Small Business Management BA 313-01
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The Marketing Plan - Chapter 7 - Outline/Overview

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Outline:

LO1 Describe small business marketing.

A. What is small business marketing?

• Small business marketing consists of those business activities that relate directly to the following: (1) identifying a target market, (2) determining target market potential, and (3) preparing, communicating, and delivering a bundle of satisfaction to the target market.
• Remember that market segmentation, marketing research, and sales forecasting are integral parts of market analysis.
• Note that product, pricing, promotion, and distribution activities form the firm’s marketing mix.
1. Marketing philosophies make a difference
• Think about your personal philosophies about how education influences your approach to studying, taking tests, and writing research papers. Try to bring out a parallel between this situation and that of an entrepreneur running a business. His or her marketing philosophy will shape the firm’s marketing activities, just as an individual’s personal philosophy influences his/ her approach to education.
• List the three distinct marketing philosophies: (1) a production orientation was associated with the Industrial Revolution, (2) a sales orientation concentrates on personal selling and advertising, (3) a consumer orientation places the needs of customers first—the marketing concept begins & ends with the consumer.
2. A consumer orientation—The right choice Explain to students that the particular marketing management philosophy adopted by a small business is strongly influenced by the following three factors: (1) state of the competition, (2) entrepreneur’s personal expertise, and (3) tendency of managers to be shortsighted.

LO2 Identify the components of a formal marketing plan.

B. The formal marketing plan

1. Market analysis
• Provides a detailed discussion of the major customer benefits.
• Contains a customer profile.
• Elaborates additional target markets (each with its own profile).
• Contains the sales forecast as major element.
• Why it is usually desirable to include sales forecasts for most likely, pessimistic, and optimistic scenarios.
2. The competition
• Profile competitors

Look at strengths and weaknesses of competitors
• Note related products of competitors
• Monitor competitors via their Web sites
3. Marketing strategy
a. The total product and/or service section— plans to transform the basic product or service idea into a total product or service.
b. The distribution section — getting the product/service to customers.
c. The pricing section — an effort to explain pricing decisions.
d. The promotional section — an approach to create customer awareness and includes all efforts to communicate with intended target audiences.

LO3 Discuss the nature of the marketing research process.

C. Marketing research for the new venture

• Emphasize the importance of conducting marketing research prior to making many marketing decisions.
• Marketing research should be a supplement to, not a replacement for, the intuitive judgment of the entrepreneur.
1. The nature of marketing research
• Marketing research involves gathering, processing, reporting, and interpreting market information.
• Small firms typically conduct less marketing research than large firms (mostly because of expense and lack of knowledge about the process).
• The Internet is an excellent resource for marketing research data.
• Hiring a marketing research expert may be well advised.
• Consider the cost/benefit tradeoffs of marketing research.
2. Steps in the marketing research process
a. Step One: Identifying the informational need – What do you want to know?
• Marketing research can help identify the information that is needed.
b. Step Two: Searching for secondary data
• Cheaper than primary data, so exhaust these sources first.
• Discuss available resources (e.g., libraries, SBA, databases).
• Note the problems that accompany the use of secondary data (datedness, wrong units of measure, lack of creditability).
• Note how secondary data can be useful.
c. Step Three: Collecting primary data
• Discuss differences between (1) observational methods and (2) questioning methods.
• Emphasize the value of personal observation to small businesses.
• Underscore that surveys are used more often than experimentation.
• Compare the speed, cost, and amount of information obtained with surveys conducted via mail, telephone, and personal interviews.
• Developing an effective questionnaire:
(1) Ask questions that related to the issue under consideration.
(2) Select the form of question that is most appropriate for the subject and the conditions of the survey.
(3) Carefully consider the order of questions.
(4) Ask more sensitive questions near the end of the questionnaire.
(5) Carefully select the words for each question.
(6) Pre-test the questionnaire.
d. Step Four: Interpreting the data gathered
• Statistics and entrepreneurial insight should be used to interpret the meaning of the data generated.

LO4 Define market segmentation and its related strategies.

D. Understanding potential target markets

- Define the term market in their own words. Then, describe the typical definitions:
• A physical location where buying and selling take place (e.g., a farmer’s market or a supermarket).
• A process of selling a product (e.g., “We must market the product aggressively.”)
• A group of customers or potential customers who have purchasing power and unsatisfied needs (e.g., “The target market has 1,000 potential buyers.”) Note that the “group of customers” definition requires that each of the following three components be present before a market exists. (That is, one component in isolation or any two in combination do not comprise a potential market!). A market must contain individuals or business entities. These individuals or businesses must have purchasing power. These individuals or businesses must have unsatisfied needs.
1. Market segment and its variables
• Make sure the students understand that the two broad competitive strategies mentioned in Chapter 3 (i.e., cost and differentiation) can be used in focusing on a specific part of the market, which is the most likely approach in a startup.
• Market segmentation—dividing the market into groups with similar needs (those likely to respond favorably to the same marketing strategy).
• Markets are usually segmented according to benefit or demographic variables.
a. Benefit variables—based on customer needs.
b. Demographic variables—age, sex, education, income, etc.
2. Marketing strategies based on segmentation considerations.
a. The unsegmented strategy (sometimes referred to as mass marketing)
b. The multisegmentation strategy (unique marketing mixes for various segments)
c. The single-segmentation strategy (recognizes several segments but chooses only one; probably the best strategy for small firms).

LO5 Explain the different methods of forecasting sales.

E. Estimating market potential

• Especially important for small businesses.
• Requires information from numerous sources to determine market impact.
• Can you think of a startup that failed because it overestimated market potential.
1. The sales forecast
• This is a prediction of how much of a product or service will be purchased by a market for a defined time period.
• The market must be defined precisely if forecasts are to be accurate.
• The forecast is critical to assessing the feasibility of a new venture.
2. Limitations to forecasting
• Explain why, despite forecasting limitations, a sales forecast should be made. (Remember the business plan.)
• Think about why small firms are typically poor at forecasting compared to large firms. For example: The forecasting circumstances of small firms are unique—new ideas.
- Entrepreneurs are generally less familiar with the methods of quantitative analysis. Many entrepreneurs lack familiarity with the forecasting process.
• Look at the sources of information about the forecasting process and business trends (e.g., trade publications and economic newsletters, government publications, professional forecasting services).
3. The forecasting process
a. The starting point
• The breakdown process (the “chain-ratio method”)—begin with the population figure for the target market and determine a percentage that can be served.
• The buildup process—estimate market potential from all likely segments and combine these.
b. The predicting variable
• Direct forecasting—predicting sales directly.
• Indirect forecasting—using surrogate variables to predict sales.
The following questions may help you uncover the information that will prove critical to conducting effective marketing research and sales forecasting and, in turn, lead to developing a superior small business marketing plan. Marketing Plan Questions: 1. What is the customer profile for your product or service?
2. How will you identify prospective customers?
3. What geographical area will you serve?
4. What are the distinguishing characteristics of your product or service?
5. What steps have already been taken to develop your product or service?
6. What do you plan to name your product or service?
7. Will there be a warranty?
8. How will you set the price for your product or service?
9. What type of distribution plan will you use?
10. Will you export to other countries?
11. What type of selling effort will you use?
12. What special selling skills will be required?
13. What types of advertising and sales promotion will you use?
Marketing Research Questions:
1. What types of research should be conducted to collect the information you need?
2. How much will this research cost?
3. What sources of secondary data will address your informational needs?
4. What sources of relevant data are available in your local library?
5. What sources of outside of outside professional assistance would you consider using to help with marketing research?
Market Segmentation Questions:
1. Will you focus on a limited market within the industry?
2. What segmentation variables will you use to define your target markets?
3. If you determine that several distinct market segments exist, will you concentrate on just one segment?
Forecasting Questions:
1. How do you plan to forecast sales for your product or service?
2. What sources of forecasting assistance have you consulted?
3. What sales forecasting techniques are more appropriate to your needs?
4. What is the sales forecast for your product or service?

OVERVIEW:

Small business marketing consists of those business activities that is related directly to 1) identifying a target market, 2) determining target market potential, and 3) preparing, communicating, and delivering a bundle of satisfaction to the target market. Marketing in the small business has not always been so sophisticated. At one time, marketing was considered little more than selling, and some entrepreneurs continue to view marketing in this limited way. In reality, a well-executed marketing effort involves numerous activities, many of which must transpire even before a product is produced and prepared for distribution or sale.

There are obstacles to adopting a viable consumer orientation in a small firm. In most cases, the failure to adopt a consumer orientation can be explained by one or more of three factors. First, a firm is likely to adopt a production efficiency emphasis if competitive pressure is weak and/or demand exceeds supply. Under these conditions, firms have little motivation to focus on consumer needs because they can already sell all of the product they can produce. Second, If small business managers have particularly strong production skills, the firm is naturally prone to lean toward production emphasis. As a parallel, if these managers have strong selling skills, these will be manifest in a sales-orientation philosophy. Third, some managers are just too focused on the present to adopt a customer orientation. For example, they may emphasize a high-pressure selling approach in order to move merchanise, which is likely to have a negative effect on consumer satisfaction in the rong-run. Any of these philosophies may result in no marketing plan or a marketing plan that is thrown in a file cabinet and ignored.

A formal marketing plan should contain detailed information regarding market analysis, the competition, and marketing strategy. The four areas of marketing strategy (the four (P's)) are the description of the product (or service, the promotional plan, the distribution (place) plan, and the pricing plan.

An effective marketing plan requires a thorough "marketing research process". There are typically four steps in marketing research: 1) identify the informational needs, 2) search for secondary data, 3) collect primary data, and 4) interpret the data gathered.

A firm must know their market. A market is defined as a group of customers or potential customers who have purchasing power (cash or credit) and have unsatisified needs. All three components must be present. The components of a market has a multiplicative relationship, which can be expressed as: Market = Customers x Purchasing Power x Unsatisfied Needs. If any component is zero, then the value of the market is also zero.

Market segmentation is important for a small firm. Segmentation variables are used to identify particular dimensions of a market. The two basic types of segmentation variables are benefit variables and demographic variables. Since resources are limited and the products or services of a small firm are usually specialized, use of segmentation variables is more important for small firms than for large firms. Small businesses are more likely to use a single-segmentation strategy than a multi-segmentation strategy. A multi-segmentation strategy involves approaching two or more homogeneous market segments with a tailor-made strategy for each segment. The single-segmentation strategy targets one segment that the firm believes to be most profitable base on market analysis. This allows a small firm to use their limited resources more efficiently.

Another area of interest is forecasting. Forecasting is used more widely in large firms than small firms. Forecasting circumstances in a new business are unique. A small business manager is likely to be less familiar with methods of quantitative analysis. Also, the typical entrepreneur lacks familiarity with the forecasting processes.

A sales forecast is an estimation of how much of a product or service will be purchased in a market during a defined time period. The forecast may be either a breakdown or a buildup process and may be either direct or indirect, depending on the predicting variable.

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