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In unit five, we'll cover chapter 7--
The Marketing Plan, chapter 17--
the promotional planning approach for our business
plan, and then chapter 18-- global opportunities for small
businesses.
These topics all kind of hang together.
That's why we group these three chapters together--
because there's a lot of commonality, a lot of overlap
between the topics.
So let's get into these chapters and talk about them
just for a little bit.
Today we're going to talk about Chapter 7--
The Marketing Plan.
Again, this is a very important
chapter in the course.
It's probably the number-two chapter in importance for what
we're talking about.
You'll have me nagging on you all semester long about the
marketing plan.
As you put your business plans together--
each of your teams--
the one area that you will probably drag the most on is
the marketing plan, because it's the most
difficult to put together.
So let's talk a little bit about the marketing plan.
Small business marketing sometimes is a little bit
different than, I've got a very large, gigantic business.
But let's just define it this way.
It's any business activity that directs the creation,
development, and delivery of a bundle of satisfaction as a
product or service from the creator to the targeted user
to satisfy the targeted user.
So let's wrap that up.
Small business marketing is the process of creating a
product or service and getting it into a user's hand who
benefits from it.
Small business marketing activities include identifying
the target market--
again, very difficult to do sometimes--
determining what that potential market has to spend
or to invest in my product or service, and preparing,
communicating, and delivering that bundle of satisfaction--
that product or service-- to that market.
Pardon me.
We talk about three different philosophies in this course of
marketing--
production-oriented, sales-oriented, and
consumer-oriented.
In a production-oriented philosophy, we're primarily
focused on producing--
just manufacturing as much as we can.
And we'll worry about the other stuff as we need to--
like distribution and like advertising and like customer
contacts, like a lot of other things.
So it's a focus on the production
side just a bit more.
Sales-oriented is where we favor sales over production
and efficiencies and customer preferences.
And you've seen companies like that.
Consumer-oriented--
which is the way we want to address marketing in this
course-- we want to be consumer-oriented when we
start talking about marketing.
All your marketing efforts begin and
end with your customers.
In other words, the customer drives our market.
And the customer is the one that we're going to try to
please with whatever we're selling--
our product or service.
So the focus in a consumer-oriented case is on
the customer-- on the consumer's needs and their
satisfaction.
Now there are some reasons where you would not adopt a
consumer orientation or a consumer--
a customer focus.
In a case where there's no competition in your
marketplace, then you don't necessarily have to focus on
the customer that much if you're
the only person competing.
But let me tell you this.
Anytime a company tells me that they have no competition,
then they lose a lot of credibility with me.
Because, irrespective of what company you have or what
market you're in, sooner or later, if you don't identify
any competition now, you will have some competition.
So you have to plan for that.
If you have a production focus, it's sometimes
difficult to have a consumer orientation.
And the reason why is that most of the time a production
focus has people or a management team that's not all
that concerned with marketing and marketing skills or don't
have marketing skills.
And if you have a focus on the present-- we're going to
maximize everything for right now-- then there's no sense in
trying to have a consumer orientation ever.
Because a consumer orientation involves time and it involves
relationships.
This chart right here is a very important chart because
in one little diagram I can tell you everything that goes
into a marketing plan.
You can see here there's three major components of a
marketing plan--
I'm sorry-- three major activities that go into a
marketing plan-- marketing research, sales forecasting,
and market segmentation.
Those are kind of the exterior things that go into a
marketing plan.
But what is a marketing plan?
Well, look at that book diagram there.
It says a marketing plan has three components to it.
It has a market analysis, it has a competition or a
competitive analysis, and it has a marketing strategy.
And inside the marketing strategy, you
talk about four things--
the product and/or services you're offering, the
distribution plan that you're going to put into place, how
you're going to promote your product or service, and the
pricing that you'll have for your product or service.
So those three components with the four sub-components in
number three make up the content of a marketing plan.
The activities that go into it are marketing research, market
segmentation, and sales forecasting.
That's an important element--
sorry-- an important output of the marketing plan.
That is a sales forecast that you will then use to make your
pro forma forecast on your financials.
Very important little chart right here with that
information on it.
By the way, pay attention, because you'll see this again
on subsequent exams coming up.
So what are some marketing research activities?
Well, you want to do marketing analysis.
That's an evaluation of, what is the market?
What kind of segments exist in the market?
What kind of marketing research do I need to do?
And can I do sales forecasting?
So all those activities go into market analysis.
Developing the marketing mix is the combination of product,
pricing, promotion, distribution activities.
We'll look at several examples here in just a moment of a
marketing mix and strategies that you develop around
marketing mixes.
The formal marketing analysis--
I'm sorry-- the formal marketing plan consists of
those three major sections.
Remember, we saw those just a moment ago-- the market
analysis, which consists of the customer profile, and your
sales forecast.
So in the customer profile you identify who your potential
customers are in a target market.
In the sales forecast you typically want to kind of look
at a most optimistic, a most pessimistic,
and then most likely.
So in sales forecasts, you kind of want to look at three
different cases-- two extremes and one in the middle.
And that's a good way to do it, because that gives you
some leeway for your planning.
You can always do
worst-case/best-case plans that way.
Then you want to have a major section called the
competition.
And here you want to look at a profile of your
key management personnel.
Or, I'm sorry, their key management personnel, their
overall strengths and weaknesses--
the SWOT--
the related products being marketed or tested, the
likelihood of competitors' entry into the market that
you're working in.
And so when I'm assessing my competition, I'm doing a
detailed analysis of the competition.
And I want to tell you, don't overlook this section.
It's really important to know who your competition is and
know what their strategy is-- what they're up to.
What are they trying to do?
And don't let them jump out ahead of you
and leave you behind.
Another key section of the marketing plan
is a marketing strategy.
And here you have to deal with any decisions about what the
total product is, whether it be a product or service, and
decisions about what comprises that.
Another major area in marketing strategy is your
distribution.
How am I going to distribute my product or
service to my customer?
A big deal.
I've had some experience there.
And it's much bigger than you think it is.
You have a pricing section where you provide the analysis
or the rationale for how you're
going to set your pricing.
And then you have a promotional section where you
define or you write about how you're going to communicate
the information about your product or service to your
target market.
Then on marketing research--
everybody, I think, knows what that is.
That's the gathering, processing, reporting, and
interpreting of market information.
Very difficult task sometimes to do.
But it's something that needs to be done.
When I talk about outside sources here, outside sources
is the hiring of professional market researchers.
Most of the time, young entrepreneurs do not have the
resources to go hire a professional marketing
researcher.
So you basically have to cobble together your friends
and family and whoever else will work for free and to use
them to do the leg work to gather all of the marketing
information that you need to do your research on what your
market really is.
This area right here-- this whole area of market research
or marketing research--
is a really, really difficult area.
And it's one that most students and people who are
doing business plans kind of shun away from this because
it's such hard work to get it done.
So in marketing research we have several
steps that we take.
We identify the informational need.
What is it that we need to know and why do we
need to know it?
Once we do that, then we begin to look for secondary data.
What is secondary data?
That's data that already exists.
And we have some wonderful tools today to go identify
data like that that exists-- that secondary data.
Then you have to collect primary data.
This is data that nobody else has
collected about your market.
And so you collect data that's unique to your market that
will service or serve as a support for
your business plan.
But then after you collect the data, you've got
to interpret it.
What is it that I have here?
What is the message that this data is
giving me for my market?
Now, there's secondary data and primary data.
Secondary data is data that already exists.
And in most cases for your business plans that's all
you're going to need to support your market analysis
or your marketing plan section.
But sometimes the data doesn't exist.
And so you have to do what we call collecting primary data.
You have to get out and collect data that has not been
collected before.
There's a couple of ways to do that.
Observational methods are questioning methods.
These are the surveys and interviews many of us do when
we're doing the primary data collection.
When do you not conduct formal research?
Well, if you don't have the resources to do it you can't
conduct it.
Another time when you don't do is when the opportunity for a
product start has passed.
Your competition's already jumped into the market.
You're going to stand by now and kind of wait to see what's
going to happen there.
A decision by your management team has already been made to
move forward.
So there's no need to do research at
that point in time.
You're just wasting time and money.
You can't decide what information is needed or the
needed information already exists.
What we mean by that is, the secondary information is
already available or available to this team to use.
And then the cost of conducting research outweighs
the potential benefits.
Your cost is just too large.
You can't afford it.
You're a startup operation.
So you'll do it yourself as best you can.
Well, let's see.
What are market ingredients?
That's a group of customers who have purchasing power and
unsatisfied needs.
So a market ingredient or a group of--
let me back up.
The key elements here for a market is a set of customers
who have a need who have purchasing power--
customers who have purchasing power and have
an unsatisfied need.
Underline the unsatisfied needs.
Sometimes it's very interesting for me to watch
advertising and particularly some cleverly designed
advertising.
But in cleverly designed advertising, you're trying to
create the mental image that you, the listener or the
consumer, has an unsatisfied need.
Market segmentation is where the market is divided up into
several smaller customer groups with similar needs.
In other words, they need similar products but they have
different characteristics to their group.
And a focus strategy-- remember this now, this may
pop up again on a test--
is a type of competitive strategy in which cost and
differentiation-based advantages are achieved within
narrow market segments.
What I mean here is-- or what the book means here is, we are
focusing all of our analysis, all of our strategy, into
narrow market segments.
Segments that, once you capture them, there's probably
little chance that you're going to see significant
competition there because it's so difficult to break in.
So let's look at the variables that you can use for market
segmentation.
There are basic segmentation variables, which are the
parameters you use to kind of distinguish one form or one
part of the market from another part of the market.
Benefit variables are those variables that have specific
characteristics that distinguish market segments
according to the benefits sought.
So those are benefits variables that kind of break
it out by benefit or by results.
The demographic variables are the characteristics that
describe customers and their purchasing power and how they
behave as consumers.
Now, there's three types of market segmentation--
the broad segmentation.
That's the unsegmented strategy or
mass-marketing strategy.
There's the multi-segment strategy, where we have
multiple segments that we're going to try to penetrate in
the market.
Or there's a single-segment strategy, where we're focusing
just on a single segment of the marketplace.
So let's look at some examples now.
This is an exhibit that shows a
unsegmented marketing strategy.
This is just a marketing strategy to
the market in general.
And the name of the company is Changes Therapeutic Practices.
And their marketing mix is a product
of therapeutic massage.
Their promotions are event sponsorships.
The media is mass media by the event organizer.
And the market is children through 90 years old.
So this market right here would have a
very, very broad market.
If I have a multi-segment marketing strategy, then I
might have as many as three or even more segments that I want
to go after.
The first segment might be students--
you know, autistic children.
That's segment B. The segment A, the first segment, might be
executives.
And segment C, the third segment, might be workers
engaged in strenuous physical activity.
And so what I'm going to do is go after each one of these
groups with products that I manufacture and sell that will
be addressed--
I'm sorry-- aimed at these groups.
So in marketing mix two, the autistic children, I might use
menthol creams.
I'd advertise in school advertisements.
I'm sorry, my promotion would be school advertisements.
And I'd advertise in school newspapers
and bulletin boards.
In marketing mix one, where I'm going after executives, I
might have a chair massage as my product.
I'll be promoting at health fairs.
And I'll have exhibit booths and brochures.
And then marketing mix three would be the workers engaged
in strenuous physical activity.
My product here would be therapeutic massage followed
by aromatherapy oils.
And my promotion would be workshops for companies and
other organizations.
And you see this all the time.
And then the media would be just
limited to printed brochures.
Here is a single-segment marketing strategy where I
have the same company.
Now I'm just going to go after one part of the market--
natural acne medications.
And so my market are going to be teenagers.
That's where 99% of acne occurs.
And my promotion will be school
advertisements and a website.
And my media will be school newspapers and search engines.
And so now I'm going to go after these teenagers who need
natural acne medications.
I'm not going to worry about markets around product B,
around product C. I'm just going to focus on product A in
this market.
Now why are we doing all this?
Well, the reason we're doing all this, besides the obvious
of understanding the market and understanding the
competition is, I've got to generate a sales forecast.
I cannot generate a sales forecast unless I know what my
market looks like-- unless I know what its
characteristics are.
So the sales forecast, then, is my prediction or my
estimate of how many sales I can generate out of this
company with this market over a period of time.
So really what I'm addressing here is my company's or my new
venture's feasibility.
And it assists me by generating a sales forecast.
I'm now able to do more of my planning than I had
anticipated I would be able to do, including my financial
analysis and planning.
Now here are some limitations to forecasting.
If you have a unique new business idea or circumstance
that you're trying to promote, then that's going to make
forecasting difficult.
If you have a lack of familiarity with quantitative
methods or a lack of familiarity with forecasting
processes, then that might be a limitation for you as well.
So you just want to be careful.
There's always a few things you've got to be aware of.
You got to just be wary of making silly assumptions--
assumptions that you really can't stand behind.
You've got to be aware of drawing conclusions about your
marketplace that really aren't justified.
You don't have the data back it up.
So you just have to use some common sense as you put
together your sales forecast--
not make it too optimistic, nor do you want
to make it too negative.
In fact, one thing you might want to do, as we said earlier
in chapter six, is you might want to put together a
worst-case/best-case probable sales forecast.
But whatever you do, you've got to have the sales
forecast, or otherwise you cannot justify the business
that you're writing a plan around.
Well, what are the things that impact
the ability to forecast?
Things that make it easier are that you have
an established business.
And that's always easier to forecast with
an established business.
You have an experienced entrepreneur manager.
Your entrepreneur is familiar with forecasting techniques.
And so those are the things that kind
of make things easier.
Things that make it more difficult to forecast is, I
have a brand new venture and a brand new market.
And so that's going to make it difficult for me to even
understand what the market is.
I have limited or no managerial experience.
And I have a poor understanding of forecasting
techniques and how you go about doing forecasting.
Now there's two dimensions of forecasting.
You can either have a breakdown process
or a buildup process.
In a breakdown process, I'm starting
with the higher market.
This is the market for all potentials--
I'm sorry, for all pencils.
Now I want to break that down a little bit.
I want to figure out, what is the market for this certain
type of pencil in a 12- to 22-year-old age range.
And so I'll begin to narrow that down until finally I have
my data that I want for that 12- to 15-year-old, 12- to
18-year-old age range.
That's called a breakdown process.
I started high with a market and just kept breaking down,
breaking down, breaking down to get to this specific market
that I want to try to forecast.
On the buildup process, I take all of the potential buyers in
varied sub-markets and estimate
those potential buyers.
And then just add it all up.
So I'm looking at, who are the potential
buyers for this product?
Identify the buyers either as a class or as individuals.
And then add all that up and that's going to be your
buildup process sales forecast--
a bottom-up forecast.
Whereas the breakdown process is a top-down forecast.
In direct forecasting, I'm going to use sales as my
predicting variable.
In indirect forecasting I'll use related variables to
predict what my sales are going to be.
Here's an example of indirect forecasting.
I am selling baby cribs.
And now I've got to decide how much market is there going to
be in this particular area for baby cribs for the next year.
And so what I'm going to do then is, I'm going to research
and find out what is the forecasted childbirth ratio in
this area for the next year?
And I'm going to use that to forecast what my baby bed
sales ratio would be.
Because I can make some assumptions then that three
out of every four families will be buying a new crib or a
new playpen.
And so I then have the data behind it that allows me to
forecast my sales.
And that's indirect forecasting.