you answered “FALSE” to ALL of the statements and you can explain why they are false, you’re ready to go without listening to me for the next 30 minutes!
Marketing 101: Outline By the end of this talk, we will have answered the following questions: • What is marketing? • What is market segmentation and how do I use it to better quantify my target market? • What is a SWOT analysis and how will it help me? • How is marketing to consumers versus businesses different? • What is the marketing mix and what “mix” decisions do I have to make, budget for? • What are the differences between the promotional mix elements in terms of characteristics, costs, response rates? • What type of market research should I conduct to support my business idea (that is quick, cheap, but credible)?
What Is Marketing? American Marketing Assn. Definition: “The process of planning and executing the conception, pricing, promotion an distribution of ideas, goods and services to create exchanges that satisfy individual and organizational goals.” Source: Marketing, 7th ed., by Lamb et al, 2004.
What Is Market Segmentation? Definition: “The process of dividing a market into meaningful, similar and identifiable groups.” 3 Reasons That Segmentation Is Important: • Enables marketers to identify customers with similar needs, buying behavior. • Allows for the tailoring of the “Marketing mix” to specific segments (also cost effective). • Consistent with marketing concept of satisfying customer wants and needs. Source: Marketing, 7th ed., by Lamb et al., 2004.
What Is Market Segmentation (con’t)? Segmentation for Consumer Markets: • Geographic: by region, country, climate. • Demographic: by age, gender, income, ethnicity, family lifecycle (single, married). • Psychographic: by personality or lifestyle. • Benefit: by the benefits customers seek. • Usage-rate: by the amount of product bought or consumed. Source: Marketing, 7th ed., by Lamb et al, 2004.
What Is Market Segmentation (con’t)? Hypothetical Example: Product: Device for Ob/Gyn Physicians Total Market: 39,071 ob/gyns (U.S. only) Market Segmentation: Ob/gyns under age 55 (demographic) Target Market: Subset of 39,071--need to quantify! Source: AMA Ob/gyn counts from MMS, Inc. 2006 Healthcare List Catalog.
What Is Market Segmentation (con’t)? Segmentation for Business Markets: • CompanyCharacteristics—location, type of company, size of company, product use. • BuyingProcesses—purchasing criteria such as price, quality, service. • Customer Relationship—the type/significance of the relationship they have with their customer. Source: Marketing, 7th ed., by Lamb et al, 2004.
What Is Market Segmentation (con’t)? Hypothetical Example: Product: Device for Residential Homes Total Market: 69,000 “builder” members of Ntl. Assn. of Homebuilders Market Segmentation: Luxury home builders (company type) Target Market: Subset of 69,000--need to research & quantify Source: National Association of Home Builders counts from web site (www.nahb.org), 2005.
What Is A SWOT Analysis? • A “snapshot” of your company’s currentinternal strengths & weaknesses (management, personnel, financial marketing, manufacturing, R&D) AND • Your assessment of future opportunities and threats relating to all the environments external to the firm (technological, social, political/legal, economic, competitive, natural). Source: Strategic Marketing, 8th ed., Kerin & Peterson, 1998 and Strategic Marketing for Nonprofit Organizations, 5th ed., Kotler & Andreason, 1996.
How Does A SWOT Help Me? • A strong SWOT analysis allows you to leverage off the internal strengths of the company and match them to opportunities in the external environment. • SWOT Handout.
What Is The “Marketing Mix”? Also known as the 4 “P”s, the marketing mix consists of: • Product • Price • Promotion • Placement/Distribution
What Is The “Marketing Mix”? Product: • Defined as a good, a service, an idea (“recycle”), or any combination of these. • Business products & consumer products. • Considerations—brand name, packaging, labeling, trademark, warranties. Source:Marketing, 7th ed., by Lamb et al, 2004.
What Is The “Marketing Mix”? Price: • Revenue (price times units sold) is what pays for every activity of the company: production, finance, sales, distribution, etc. • Key: choose a price that will earn a fair profit, and that equates to the perceived value to target customers. Source:Marketing, 7th ed., by Lamb et al, 2004.
What Is The “Marketing Mix”? Pricing Objectives: • Profit Oriented --Profit Maximization: setting prices so that total revenue is as large as possible relative to total costs. --Satisfactory Profits: a “reasonable” level of profits (for stockholders & management). --Target Return On Investment, ROI (also called “return on assets”): measures management’s effectiveness in generating profits with available assets. Dupont and GM use target ROI as their main pricing goal. ROI=Net profit after tax divided by total assets. Source:Marketing, 7th ed., by Lamb et al, 2004.
What Is The “Marketing Mix”? Pricing Objectives: • Sales Oriented --Market Share: a company’s product sales as a percentage of total sales for that industry (reported in units or dollars). But some companies like P&G switched from market share to ROI objectives when they saw that a large market share doesn’t always equate to large profits. --Sales Maximization: Firm ignores profits, competition and the environment as long as sales are rising. Used when strapped for funds and need to generate maximum cash in short run. Examples: selling excess inventory at discount (post holiday season) or selling old model cars at year-end. Source:Marketing, 7th ed., by Lamb et al, 2004.
What Is The “Marketing Mix”? • Status Quo Pricing --Seeks to maintain existing prices or meet competition’s prices. --Requires minimal planning. --Often occurs with firms competing in an industry with an established price leader. Source:Marketing, 7th ed., by Lamb et al, 2004.
What Is The “Marketing Mix”? Other Pricing Considerations: • Elasticity of Demand --Elastic Demand is when consumer demand is very sensitive to changes in price. --Inelastic Demand is when an increase or decrease in price will not significantly affect demand. --Factors affecting elasticity include: availability of substitutes, price relative to purchasing power, product durability, a product’s other uses. Source:Marketing, 7th ed., by Lamb et al, 2004.
What Is The “Marketing Mix”? Cost Determinants of Price: • Markup pricing --Popular with wholesalers and retailers. Considers the cost of buying the product from the producer, plus amounts for profit and expenses not otherwise accounted for. The difference between the retailer’s cost and the selling price is the gross margin. --Advantage is its simplicity. Disadvantage is that it ignores demand and may result in over- or under-pricing. Source:Marketing, 7th ed., by Lamb et al, 2004.
What Is The “Marketing Mix”? • Profit Maximization Pricing --Occurs when marginal revenue equals marginal cost. • Break-Even Pricing --Determines what sales volume must be reached before the company breaks even (total costs=total revenue). --Advantage: tells the firm how much it must sell to break even and how much profit can be earned if a higher sales volume is obtained. --Limitations: some costs are hard to classify as fixed or variable & also, this method ignores demand. Source: Marketing, 7th ed., by Lamb et al, 2004.
What Is The “Marketing Mix”? Choosing a Pricing Strategy: • Price Skimming --Charging a high introductory price. --Used when the product is perceived by the target market as having unique advantages. --Allows management to recover its product development costs. --But as a product moves through its lifecycle, the firm may lower its price to reach larger market segments. Source:Marketing, 7th ed., by Lamb et al, 2004.
What Is The “Marketing Mix”? Choosing a Pricing Strategy: • Penetration Pricing --Charging a low price initially to reach the mass market. --Goal is to capture a large share of a large market. Often seen when large market share is the pricing objective. Effective in a price sensitive market. --Disadvantage: lower profit per unit, so requires a higher volume of sales to reach break-even.
What Is The “Marketing Mix”? Promotion: • Consists of 4 elements known as the Promotional Mix: --Advertising (print, TV, radio, internet) --Public Relations (press releases) --Sales Promotion (contests, rebates) --Personal Selling (face-to-face, sales rep.) Source: Marketing, 7th ed., by Lamb et al, 2004.
What Should My Total Promotion Budget Be? Factors to consider: • What your objectives are in terms of sales the first 3-5 years (i.e. sales should be derived from response from marketing vehicles chosen such as direct mail, personal selling, trade shows). • What industry competitors are spending.
What Should My Total Promotion Budget Be? Sample Marketing Budgets: • Medical Journals--$30,000 to $50,000/yr. Higher the first 3-5 yrs. & for publications with greater circulation potential (larger medical specialties). • MedicalDevices—3%-6% of net sales. • Other (AMA list serve executive feedback): $30,000-$800,000 per year for products ranging from a food ingredient to a veterinary clinic to an information service/database business. Sources: Senior Product Manager, Medical Device Company, President, Market Experts Inc. and Business Development Manager, Dow Corning Corporation.
Costs for Promotion Vehicles Typical Costs For Selected Vehicles: • Advertising (used to create awareness) --Business 2.0, full-page color ad costs $63,500 (one-time insertion). --Obstetrics & Gynecology, full-page color ad costs $6,365 (one-time insertion). Sources: Rate information extracted from 2006 Web Site Media Kits for Business 2.0 and Obstetrics & Gynecology Journal.
Costs for Promotion Vehicles • Direct Mail (to consumers) --Cost averages .55 cents/piece or more (Ann Zeller, V.P., Direct Mktg. Assn.). Includes printing, copywriting, list rental & postage. --Response rates average 1%-1.5% (of total number of pieces mailed).
Costs for Promotion Vehicles • Direct Mail (lead generation for B to B) --Response rate for customer data form mailing to develop opt-in list (8-10%). This rate reflects the use of an incentive (additional cost). Source: D.B., Owner, Simply Direct (a B to B marketing consulting firm).
Costs for Promotion Vehicles • E-Mail Campaigns --Cost averages 9 cents per contact (Zeller, DMA), but you must first build a list (“spam” issue).
Costs for Promotion Vehicles • Trade Shows/Exhibits (lead generation for B to B sales) --Space rental average is $14.12/square foot; but can be as high as $42.85 (according to Tradeshow Week’s 1998 survey). --Average cost for 10 x 10 ft. booth is $1,500-$2,700. --Add another $2,600 for exhibit transportation, drayage, electricity, booth table and booth lighting. --Travel, food & hotel expenses for company Sales Reps not included above. --Cost to mail (prior to exhibit) to prospects, registered attendees not included. This is strongly recommended in order to attract traffic to your booth. --Cost for brochure or catalog to hand out at book not included. Depends on quantity, use of color, type of printing. Source: M.Ferelli., V.P. Marketing & Sales, Two Hands (a jewelry company), 2004.
Costs for Promotion Vehicles • Personal Selling --Average total compensation is $110,206 ($70,553 base salary plus $39,653 in bonus/commission), with Top Sales Executives earning $145,978. Excludes healthcare & benefits costs. Source: “The 2005 Compensation Survey”, Sales & Marketing Management, May 2005, p. 25.
Costs for Promotion Vehicles • Web Site (awareness & lead generation) --Cost of Dreamweaver is $199 (Amazon.com); add cost of web site developer’s time. --Hiring an outside firm much more costly and total cost, plus monthly costs vary based on site’s complexity and functionality.
Costs for Promotion Vehicles • Google AdWords --AdWords ads are displayed along with search results on Google, as well as on search and content sites (AOL, Earthlink & others). --Cost per click pricing which you set (1 cent to $100 per click). --Click through rate not guaranteed (for an expert’s tips, see Nielsen’s “Designing Web Ads Using Click-Through Data”. Source: Google web site, 2006.
Costs for Promotion Vehicles • Google AdSense --AdSense is a quick way for website publishers to display relevant Google ads on their site’s content pages and earn money. --It also allows web site publishers to provide Google search to their site users and earn money by displaying Google ads on the search results page. --Advertisers pay when users click on ads (CPC), or when their ad is shown on your site (impressions). You earn a portion of the amount paid for either activity on your site. Source: Google web site, 2006.
What Is The “Marketing Mix”? Placement (Distribution): • For consumer products and B to B products, there are 2 possibilities: --Direct (product sold by producer to consumer). Includes direct sales via the Internet. --Indirect (product sold by producer to intermediary, who then sells to consumer).
What Type of Market Research Should I Conduct? Survey Research (quantitative): • Use a non probability quota sample (quicker and cheaper). • Quota samples are selected so that demographic characteristics of interest are typically represented in the sample in the same proportions as they are in the population. • Refer to supplemental handout regarding market research. Source: Contemporary Market Research, 3rd ed., McDaniel & Gates, 1996.
What Type of Market Research Should I Conduct? One-on-One Interviews (qualitative): • Allows for probing in specific areas due to 2-way communication. Source: Contemporary Market Research, 3rd ed., McDaniel & Gates, 1996.
What Type of Market Research Should I Conduct? Who To Target For Research: • Potential customers (target market)--consumers or businesses. • Potential buyers (often different than customers or “users”). • Potential channel members. Information Needed: • Proof of viability of idea/market. • Feedback on 4 Ps, including media consumption (i.e. what consumer/trade journals are read, internet sites visited, list serve affiliations). • Association memberships and trade show attendance. • Buying process, duration, and decision makers.
Marketing 101 For Business Plans Questions?