It has been written extensively that marketing is a combination of Product, Price, Place and Promotion – commonly referred to as the four “P’s”. For a marketing plan to be successful all four of these segments must be coordinated. A lack or gap in one often renders the others ineffective. A superior product is of little value if the consumer is unaware of its benefits or is priced beyond their means.
It is stated elsewhere in this guide that predicting the future revenue is the most difficult part of the financial projections. It is seldom an exacting science. If the business plan is a risk assessment tool, then trying to accurately predict future sales is the riskiest segment of that analysis. If the reader of your plan has confidence in the sales projections, then they will most likely have faith in the balance of the plan.
Many marketing books give you the impression that your only goal in market segmentation is to define a group of like individuals that will buy your product or use your service. This is often followed by an explanation that if this market segment is not sufficient for what you need that you must realign your goals to serve a larger and wider segment. Fundamentally this is correct, but it’s best if you consider the market segment as a starting point. You reach that segment first and as you build a reputation within that segment you branch out to similar segments. The market segment is a broad term and within that segment is a more narrowly defined group that is the “most likely” consumers. This is the target group of the segment.
These marketing books also give you the impression that your only goal in target market selection is to define a group of like individuals that will buy your product or use your service. Another way to define this process is from the viewpoint of marketing impact. Every firm has a limited marketing budget that is intended to build the brand name and product and/or service awareness in the marketplace. The firm that sprinkles the funds across a broad landscape is likely to find that very little impact was gained with much of the advertising falling on uninterested parties. A better approach is to concentrate the advertising and promotion to that select group that are the most likely buyers. This target market can be hit with a much better campaign and the impact will be much greater. You are getting a much better “bang for the buck”. Thus, the goal of target marketing is not to exclude potential buyers, but to spend the money where is will have the greatest change of generating revenue.
The target market is the group of most likely buyers. Secondary markets are also important prospects, but they are less likely to purchase or buy less frequently. Firms should always develop advertising and promotion campaigns that can easily be adapted to the secondary market when additional funds become available or when the target market is sufficiently saturated.
Expansion and Export Markets
Anticipate and plan for expansion and growth. The term most often used is “scalable” – can the concept of the business plan multiply and will the quality of the offering be maintained.
The internet gives even the smallest firm access to the world. You will be amazed at the number of people from the far reaches the globe that are interested in your products or services. If you plan to support this market you need to be prepared. Instructions, manuals, and directions may need to be printed in other languages. Export and import duties and customs regulations can be difficult in some areas of the world. Anticipating packaging, boxing and shipping to a distant location should be considered.
The competitor analysis is a bit tricky. You of course, need to show the reader that you know who the competitors are and how you will stack up against them, but you can make it sound like overwhelming odds if you go into great detail listing everyone that even comes close to what you do. But, you will really look stupid if the reader of the plan asks you about a direct competitor and you have never heard of them! If you focus on one or two of the major players in the space and can adequately defend your competitive advantage, the reader should be satisfied. Very large national competitors (Wal-Mart, Best Buy, Publics, Dollar General, for example) and well-known chains or franchises (Applebee’s, Subway, Office Depot, Lowes, etc.), pose unique problems. Competing against such large organizations becomes a very daunting challenge. No matter how well you articulate your niche strategy, the reader will question your resolve against such powerhouses.
A direct competitor is someone selling the same product, or same service in the same space as you. The internet has made it a global market, so even if you feel that location or ease of purchase is an advantage, often the online discounters can challenge you right in your own backyard. Of course, you can’t purchase a haircut or an x-ray online, but to ignore any competitor that can directly serve the same customer base is foolish.
Indirect Competitors or Substitutes
Depending on your product or service indirect competitors or substitutes can be a significant problem or an unlikely event. Sometimes the product you sell or the service you provide can only be done in the exact same manner. For these situations indirect competition is not an option. Yet, sometimes customers find amazing ways to accomplish the exact same task with a completely different product or service. Technology is rapidly changing the way we do a number of things.
Working with wholesalers, distributors, sales representatives, commission salespersons, and retailers is a complicated process. Every industry is different and the customary transaction is different for each. It may take years to understand all the unique features of the distribution system for your industry. The reader of your business plan will recognize that dealing with the different channels of distribution is a skill and art form. Showing a good working knowledge of your industry’s traditions, customs and system is a valuable skill for any manager.
Every time someone handles, moves, transports, stores, or facilitates a transaction, a fee is incurred. It is important that you understand what function is performed for each transaction. Not knowing what to expect and what it will cost leaves you vulnerable to be taken advantage of.
Every industry has more than one way to get products or services to the end user. Some methods are clear and easily deciphered – others are shrouded in customs and tradition that defy logic. It is important to the reader of your business plan that you have investigated all the options and have selected the channel that makes the most sense. Some channel members hold amazing power and influence. Going against these powerful channel members is a critical mistake unless you have the resources to defend your actions. For most small and startup companies butting heads with the controlling members is a mistake.
Understanding how every fee impacts the end retail price is important. Channel members expect to be compensated for anything they do. They expect you to know the ropes and to be prepared to uphold your end of the deal. Everything done within the channel adds cost to the distribution process. Each industry is different and you must consider all these charges in calculating your total marketing costs.
Remember that the end consumer does not care what it costs you to bring that product or service to them – they only care about the benefit they receive and how much it costs them to receive it. Every product or service has a go/no-go decision point with each customer. Different customers evaluate this buy/no-buy point differently depending on a whole litany of evaluation criteria. In setting the price point for each target audience you must take into consideration: the product (or service), the place it is consumed, the marketing message, and the direct and indirect benefits the consumer receives from the purchase. In every transaction the buyer is evaluating the value they received for the time and money spent. Mistakes in pricing can doom your plan.
One of your goals from the competitor analysis was to understand who the competition was and how to compete against them. From this analysis you concluded that you could occupy a segment of the marketplace that was not adequately served by the competition. Part of this analysis included an analysis of their pricing as it compared to other offerings. While you are going to develop your pricing based on what you feel the customer is willing to pay in each market segment, you can’t blindly ignore what the direct and indirect competitors are charging. You may want to meet, undercut, or price over the competition. This decision should be made utilizing solid market research and not just gut instinct or casual observation. As it has been pointed out in other sections, the customer purchases are based on the benefits (real or imaginary) that they receive from its use. The way they value the purchase can be influenced by marketing messages from you and/or the competition.
Wholesale or Retail Schedules
As noted, every step in the marketing process incurs additional charges. You should develop a suggested retail price as a basis to work from. It is a “suggested” price because you cannot, by law, tell anyone what to charge. If you are utilizing wholesalers, distributors and retail outlets it is best to maintain an honest pricing system. It’s difficult to keep any pricing schedule secret from other channel members. Cutting special deals and discounts will often come back to haunt you. You can legally give additional discounts for cash payment and volume purchases etc., but be prepared for every channel member to seek every discount they can negotiate.
The general term promotion includes advertising, sales promotions and public relations.
The general difference between advertising and promotion is that you purchase advertising. Promotion is typically free and you have very little control over how it is presented. For any firm advertising is a significant expense that must be watched very carefully. Good media management is careful balance between effectiveness and efficiency. Your business plan should have a complete and well-structured section on advertising. This may include detailed breakdowns of the costs to run ads, the frequency of the ads, and the messages that will be pushed. (Some of this may have to go into the appendix) You also have to include any printing or signage that is needed. Don’t forget about website development, online advertising costs, the time involved with Facebook™ or Twitter™ accounts, or Blogs. If you do not have a realistic detailed plan the reader of your business plan will wonder if you have done your homework.
Advertising dollars should not be wasted and developing a strong marketing campaign requires people who know what they are doing. If you are not experienced in this field you would be well advised to seek help from a marketing company. It is important in the business plan to clearly identify what marketing messages you are going to use and what medium that will carry the message. You cannot throw money into marketing in a haphazard manner and expect to get results. The reader of the business plan will want to know you have a realistic approach, and that you have allocated the required money to support advertising and sales at a level needed to generate the predicted revenue. This is one of those areas where you financial projections and your business plan must be in sync. If you anticipate an increase in sales directly associated with an increase in advertising, then the cash flow statement in your financial projections should indicate that you have adequate funds to drive the advertising campaign.
Promotions take many forms. We often think of them as the “give away” items you pick up at trade shows and county fairs. While that is some of it, there is a lot more to it than that. This also includes coupons, discounts, rebates and trade subsidies.
Working with the public and the media can be very beneficial to the image of the company, but you have to be very careful. If not done correctly it can easily blow up in your face. You do not control what the media says and often messages are not clearly articulated or the copy editor takes a snippet out of context. Carefully plan all media events. If your firm has some negative news out there make an effort to provide your side of the story and always speak diplomatically but clearly sway any misinformation that is being floated around. A current, up to date website can be a great medium to present a clear and accurate message to the public.