1. Chapter 4 Analyzing the market, customers, and competition

2. Objectives Define a successful marketing plan Define market segmentation Describe competitive analysis Learn positioning a product or service Describe methods for price and sales strategy

3. Introduction To prepare the marketing section of a business plan, the entrepreneur must understand the customer’s needs and desires, their profiles, markets, pricing, as well as a plan for the company’s future strategies in each of these areas. Electronic commerce is a form of marketing that is now competitively necessary for many businesses.

4. Formulating a successful marketing plan 1. Set marketing objectives: Sales revenue and market share – concrete and measurable. 2. Get the product out: sales and distribution – own sales force for direct marketing, dealers, distributors, jobbers, or partners. 3. Set a Pricing Strategy: detailed price list. 4. Raise visibility: advertising, public relations, and promotion – contact local media – newspapers, radio, and television – free advertising. 5. Conduct a site analysis: location, proximity to other businesses, and cost of facility. 6. Future marketing activities: sales strategies for sustaining growth – local market to domestic markets to international markets.

5. Preparing the marketing analysis and plan The marketing analysis (plan) will help the entrepreneur develop a plan that leverages all of the strengths and accounts for the weaknesses in determining demand for the product or service – the market, competition, and potential customers. Identifying customers: Who will buy the product – most likely customers. Niche or Target Markets: small segment of a larger market ignored by other companies. One to one marketing: profile of customers most valuable to company – customizing product or service. Loyalty programs: keep the right customers. Costs 5 to 6 times to get a new customer than to keep one.

6. Market Segmentation Segmentation divides the market by: age, income, product needs, geography, buying patterns, eating patterns, family makeup, or other classifications. Good marketing plans select segments of the market. The nature of your industry will decide what kind of segmentation is crucial. For example: Cadillac automobiles generally sell to older adults, while minivans sell to families with children.

7. Conducting a competitive analysis How do competitors compete for business in terms of product, service, location, and promotion. Six key areas: 1. Product or service: strengths and weaknesses. 2. Price: gross margin, discounts, promotions. 3. Industry competitors: Internet threats 4. Selling/Promotion: analyze their web sites, how much do they spend on advertising. 5. Management: company compensation, management team. 6. Financial: volume and market share, R&D, cash flow.

8. Positioning the Product or Service Positioning is the process of establishing and maintaining a distinctive place in the market for the start up and/or its product offerings. For example Jet Blue has positioned itself as a fun airline with which to travel. Factors affecting attractiveness: competition among existing firms, bargaining power of buyers, bargaining power of suppliers, internet companies, and potential threats.

9. Preparing the pricing and sales strategy The price of a product or service conveys an image and affects demand. Pricing methods: 1. Value: Price should be based on value of the product to the customer. 2. Rationale: The entrepreneur must explain why his prices differ from those of the competitors. Need to determine breakeven point, fixed costs, and variable costs. High fixed cost industries such as airlines or car rental can discount their products or services. 3. Establishing pricing objectives: Revenue oriented – maximize income over expenditure. Operations oriented – match supply and demand (hotels want to fill rooms because an empty room is an unproductive asset). Patronage oriented – attract customers – discount prices in off season.

10. Penetrating the market and setting up sales channels 1. Direct sales force: paid straight salary, salary plus bonus or straight commission. Added expense in maintaining sales force. 2. Sales agents: agents are paid by commission. Usually work a specified territory. Push easier to sell products. Entrepreneur has little control over sales agent. 3. Trade shows: Good places to exhibit and sell products. Many prospective customers can be identified. The competition can be quickly assessed. 4. Viral Marketing: Best advocates for a product or service are existing customers. Customers recommend products to other customers.

11. Summary The marketing analysis (plan) will help the entrepreneur develop a plan that leverages all of the strengths and accounts for the weaknesses in determining demand for the product or service – the market, competition, and potential customers. Segmentation divides the market by: age, income, product needs, geography, buying patterns, eating patterns, family makeup, or other classifications. 6 key areas of a competitive analysis:1. Product or service: strengths and weaknesses.2. Price: gross margin, discounts, promotions. 3. Industry competitors: Internet threats 4. Selling/Promotion: analyze their web sites, how much do they spend on advertising. 5. Management: company compensation, management team. 6. Financial: volume and market share, R&D, cash flow. Positioning is the process of establishing and maintaining a distinctive place in the market for the start up and/or its product offerings. Price should be based on value of the product to the customer. 4 methods of setting up sales channels: 1. Direct sales force 2. Sales agents 3. Trade shows 4. Viral Marketing

12. Home Work 1. What does the entrepreneur need to understand to prepare the marketing section of a business plan? 2. Explain the steps to formulating a successful marketing plan. 3. What does segmentation do? 4. Explain the 6 key areas of a competitive analysis? 5. Name 4 methods of setting up sales channels.