GE 393

1

• GE 393 Business Plan Workshop
• Marketing Sizing and Strategy
• October 10, 2001

2
Todays Discussion

• Business Plan Requirements Marketing
• Defining the Target Market Market Segmentation
• Marketing Strategy - Pricing
• Marketing Strategy Promotion
• Common Mistakes to Avoid

3
Todays Discussion

• Business Plan Requirements Marketing
• Defining the Target Market Market Segmentation
• Marketing Strategy - Pricing
• Marketing Strategy Promotion
• Common Mistakes to Avoid

4
Purpose of the Marketing Plan
Helps the entrepreneur understand whats going on
in the marketplace and how that knowledge can be
translated into specific actions to attract,
cultivate, and retain profitable customer
relationships.
Why Prepare One?
What is It?
Part of the business plan that defines the
ventures target market as well as strategies
and tactics to penetrate target markets and
retain profitable customer relationships.
Should be one of the first elements of the
business plan defined necessary to develop
financials and refine product/ service plan.
When Should I Prepare One?
5
Key Elements of the Marketing Plan

• Define target market (segmentation)
• Evaluate market size and trends
• Assess competition

MARKET ANALYSIS
MARKETING PLAN
MARKETING STRATEGY TACTICS

• Define pricing strategy
• Develop promotional and advertising
• plan
• Define channels of distribution

6
Results of a Good Business Plan

• You have a good marketing plan when customers
• value the benefits your business provides
• Are willing to pay your targeted price for them
• Believe your venture is the one best able to
  deliver
• those benefits

7
Todays Discussion

• Business Plan Requirements Marketing
• Defining the Target Market Market Segmentation
• Marketing Strategy - Pricing
• Marketing Strategy - Promotion

8
Market Segmentation What is it?
DEFINE MARKET SEGMENTS
DEFINE TARGET SEGMENTS
GROUP OF CUSTOMERS SEEKING SIMILAR VALUE
SEGMENTS OF CUSTOMERS THE NEW VENTURE SEEKS TO WIN
9
Market Segmentation Why?

• Different groups of customers usually have
  differing needs and preferences
• One product/brand cannot be all things to all
  people
• Segmentation allows the marketing-mix to be more
  closely matched to
• specific needs, thus improving efficiency and
  effectiveness of resource
• marketing resource utilization
• Segmentation helps in forecasting customer
  demand more accurately

Source Segmentation, Targeting Positioning to
Achieve Customer Advantage, Lakshman
Krishnamurthi, Professor of
Marketing, Kellogg Graduate School of Business
10
Market Segmentation Basis of Segmentation
EXAMPLES
Easiest
Hardest
11
Demographic/Firmographic Segmentation
Principle Benefits

• Easy to do (Most commonly used)

Principle Drawbacks

• Cant distinguish between customers with similar
  demographics
• but different attitudes that impact buying
  decisions

Examples

• Dell segments its business customer base on
  size of business,
• government

12
Geographic Segmentation
Principle Benefits

• Easy to do

Principle Drawbacks

• Simplistic view that customers in a certain
  region, location, etc.
• have similar needs that impact buying decisions

Examples

• Products where climate usually drives
  demand.snowblowers,
• sunscreen, etc.

13
Pyschographic Segmentation
Principle Benefits

• Often gives better insights beyond general
  demographic
• characteristics as to what drives certain
  customers to buy

Principle Drawbacks

• Sometimes hard to apply many psychographic
  measures
• cant be linked to media consumption habits

Examples

• Altoidsfound big market is single, urban,
  young male
• - self-focused
• - engaged in hedonic activities

14
Dog Bakery New Venture Example Demographic
Segmentation
Dog Owners With Household Income gt100 K
Dog Owners With Household Income lt 50 K
Dog Owners With Household Income lt 50-100 K
15
Dog Bakery New Venture Example Geographic
Segmentation
Urban
SUBURBAN
Rural
16
Dog Bakery New Venture Example Psychographic
Segmentation
DOG AS FUNCTIONAL
DOG AS LOVE OBJECT
Active Nutritionists
Caring Companions
Budget Conscious
Loving Indulgers
Tolerating Functionalists

• Dog as child
• Low price sensitivity
• Empty Nesters
• Buy what the dog
• likes best, human
• food characteristics

• Dog as part of family
• Fun, variety,
• quality

• Dog as partner
• Nutrition,
• performance

• Dog as pet
• Basic,
• convenient

• Dog as worker
• High price
• sensitivity
• Larger rural
• households
• Buy least
• expensive
• brands,large
• size

17
Dog Bakery New Venture Example Psychographic
Segmentation (continued)
DOG AS FUNCTIONAL
DOG AS LOVE OBJECT
Active Nutritionists
Caring Companions
Budget Conscious
Loving Indulgers
Tolerating Functionalists
18
Possible Segmentation Approach PRN Supply
Firmographic
Large Hospitals gt500 Beds
Medium Hospitals 250-500 Beds
Small Physician Offices
Small Hospitals lt 250 Beds
This approach can be used because of the
assumption that customer need is tied to lack of
purchasing power (I.e. correlated directly to
size of hospital)
19
Possible Segmentation Approach ChemNose
Firmographic by SIC Code (Examples)
Companies That Transport Chemicals (Hazardous Mate
rials)
Companies That Use Chemicals (Hazardous Materials)
Companies That Manufacture Chemicals (Hazardous Ma
terials)

• 2812 Alkalies Chlorine
• 2819 Industrial
• Inorganic Chemicals
• 2892 Explosives
• 2879 Pesticides
• Agriculture
• Chemicals

• 4011 Line-haul railroad
• (freight operations)
• 4213 Trucking, Except
• Local

20
Possible Segmentation Approach VisIT Deep Web
Search
1st Cut - Demographic
Households With No Internet Access
Households With Internet Access
2nd Cut - Pyschographic

• Internet as a Shopping
• Channel
• High log on time per month
• Annual online spend gt 1,000
• Price sensitive

• Internet as a Recreational
• Tool
• High log on time per month
• Most frequented sites include
• porn, gaming, etc.

• Internet as an Informational
• Source
• Low-Medium log on time per
• month
• Most frequented sites include
• news and content sites

Knowing who has internet access is not enough,
the venture must understand how and why different
consumers use the internet!
21
Final Selection of the Target Segment Based on
Two Dimensions
Target Segments
Attractiveness
Strategic Fit
Ventures Competitive Position
Ventures Capabilities
Size of Segment
Profit Potential
Price Premium
Cost to Serve
22
Final Target Segment Selection PWC
Collaborative Purchasing Venture
Middle market was chosen because of strategic fit
issues even though the small business segment is
larger and willing to pay a premium for the
service!
Target Segments
Attractiveness
Strategic Fit
Ventures Competitive Position
Ventures Capabilities
Size of Segment
Profit Potential

• Partner access to
• sizeable middle market
• Client base

• Stronger relationships with
• middle market company
• CFOs (the ultimate buyer
• of the service)

• Small Business Segment
• larger than
• middle market
• Segment

Price Premium
Cost to Serve

• Lower cost to serve
• middle market segment
• (need less customers to
• gain scale)

• Small Businesses have
• lowest purchasing
• leverage willing to
• pay higher transaction
• fee

23
Todays Discussion

• Business Plan Requirements Marketing
• Defining the Target Market Market Segmentation
• Marketing Strategy - Pricing
• Marketing Strategy Promotion Advertising
• Common Mistakes to Avoid

24
Pricing Considerations

• Costs what are the fixed and variable costs
  (breakeven point)
• Competitive position can the venture
  differentiate on something other than price
• Strategic objective maximize profits or market
  share
• Customer value can the value attributed to the
  product/service be quantified
• Regulatory factors are there regulatory
  ceilings on pricing to consider

25
Pricing Considerations Breakeven Analysis
BEP (in units) FC/(SP VC) BEP
(total sales ) FC/ (1-VC/SP))
FC Fixed cost VC Variable cost SP Selling
Price
26
Pricing Considerations Breakeven Analysis
(Example)
Fixed Costs 5,000,000 Variable Costs
3,000 Selling Price 5,000
BEP (units) (5,000,000)/(5,000-2,000)
2,500 Units
BEP (sales ) (5,000,000)/(1-(3000/5000))
12,500,000
27
Pricing Based on Competitive Positioning
Strategies
(1)
Strategic Advantage
Uniqueness Perceived By the Customer
Low Cost Position
Overall Cost Leadership
Differentiation
All Segments
Price Based on Customer Value or Competitive
Parity
Market Focus
Lowest Price
Particular Segment Only
Focus
Price Based on Customer Value
Note (1) Source Competitive Strategy, Michael
E. Porter
28
Three Aspects of Customer Value
ECONOMIC
Value is defined as the perceived worth in
monetary units of the set of economic,
functional/ technical, and psychological benefits
received by the customer in exchange for the
price paid for the product offering taking
into consideration available competitive offerings
and prices
Source Kellogg on Marketing
29
Three Aspects of Customer Value - Economic
ECONOMIC

• Increase productivity, savings, or financial gain
• need to be able to quantify the financial impact
• on the customer

• EXAMPLE CHEMNOSE
• reduced insurance expense (liability)
• reduced legal expense
• reduced downtime due to chemical spills

Source Kellogg on Marketing
30
Three Aspects of Customer Value Psychological
ECONOMIC
Value attributed to psychological benefits
such as satisfaction, security, peace of mind,
power, etc.

• EXAMPLE Home Security Systems

Source Kellogg on Marketing
31
Three Aspects of Customer Value Functional
ECONOMIC
Value attributed to functional attributes of
the product

• EXAMPLE New Balance Shoes (width sizing)

Source Kellogg on Marketing
32
Todays Discussion

• Business Plan Requirements Marketing
• Defining the Target Market Market Segmentation
• Marketing Strategy - Pricing
• Marketing Strategy Promotion
• Common Mistakes to Avoid

33
Advertising Promotion - Overview

• Outlines the approach the new venture will use to
• bring its product or service to the attention of
• prospective customer
• Defines the promotional mix the combination and
  types of
• promotional effort the venture will put forth
  to attract
• customers

34
Advertising Promotion Business to Business

• Trade Shows
• Trade magazine advertisements
• Direct Mailings
• Marketing Alliances

35
Advertising Promotion Business to Consumer

• Printed Media
• - National (Magazines, Newspapers)
• - Local (Newspapers, Magazines, Flyers, etc.)
• Electronic Media
• - NationalTelevision (network or cable)
• - Local (Radio, television)
• Other
• - Telemarketing
• - Outdoor billboards
• Marketing Alliances

36
Marketing Alliance Driving Factors

• Sizeable, fragmented customer base hard to
  reach
• - marketing alliance partner candidates
  already have access to the
• ventures target customer base
• Build brand awareness/credibility
• - new venture brand is unknown, value in
  piggy-backing off of a strong
• brand
• Limited marketing skills within the new venture
• - possible tactic if new ventures core
  strengths are product development,
• RD, etc. rather than sales marketing

37
Todays Discussion

• Business Plan Requirements Marketing
• Defining the Target Market Market Segmentation
• Marketing Strategy - Pricing
• Marketing Strategy Promotion
• Common Mistakes to Avoid

38
Common Mistakes to Avoid

• Defining your target market too widely, and
  assuming financial success will result
• from simply capturing a small portion of an
  enormous market
• Unclear definition of your target market
• Attempting to be all things to all people
• Unclear about the characteristics that define
  your target market
• Assuming the market will value you without
  knowing what the market values
• Making assumptions about your target market
  without market research or
• supporting data
• Not identifying specific mediums you will use to
  advertise and promote your product
• Making the assumption that lowest price will
  bring market share
• Pricing at competitive parity when your product
  clearly has higher value in