3920u6 - New Venture and Small Business Management WHAT IS...

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Unformatted text preview: New Venture and Small Business Management WHAT IS MARKETING ? Unit 6 Introduction It is "the process of planning and executing the conception, pricing, promotion and distribution of goods and services to create exchanges that satisfy individuals' needs and organizational objectives" Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved OPPORTUNITY RECOGNITION BUSINESS CONCEPT COMMITMENT TO CREATION FEEDBACK FROM THE MARKET PLACE PRODUCTION CAPABILITY MARKET INTERFACE BUSINESS CONCEPT PRODUCT DESIGN (product/service) go / no-go decision ? OPERATION CUSTOMER l l ORGANIZATION CREATION ENVIRONMENTAL SCANNING operational feedback MARKET OPPORTUNITY ANALYSIS Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved strategic feedback Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved MARKETING STRATEGIES ARE CRITICAL TO THE INITIAL SUCCESS AND SUBSEQUENT GROWTH OF NEW VENTURES. YET, ENTREPRENEURS OFTEN OVERLOOK MARKETING ACTIVITIES... Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved ENTREPRENEURS OFTEN OVERLOOK MARKETING ACTIVITIES, PERHAPS BECAUSE THEY DON'T UNDERSTAND MARKETING CONCEPTS. THEY ALSO... l underestimate the effort required l become too "busy" l evaluate the market intuitively l lack the financial resources necessary to conduct market research Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved 1 New Venture and Small Business Management BUT... THE ENTREPRENEUR'S RESPONSIBILITIES INCLUDE UNDERSTANDING AND APPLYING MARKETING PRINCIPLES ! Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved 2 New Venture and Small Business Management BUSINESS IDENTIFY NEEDS CUSTOMERS NEED UNIT 6 MODULE 1 Marketing: An Entrepreneurial Perspective DESIGN PRODUCT PRODUCT TO SATISFY NEEDS SUPPLY PRODUCT PRODUCT AT A PROFIT PRODUCT Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved THE VENTURE CAPITALISTS' PERSPECTIVE l MARKETING RATES 6.7 ON A 7-POINT SCALE OF IMPORTANCE TO NEW VENTURE SUCCESS l RATES OF DISCONTINUANCE COULD BE REDUCED BY UP TO 60% THROUGH PREVENTIVE MARKET ANALYSIS MARKETING MAY BE THE HOME OF THE ENTREPRENEURIAL PROCESS... l ENTREPRENEURS ARE BIASED AND IGNORE NEGATIVE MARKET INFORMATION Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved THAT'S WHY WE STUDY IT ! Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved THE MARKETING MIX l Product l Price l Place l Promotion l People Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved THE MARKETING MIX CHOSEN WILL BE A FUNCTION OF THE ENTREPRENEUR'S... l skills l understanding of marketing l personal preferences l market perception l resource limitations Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved 1 New Venture and Small Business Management "PRODUCT" TANGIBLE PRODUCT "a colour TV" INTANGIBLE SERVICE "an annual check-up" PRODUCT MIX (the entrepreneur's decision) SALES MIX (the customers' decision) A A A A A A A A A A B B B B B B B A B C 50% 35% 15% C C C Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved DUE TO RESOURCE CONSTRAINTS, SMALL BUSINESSES TEND TO LIMIT THEIR PRODUCT LINE BREADTH Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved PRICE IS A FLEXIBLE MARKETING TOOL THAT SIGNIFICANTLY IMPACTS ON PROFITABILITY Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved BUSINESS $6.00 THE ENTREPRENEUR'S PRODUCT DECISION CUSTOMERS We will only pay $5.00 ! SMALL BUSINESS PRICING CHALLENGES l setting prices given a lack of adequate market knowledge IF... COST < $5.00 COST > $5.00 VIABLE NOT VIABLE l earning above average profits given the lack of production economies Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved 2 New Venture and Small Business Management PLACE "CHANNELS OF DISTRIBUTION" BUSINESS CUSTOMER RIGHT PLACE GOOD DISTRIBUTION BUSINESS MIDDLEMAN (eg. retailer) = + RIGHT TIME CUSTOMER BUSINESS MIDDLEMAN (eg. wholesaler) MIDDLEMAN (eg. retailer) CUSTOMER Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved PROMOTION... IS THE PROCESS OF CREATING AWARENESS AND SELLING THE PRODUCT Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved THE MARKETING PLAN SHOULD DETAIL MARKETING... l objectives l strategies l programs Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved MARKETING OBJECTIVES SHOULD BE... l specific l quantifiable l time-specific Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved MARKETING OBJECTIVES GAP ? MARKET REALITIES `Why can these objectives be achieved ?' Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved 3 New Venture and Small Business Management MARKETING STRATEGIES REINFORCE THE DEVELOPMENT OF SPECIFIC MARKETING PROGRAMMES Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved NEW VENTURE MARKETING STRATEGIES... BUILD A MARKET OR STEAL MARKET SHARE Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved MARKETING CONCEPTS MARKETING STRATEGIES = (product lifecycle) SEGMENTATION: dividing the total market into homogeneous groups TARGET MARKETS: selection of one or more BUILD STRATEGIES INTRODUCTION GROWTH STEAL STRATEGIES MATURITY DECLINE homogeneous groups POSITIONING: Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved determination of how a venture hopes its product will be perceived by the Copyright 1999 Jon Kerr target Press Inc. All right reserved and Captus market MARKET ENTRY CONCEPTS EARLY FOLLOWERS LATE ENTRANTS EARLY FOLLOWERS LATE ENTRANTS MARKET PIONEERS INTRODUCTION GROWTH MATURITY DECLINE MARKET PIONEERS INTRODUCTION GROWTH MATURITY DECLINE RISK RETURN Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved 4 New Venture and Small Business Management NEW ENTRANTS INDUSTRY PARTICIPANTS BARRIERS TO ENTRY INCLUDE: w competitors' cost advantage w access to distribution channels w government policy w high capital requirements w production economies of scale w brand differentiation..... BRAND CONCEPTS relate to the position a venture's product has achieved in its target market Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved SYNERGY 2 + 2 = 5 ONLY if the marketing mix components work together ! Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved END OF MODULE ONE 5 New Venture and Small Business Management UNIT 6 MODULE 2 Market Research MARKET INFORMATION IS THE MOST IMPORTANT INFORMATION IN BUSINESS PLANNING. YET... Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved ENTREPRENEURS SELDOM CARRY OUT MARKET RESEARCH BECAUSE... l they lack an understanding of the process l costs can be high l market research is time-consuming Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved MARKET RESEARCH INVOLVES... l identifying information needs l searching for secondary data l collecting primary data l interpreting the information Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved ENTREPRENEURS RELY ON INFORMAL PROCESSES THAT, MORE OFTEN THAN NOT, OVERLOOK... The Market Research Dilemma 80% of the information is gained with 20% of the cost COST l demographic trends l sociocultural issues l economic factors Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved 0% 100% INFORMATION GAINED Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved 1 New Venture and Small Business Management SEARCHING FOR SECONDARY DATA IDENTIFYING INFORMATION NEEDS SOURCES INCLUDE... l periodicals WHAT INFORMATION IS NEEDED IS DICTATED BY THE KEY BUSINESS PLAN ASSUMPTIONS l trade associations l advertising l newspapers l private sources l government publications Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved UNFORTUNATELY, SECONDARY DATA MAY BE... l too general l not applicable l presented in unusable units of measurement ENTREPRENEURS FAVOUR PRIMARY RESEARCH WHICH CAN BE CLASSIFIES AS... l OBSERVATIONAL l dated l of questionable validity Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved l QUESTIONING Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved SURVEY METHODOLOGIES COST MAIL SURVEY TELEPHONE SURVEY PERSONAL INTERVIEW TIMELINESS INFORMATION ENTREPRENEURS SEEK `PERSONAL' INFORMATION, WITH THEIR MOST POPULAR SOURCES BEING... #1 #2 #3 #4 #5 #6 #7 #8 #9 #10 Customers Business Contacts Competitors Suppliers Employees Trade Representatives Business Affiliates Industry Experts Manufacturers' Representatives Social Networks low medium high slow fast medium minimal moderate detailed Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved 2 New Venture and Small Business Management INTERPRETING THE INFORMATION A PRIMARY CONCERN IS IDENTIFYING HOW MUCH WILL BE PURCHASED IN A GIVEN MARKET IN A GIVEN TIME FRAME (i.e. the sales forecast) Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved END OF MODULE TWO Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved 3 New Venture and Small Business Management UNIT 6 MODULE 3 Target Markets PROFIT =I (sales) = I (buyer's decision) Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved MARKET CLASSIFICATIONS l consumer l industrial l institutional l government l domestic l international Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved EFFECTIVE MARKETING PLANS REQUIRE FURTHER SEGMENTATION OF THESE BROADER MARKET CLASSIFICATIONS. THIS IS COMMONLY DONE ON THE BASIS OF... l geography l demographics l sociological factors l psychological factors Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved A VENTURE'S TARGET MARKET CONSISTS OF THOSE WHO HAVE... la la la MARKET CLASSIFICATIONS NEEDS MEANS WILLINGNESS POSSIBLE MARKET POTENTIAL MARKET LATENT MARKET need for its product means to satisfy that need willingness to do so ACTIVE MARKET Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved 1 New Venture and Small Business Management PRIMARY TARGETS = = ultimate purchaser or user RESOURCE LIMITATIONS MANDATE MORE PRECISE MARKET SEGMENTATION CHILDREN'S CLOTHING SHE MAKES 80% OF THE PURCHASE DECISIONS ! SECONDARY TARGETS influencers, intermediate buyers, etc... Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved ACTIVE MARKET POTENTIAL MARKET LATENT MARKET 4000 500 500 TOTAL MARKET Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved 5000 Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved ACTIVE MARKET POTENTIAL MARKET LATENT MARKET 4000 500 500 this can be further segmented CUSTOMER #1 X A B C BUYING CRITERIA EMPHASIZES #1 #2 #1 #2 TOTAL MARKET 5000 location hot dog #3 condiments #4 service location hot dog #3 condiments #4 service Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved 2 New Venture and Small Business Management SEGMENTING THE MARKET ON THE BASIS OF NEEDS ALLOWS ENTREPRENEURS TO FOCUS THEIR MARKETING EFFORTS Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved TO DO THIS, THEY MUST GAIN AN INTIMATE UNDERSTANDING OF THE CHARACTERISTICS OF THAT MARKET ! Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved THE PURCHASE DECISION PROBLEM RECOGNITION PROBLEM RECOGNITION INFORMATION SEARCH AND EVALUATION PURCHASE DECISION CURRENT STATE IDEAL STATE Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved POST-PURCHASE EVALUATION Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved PROBLEM RECOGNITION OFTEN OCCURS SUBSEQUENT TO A CHANGE IN THE STATE OF THE CUSTOMER... l PSYCHOLOGICAL (eg. hunger, growth, aging) l SIGNIFICANT LIFE EVENTS (eg. birth, marriage) l CAREER STATUS (eg. new job, unemployment) l NORMAL DEPLETION l PRODUCT PERFORMANCE Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved PSYCHOLOGICAL SIGNIFICANT LIFE EVENT IDEAS ? CAREER STATUS NORMAL DEPLETION PRODUCT PERFORMANCE Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved 3 New Venture and Small Business Management INFORMATION SEARCH AND EVALUATION IS A PROCESS OF REVIEW AND RECYCLING... SET / REFINE BUYING CRITERIA INFORMATION SEARCH AND EVALUATION SET / REFINE BUYING CRITERIA PRODUCTS MUST SATISFY THE KEY BUYING CRITERIA PROMOTION BUILDS AWARENESS EVALUATE GATHER INFORMATION EVALUATE GATHER INFORMATION Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved POST-PURCHASE EVALUATION PURCHASE DECISION THE DECISION IS SIMPLIFIED WHEN THE PRODUCT FITS THE NEED EXACTLY Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved PRODUCT EXPECTATIONS GAP ? PRODUCT DELIVERY Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved DISSATISFACTION THE PURCHASE PROCESS... IS INFLUENCED BY... PROBLEM RECOGNITION PHYSIOLOGICAL FACTORS PHYSIOLOGICAL / PSYCHOLOGICAL FACTORS l needs INFORMATION SEARCH AND EVALUATION PSYCHOLOGICAL FACTORS PURCHASE DECISION l perceptions l motivations POST-PURCHASE EVALUATION SOCIOLOGICAL FACTORS l attitudes Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved 4 New Venture and Small Business Management THE NEEDS HIERARCHY DESIRES WANTS ESSENTIAL NEEDS Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved ACTIVE MARKET SIZE DESIRES WANTS ESSENTIAL NEEDS Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved MARKETING EFFORT REQUIRED PERCEPTIONS... are the overall meaning a customer attaches to a product. PERCEPTIONS ARE REALITY ! Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved DESIRES WANTS ESSENTIAL NEEDS Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved PRODUCT POSITION high I like product CURRENT STATE IDEAL STATE A PRICE low low A B TENSION = MOTIVATION QUALITY high CURRENT STATE IDEAL STATE NEW B PRODUCT 1999 Jon Kerr and Captus Press Inc. All right reserved Copyright Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved 5 New Venture and Small Business Management ENTREPRENEURS CAN NOT CREATE NEEDS BUT THEY CAN MOTIVATE CUSTOMERS ATTITUDES CAN CONSTRAIN OR DRIVE THE PURCHASE DECISION PROCESS Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved SOCIOLOGICAL FACTORS l CULTURE w eg. social heritage SOCIOLOGICAL FACTORS l CULTURE l SOCIAL CLASS l REFERENCE GROUPS w eg. family, friends, colleagues, etc... l SOCIAL CLASS w social standing is largely influenced by income l OPINION LEADERS Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved w influence others in the target market THE PURCHASE DECISION IS PART... MARKET SEGMENTATION CONSUMER MARKET INDUSTRIAL MARKET l INDUSTRIAL CLASSIFICATIONS EMOTIONAL CONSUMER MARKET RATIONAL INDUSTRIAL MARKET l DEMOGRAPHICS Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved 6 New Venture and Small Business Management PROBLEM RECOGNITION INFORMATION SEARCH AND EVALUATION Purchasers are well informed... INDUSTRIAL NEEDS = I (CONSUMER DEMAND) Therefore, knowledgeable and well-trained sales staff are a must. Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved PURCHASE DECISION MANY INDUSTRIAL GOODS ARE PURCHASED ON A TENDER-BID BASIS Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved 7 New Venture and Small Business Management UNIT 6 MODULE 4 Product Management PRODUCT = "a bundle of satisfaction offered to customers in an exchange transaction" Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved KEY PRODUCT STRATEGY DECISIONS RELATE TO... l product depth / breadth l level of quality l packaging l branding l warranties l etc... Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved PRODUCT POLICIES ADDRESS... l the "CORE" component w the product itself, which is frequently defined by its attributes such as physical features, quality, etc... l the "COMPLEMENTARY" component w eg. packaging, financing, warranties, etc... Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved CLASSIFICATIONS OF CONSUMER PRODUCTS l staple l convenience l shopping l specialty Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved CLASSIFICATIONS OF INDUSTRIAL PRODUCTS l capital goods l materials l supplies l services Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved 1 New Venture and Small Business Management TO UNDERSTAND THE ENTREPRENEUR'S DECISION, WE MUST DEFINE... PRODUCT STRATEGY ALTERNATIVES STRATEGY ADOPTED BY MOST NEW VENTURES l PRODUCT ITEMS w specific products SINGLE PRODUCT SINGLE MARKET SINGLE PRODUCT MULTIPLE MARKETS l PRODUCT LINES l PRODUCT MIX w the sum of all similar product items MULTIPLE PRODUCTS MULTIPLE PRODUCTS SINGLE MARKET MULTIPLE MARKETS w the sum of all product lines Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved PRODUCT STRATEGY ALTERNATIVES ADDING PRODUCTS MAY MEAN... l more production runs SINGLE PRODUCT SINGLE MARKET SINGLE PRODUCT MULTIPLE MARKETS l larger inventory l more capital l different price schedules STRATEGIES ADOPTED BY MOST GROWING VENTURES MULTIPLE PRODUCTS MULTIPLE PRODUCTS SINGLE MARKET MULTIPLE MARKETS l more sales literature l different customers Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved PRODUCT TURNOVER PRODUCT SALES VALUE % OF TOTAL SALES CUMULATIVE % SINGLE-PRODUCT GROWTH STRATEGIES l gain l get 1 ________ 2 ________ 3 ________ 4 ________ 5 ________ ________ ________ ________ ________ ________ ________ ________ ________ ________ ________ ________ ________ ________ ________ ________ new customers current customers to buy more new uses l establish Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved 2 New Venture and Small Business Management MARKETING MIX PRODUCT CLASSIFICATION THE PRODUCT PRICE low price sensitivity competitive high PLACE convenient location close to competing brands location not important PROMOTION point of purchase target key buying criteria (eg. price) motivational (eg. promote outlets) CORE COMPLIMENTARY COMPONENT CONVENIENCE GOODS SHOPPING GOODS SPECIALTY GOODS Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved PRODUCT DIFFERENTIATION CAN BE ACHIEVED BY... l BRANDING w verbal or symbolic identification w attention value w dispensing aspects w visual appearance PRODUCT DIFFERENTIATION CAN BE ACHIEVED BY... l BRANDING l PACKAGING l LABELING l WARRANTIES l PACKAGING Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved w cost w service capabilities w competitive practices w legal implications w customer perceptions KEYS TO PRODUCT POSITIONING l TARGET MARKET DETERMINATION PRODUCT POSITION = I (PERCEPTIONS) w what are they buying ? w where are they buying ? w why do they buy ? w how is the product used ? l THE COMPETITION w where are products comparable ? w where do they differ ? w what do the differences mean to the customer ? Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved 3 New Venture and Small Business Management TO CUSTOMERS... PRICE POSITIONING (HYPOTHETICAL) QUALITY = THEREFORE... I (PRICE) PRODUCT A B X PRICE $95.00 $85.00 $84.00 $73.00 $70.00 the simplest way to position a product is by price. Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved C D Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved PRICE MAPPING (HYPOTHETICAL) QUALITY 10 9 8 7 6 PRICE SELECTION 5 4 3 2 PRICE MAPPING (HYPOTHETICAL) B A QUALITY 10 9 8 7 C/D X C/D X B A A B/X D X B/C A C D 6 PRICE SELECTION 5 4 3 2 A D B/X X B/C A C D SERVICE 1 C 0 1 2 3 4 D X/A B 5 6 7 8 9 10 SERVICE 1 C 0 1 2 3 4 D X/A B 5 6 7 8 9 10 Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved PRICE MAPPING (HYPOTHETICAL) QUALITY 10 9 8 7 6 PRICE SELECTION 5 4 3 2 PERCEPTIONS & POSITIONING B A C/D X l product position must be deliverable l positions that are not easily duplicated are preferred A D B/X X B/C A C D SERVICE 1 C 0 1 2 3 4 D X/A B 5 6 7 8 9 10 l marketing can be focused by a simple position statement Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved 4 New Venture and Small Business Management IMPORTANCE OF POSITIONING WHEN MARKETING UNDIFFERENTIATED PRODUCTS, COST IS KEY. BUT... INITIAL PRICE DISCOUNTING CREATES A PERCEPTION AND A POSITION THAT ARE NOT EASILY CHANGED. Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved DIFFERENTIATED PRODUCTS UNDIFFERENTIATED PRODUCTS Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved THE PRODUCT LIFECYCLE (EXAMPLE: EDUCATION) CLASSROOM INITIAL PRICE = I (LONG-TERM * COSTS EXPECTED MARKET PRICES ) INTERNET TIME INTRODUCTION GROWTH MATURITY DECLINE Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved THE PRODUCT LIFECYCLE SALES CURVE THE PRODUCT LIFECYCLE OLD PRODUCTS $ PROFIT CURVE TIME NEW PRODUCTS TIME WORD PROCESSORS TYPEWRITERS Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved 5 New Venture and Small Business Management THE PRODUCT LIFECYCLE THE MARKETING MIX INTRODUCTION GROWTH MATURITY DECLINE (don't enter here!) PRODUCT PRICE PLACE PROMOTION PEOPLE basic low limited distribution introduce eliminate or wide range new products let die higher wider distribution discounts intense distribution cost plus selective distribution milk product service TIME INNOVATORS ADOPT NEW PRODUCTS AT DIFFERENT RATES l keep products simple l possess an advantage l keep price low Copyright 1999 Jon Kerr communicabilityreserved l ensure and Captus Press Inc. All right strong and very strong and educational comparative centralized decentralized I (profits) service Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved NEW PRODUCT DEVELOPMENT IDENTIFICATION OF NEW PRODUCT IDEAS SCREEN AND EVALUATE IDEAS IDENTIFICATION OF NEW PRODUCT IDEAS SOME SOURCES INCLUDE... l input from employees l government-owned patents l privately-owned patents l competitors products and advertising Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved CONSTRUCT A BUSINESS CASE ANALYSIS DEVELOP AND TEST THE PRODUCT Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved COMMERCIALIZE THE PRODUCT SCREEN AND EVALUATE IDEAS PRODUCT SCREENING SCENARIOS DOES A MARKET EXIST ? DOES THE ENTREPRENEUR HAVE RELEVANT EXPERIENCE ? DOES THE PRODUCT EXIST ? IS SCREENING REQUIRED ? 2 types of errors can occur... l proceed with a product that won't succeed SCENARIO 1 2 3 4 5 yes yes yes ? no yes yes no no no "me too" product improved improved new innovation no probably yes yes no l discard an idea that could succeed Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved 6 New Venture and Small Business Management CONSTRUCT A BUSINESS CASE ANALYSIS CONSTRUCT A BUSINESS CASE ANALYSIS CONSIDER... l cost of development l capabilities required l lifecycle cashflow profitability 2 KEY TASKS l ESTABLISH ACCEPT / REJECT CRITERIA l CONSTRUCT A SALES FORECAST l potential volumes Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved THE SALES FORECAST 2 APPROACHES l JUDGEMENTAL ESTIMATES WATCH FOR... w intuitive `feel' approaches w the `bag' mentality UNLESS IT IS A TRULY INNOVATIVE PRODUCT, COMPETITION ALREADY EXISTS ! Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved l HISTORICAL DATA Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved MARKET SHARE = I(MARKETING X EXECUTION) PLAN ONLY ONE IN THREE ENTREPRENEURS DO ANY BUSINESS ANALYSIS AT ALL ! Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved 7 New Venture and Small Business Management DEVELOP AND TEST THE PRODUCT TEST PRODUCT DESIGN / DEVELOPMENT TARGET MARKET FEEDBACK Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved 8 New Venture and Small Business Management UNIT 6 MODULE 5 Setting the Price PRICING POLICY IS RECOGNIZED AS AN ESSENTIAL INGREDIENT IN THE MARKETING STRATEGY OF THE SUCCESSFUL FIRM Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved WHILE 80% OF SMALL BUSINESS OWNERS CONSIDER PRICING TO BE ONE OF THE TWO MOST DIFFICULT DECISIONS TO MAKE, MOST MANAGE PRICING IN A REACTIVE MANNER Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved BUSINESS Cost of Production is $6.00 PRODUCT CUSTOMERS We will only pay $5.00 ! THE BUSINESS IS NOT VIABLE ! Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved PREDICTED REVENUES OF THE VENTURE = ANTICIPATED VOLUME OF UNITS SOLD x PRICE CUSTOMERS MAY BE WILLING TO PAY "PRICING" IS THE SYSTEMATIC DETERMINATION OF PRICE AIMED AT... l ATTAINING A DESIRED LEVEL OF PROFIT l FACILITATING THE SALE OF THE PRODUCT Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved WILL THE PREDICTED REVENUES ATTRACT INVESTORS ? Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved 1 New Venture and Small Business Management PRICING OBJECTIVES SHOULD BE... l specific l quantifiable l attainable Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved HOW TO PRICE ? FACTORS INFLUENCING THE PRICING DECISION CAN BE CLASSIFIED AS... l INTERNAL - which pertain to the particular venture INTERNAL FACTORS AFFECTING PRICE INCLUDE... l production l type costs of product category l EXTERNAL - which pertain to the general business environment Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved l lifecycle Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved PRODUCT TYPE l STANDARDIZED w price setting is usually based on what the competition is charging PRODUCT LIFECYCLE IMPLICATIONS l DIFFERENTIATED w the product's distinct benefits generally allow a higher price to be charged Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved INTRODUCTION GROWTH MATURITY DECLINE PRICE SET SOMEWHERE BELOW THE LONG-TERM AVERAGE Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved 2 New Venture and Small Business Management INTERESTINGLY, IT IS BETTER TO BRING AN "ENHANCED" DIFFERENTIATED PRODUCT TO MARKET AT A COMPARABLE PRICE THAN TO BRING A STANDARDIZED PRODUCT TO MARKET AT A LOWER PRICE Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved PRODUCT LIFECYCLE IMPLICATIONS INTRODUCTION GROWTH MATURITY DECLINE PRICE IS ITS MOST VARIABLE Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved PRODUCT LIFECYCLE IMPLICATIONS EXTERNAL FACTORS AFFECTING PRICE INCLUDE... l the competition demand INTRODUCTION GROWTH MATURITY DECLINE l customer PRICE IS ALMOST EXCLUSIVELY SET IN ACCORDANCE WITH COMPETITIVE PRESSURES Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved SMALL BUSINESS OWNER-MANAGERS PERCEIVE THEIR CUSTOMERS TO BE QUITE KNOWLEDGEABLE IN REGARDS TO COMPETITIVE PRICING Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved "VALUE", or the DEMAND = perceived importance in the eyes of the buyer Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved 3 New Venture and Small Business Management ELASTIC DEMAND INELASTIC DEMAND NUMBER OF UNITS SOLD NUMBER OF UNITS SOLD PRICE PRICE Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved PRICE SETTING STRATEGIES l COST-BASED l DEMAND-BASED l COMPETITION-BASED Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved PRODUCTION AND DELIVERY COSTS INCLUDE... l costs to the supplier costs costs l selling l overhead Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved TOTAL COSTS INCLUDE... l FIXED COSTS w do not vary with the amount of product being produced and sold TOTAL COST OF PRODUCTION FIXED COSTS VARIABLE COSTS l VARIABLE COSTS w vary directly with production and sales levels Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved NUMBER OF UNITS SOLD Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved 4 New Venture and Small Business Management HYPOTHETICAL CHAIR MANUFACTURER $165 000 $130 000 $95 000 TOTAL COST OF PRODUCTION $60 000 HYPOTHETICAL CHAIR MANUFACTURER # OF CHAIRS PRODUCED PRODUCTION COST PER CHAIR DESIRED LEVEL OF PROFIT PRICE 1000 2000 1000 2000 3000 $95.00 $65.00 $55.00 $25.00 $25.00 $25.00 $120.00 $90.00 $80.00 NUMBER OF UNITS SOLD Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved 3000 Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved IF... 1000 chairs are sold, PRICING SHEET PRODUCT ____________________ COST OF MATERIALS ITEMS PURCHASED STORAGE LABOUR STOCK ROOM ADMINISTRATION COSTS MANAGEMENT SALES COSTS ADVERTISING CONTINGENCIES __________ __________ __________ __________ __________ __________ __________ __________ __________ __________ ________% __________ __________ __________ THEN... the price of a chair should be $120.00 DATE _____________ IF... 2000 chairs are sold, THEN... the price of a chair should be $90.00 IF... 3000 chairs are sold, TOTAL COST PROFIT THEN... the price of a chair should be $80.00 Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved PRICE Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved ELASTIC DEMAND TOTAL COST NUMBER OF UNITS SOLD $ DEMAND CURVE WHERE COSTS > REVENUES (i.e. DEMAND), THE MARKET IS NOT VIABLE PRICE UNITS SOLD WHAT IS THE MAXIMUM PRICE THAT CAN BE CHARGED BEFORE DEMAND IS NEGATIVELY AFFECTED ? Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved 5 New Venture and Small Business Management DEMAND CURVE (HYPOTHETICAL CHAIR MANUFACTURER) 3000 2500 # UNITS 2000 SOLD HYPOTHETICAL CHAIR MANUFACTURER ACTUAL DEMAND TOTAL REVENUE TOTAL COSTS PRICE $80 = 2500 not 3000 $90 = 2000 $120 = 500 not 1000 PROFIT $120 $90 $80 500 2000 2500 $60 000 $180 000 $200 000 $77 500 $(35 000) $130 000 $50 000 $147 500 $52 500 1500 1000 500 50 60 70 80 90 100 110 120 Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved PRICE Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved ENTREPRENEURS MUST ULTIMATELY CONSIDER THE PRICING POLICIES OF THE COMPETITION DEMAND PRICE < MARKET AVERAGE PRICE > MARKET AVERAGE PRICE Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved TO CONCLUDE... ENTREPRENEURS SHOULD ADDRESS THE THREE ISSUES OF COST, DEMAND AND COMPETITION IN THE DEVELOPMENT AND APPLICATION OF A PARTICULAR PRICE SETTING STRATEGY Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved HIGH-PRICING STRATEGIES INCLUDE... l SKIMMING PRICING l PRESTIGE PRICING l "WHAT THE MARKET WILL BEAR" Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved 6 New Venture and Small Business Management LOW-PRICING STRATEGIES INCLUDE... l PENETRATION PRICING l PRE-EMPTIVE PRICING l BUNDLING l DISCOUNTING Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved PRICE LINING = a line of products of differing quality are offered by a single business and priced on the basis of their relative quality images Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved PRICE SETTING STRATEGY SHOULD BE REVISITED REGULARLY THROUGHOUT THE PRODUCT LIFECYCLE Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved APPROPRIATE PRICING ENHANCES A PRODUCT'S COMPETITIVE POSITION AND THAT OF THE VENTURE AS A WHOLE Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved 7 New Venture and Small Business Management CREDIT IS... UNIT 6 MODULE 6 Credit Policies a sales agreement between a seller and a buyer in which the seller provides goods or services to a buyer in exchange for the buyer's promise to pay at some later, agreed upon date Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved OFFERING CREDIT CAN... l generate sales l increase competitiveness l facilitate the sales process l produce more consistent sales volumes l increase client loyalty Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved FOR THE BUYER, CREDIT ALLOWS FOR... l immediate satisfaction of needs l establishment of a credit rating l better service and greater convenience l a better system of recording purchases Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved EXTENSION OF CREDIT TO A SMALL BUSINESS CAN SERVE TO ALLOW A MARGINAL BUSINESS TO CONTINUE WHERE IT WOULD OTHERWISE FAIL - THAT IS, IT CAN ALLOW SURVIVAL OF THE `NOT-SO FIT' ! Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved SHOULD I OFFER CREDIT ? Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved 1 New Venture and Small Business Management IN DECIDING WHETHER OR NOT TO OFFER CREDIT, THE ENTREPRENEUR SHOULD CONSIDER THE... l availability l credit of working capital of the market policies of the competition WHICH TYPE OF CREDIT SHOULD I OFFER ? l demographics w income w age l nature of the product Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved MANUFACTURER WHOLESALER TRADE CREDIT TYPES OF CONSUMER CREDIT l OPEN CHARGE ACCOUNT l INSTALLMENT ACCOUNT financing charge w payment is due when the bill is received w a down payment is required and there is a RETAILER CONSUMER CREDIT l REVOLVING CHARGE ACCOUNT CONSUMER pre-established limit Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved w the customer is granted a line of credit with a AN EFFECTIVE CREDIT MANAGEMENT SYSTEM NOT ONLY DETERMINES WHICH CUSTOMERS ARE ELIGIBLE TO RECEIVE CREDIT, BUT ALSO ESTABLISHES FORMAL BILLING AND COLLECTION PROCEDURES AS WELL AS A FORMAL SYSTEM OF RECORD-KEEPING Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved A CUSTOMER'S "MEANS" TO PAY INCLUDES... l current l income l current financial resources level debt position Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved 2 New Venture and Small Business Management MEASURES OF A CUSTOMERS "WILLINGNESS" TO PAY INCLUDE... l CHARACTER l CAPITAL w honesty and integrity w cash and other assets w ability to generate cashflow and follow financial plans Evaluating Credit Applicants l CAPACITY RISKS BENEFITS l CONDITIONS w general economic climate Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved A HYPOTHETICAL FIRM SALES COST OF SALES GROSS PROFIT EXPENSES / TAXES NET INCOME CUSTOMER #1 SALES $100 $60 $40 $30 $10 COST OF SALES GROSS PROFIT EXPENSES NET INCOME CUMULATIVE #2 $100 $60 $40 $30 $10 $20 #3 $100 $60 $40 $30 $10 $30 #4 $100 $60 $40 $30 $10 $40 #5 $100 $60 $40 $30 $10 $50 #6 $100 $60 $40 $30 $10 $60 #7 ----$60 --------($60) O $100 $60 $40 $30 $10 $10 HOW MANY BAD DEBTS CAN THIS VENTURE EXPERIENCE ? Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved (assumes no expense allocation to customer #7) Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved BAD DEBT CAPACITY (# of credit sales that can go uncontrolled before losses occur) NET INCOME 5% 1 in 13 1 in 15 1 in 17 CREDIT STANDING CAN BE ASSESSED THROUGH... la la trade-credit agency credit bureau sellers in the market 10% 40% GROSS 30% MARGIN 20% 1 in 7 1 in 8 1 in 9 2% 1 in 31 1 in 36 1 in 41 l other Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved 3 New Venture and Small Business Management ENTREPRENEURS SHOULD NOT OVERLOOK OTHER SUPPLIERS AS POTENTIAL SOURCES OF CREDIT INFORMATION Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved GENERIC SCORING SYSTEMS USE INFORMATION COLLECTED FROM... l grantors of credit agencies l collection l the public record Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved HYPOTHETICAL CREDIT SCORES CREDIT SCORE = I(`good' and `bad' predictive variables) `good' = job stability `bad' = prior loan default SCORE 100 200 JOB STABILITY NO YES NO YES PRIOR LOAN DEFAULT YES YES NO NO EXAMPLES: 300 400 Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved SCORING SYSTEM DEVELOPMENT 20% NUMBER OF CREDIT PROBLEMS 0 TIME 24 months PERCENTAGE OF INDIVIDUALS EXPERIENCING CREDIT PROBLEMS 24 MONTHS LATER 64% of the problems occur in the lower quartile of credit scores establish scores check for credit problems vs. original score LOW HIGH CREDIT SCORE Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved 4 New Venture and Small Business Management PERCENTAGE OF INDIVIDUALS EXPERIENCING CREDIT PROBLEMS 24 MONTHS LATER only 4.1% of those in the lower quartile were unwilling or lacked the means to repay LOW HIGH LIKE ALL OTHER ASPECTS OF BUSINESS MANAGEMENT, THE MANAGEMENT OF A CREDIT PROGRAM SHOULD BE AN ON-GOING PROCESS THAT IS CONTINUALLY REVISITED Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved CREDIT SCORE Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved OVERDUE ACCOUNTS CAN BE MINIMIZED BY... l providing timely and consistent billing statements l developing an efficient accounting system UNFORTUNATELY... OVERDUE ACCOUNTS ARE GENERALLY PART OF OFFERING CREDIT TO CUSTOMERS Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved l providing adequate resources l maintaining a business-like attitude Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved STEPS IN DEALING WITH OVERDUE ACCOUNTS INCLUDE... #1 #2 #3 #4 Sending a Billing Reminder Personal Contact Negotiate a Settlement Legal Action Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved 5 New Venture and Small Business Management A VENTURE'S DISTRIBUTION STRATEGY MUST ENSURE... UNIT 6 MODULE 7 Distribution Strategy l right l right l right l right l right product customer place time quantity Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved DISTRIBUTION CHANNELS PRODUCER CUSTOMER l penetration l channel structure l geography l timing MAIN ISSUES PENETRATION = I (number of distributors, dealers, outlets, etc...) CHANNEL INTENSITY l INTENSIVE l SELECTIVE l EXCLUSIVE Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved CHANNEL STRUCTURE CHANNEL INTENSITY INTENSIVE UNDIFFERENTIATED PRODUCTS SHORT, DIRECT EXCLUSIVE MANUFACTURER CUSTOMER DIFFERENTIATED PRODUCTS l l l l door-to-door mail-order factory outlet cybermalls Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved 1 New Venture and Small Business Management CHANNEL STRUCTURE SHORT, DIRECT MANUFACTURER CUSTOMER PRODUCT LIFECYCLE LONG, INDIRECT PRODUCT: MANUFACTURER wholesaler retailer DIFFERENTIATED DIRECT UNDIFFERENTIATED INDIRECT CUSTOMER CHANNEL STRUCTURE: INTERMEDIARIES Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved MARKET SCOPE (GEOGRAPHIC) MANUFACTURER `A' DIRECT CHANNELS INDIRECT CHANNELS POTENTIAL RETURN INDIRECT CHANNELS COST TO ESTABLISH CAPABILITY REQUIREMENTS MANUFACTURER `B' DIRECT CHANNELS RISK Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved ECONOMIC FUNCTIONS OF CHANNEL INTERMEDIARIES l breaking l assorting l facilitating l shifting ECONOMIC FUNCTIONS OF CHANNEL INTERMEDIARIES l breaking bulk bulk volumes information transfers risk l assorting GOLF EQUIPMENT Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved 2 New Venture and Small Business Management ECONOMIC FUNCTIONS OF CHANNEL INTERMEDIARIES l information transfer MANUFACTURER MANUFACTURER CUSTOMER wholesaler retailer CUSTOMER INTERMEDIARY l shifting risk MANUFACTURER WHO HAS POWER ? INTERMEDIARY WHO HAS CONTROL ? INVENTORY INVENTORY Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved SOURCES OF POWER l REFERENT POWER: l LEGITIMATE POWER: l EXPERT POWER: closely aligned interests SOURCES OF POWER l REFERENT POWER l LEGITIMATE POWER l EXPERT POWER l REWARD POWER: reward for conformity punish those that don't comply superior-subordinate relationships (eg. franchisor-franchisee) possession of superior knowledge l COERCIVE POWER: Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved A CHANNEL LEADER'S POWER LOGISTICS = PHYSICAL MOVEMENT OF GOODS CRITICAL BUYING CRITERIA INFLUENCES SMALL BUSINESS PERFORMANCE Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved l price l delivery l reputation l reliability l service SMALL BUSINESSES' COMPETITIVE WEAPONS Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved 3 New Venture and Small Business Management TRANSPORTATION ALTERNATIVES AIR SEA ROAD PIPELINE RAILROAD ELECTRONIC DELIVERY TERMS COMMON CARRIERS CONTRACT CARRIERS COMPANY-OWNED CARRIERS F. O. B. ("free on board") location CHOICE = I (dependability, timeliness, quality, etc...) Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved specifies where responsibility changes hand Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved INVENTORY OPTIONS INVENTORY STORAGE MANUFACTURER CASHFLOW OR INTERMEDIARIES Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved SUCCESS ! Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved 4 New Venture and Small Business Management WHAT IS PROMOTION ? A SOURCE UNIT 6 MODULE 8 Promotion A MESSAGE "BUY OUR" PRODUCT THE STAR A CHANNEL A RECEIVER Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved PROMOTIONS ARE... l meant to be persuasive PROMOTION = AWARENESS l flexible l personal / impersonal short-term l invariably Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved CATEGORIES OF PROMOTION BUSINESS-TO-BUSINESS "PUSH" SMALL BUSINESS' CHALLENGES l limited financial resources "PUSH" Manufacturer INTERMEDIARIES Customer "PULL" l lack of expertise with promotion loyalty to the competition l consumer Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved CONSUMER "PULL" Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved 1 New Venture and Small Business Management THE PROMOTIONAL PROCESS NOT SURPRISINGLY... PROMOTION IS CONSISTENTLY ONE OF THE MOST DIFFICULT AND PROBLEMATIC TASKS FACING SMALL BUSINESS Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved SET THE PROMOTIONAL OBJECTIVES IDENTIFY THE TARGET AUDIENCE ASSESS THE NEEDS OF THE AUDIENCE DEVELOP THE PROMOTIONAL MESSAGE DETERMINE THE BUDGET OF THE CAMPAIGN DECIDE ON THE TYPE OF PROMOTION CARRY OUT THE PROMOTIONAL CAMPAIGN ASSESS THE RESULTS Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved PROMOTIONAL OBJECTIVES SHOULD... IDENTIFY THE TARGET AUDIENCE l be specific l be quantifiable l provide a time frame DECISION MAKER vs. INFLUENCER Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved ASSESS THE NEEDS OF THE AUDIENCE INCENTIVES... DON'T CREATE NEEDS, BUT THEY DO CREATE MOTIVATION Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved I (market research) Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved 2 New Venture and Small Business Management INCENTIVES... l CLOSED CAMPAIGN w limits participation to refined target audience DEVELOP THE PROMOTIONAL MESSAGE REQUIRES SKILLS OFTEN LACKING IN SMALL BUSINESSES. THEREFORE, LOOK TO OUTSIDE ASSISTANCE. Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved l OPEN CAMPAIGN w everyone is invited to participate Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved DEVELOP THE PROMOTIONAL MESSAGE DETERMINE THE BUDGET OF THE CAMPAIGN EFFECTIVE MESSAGES ARE... l `single-minded' l truthful l compelling l attractive Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved 4 COMMON APPROACHES l "how much can be spared" l percentage of sales method l "spend as much as the competition" l "whatever it will take!" Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved IDEALLY, PROMOTIONS WILL MAXIMIZE... l REACH w the number of individuals exposed to the promotional message DECIDE ON THE TYPE OF PROMOTION l ADVERTISING l PUBLICITY l SALES PROMOTION l PERSONAL SELLING Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved l FREQUENCY w the number of times the individuals receive the message Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved 3 New Venture and Small Business Management DECIDE ON THE TYPE OF PROMOTION IN LIGHT OF `REACH' AND `FREQUENCY', CONSIDER... l habits of the target audience l geographic nature of the market l characteristics of the product l anticipated time-frame l cost ! Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved ADVERTISING IS IMPERSONAL, PAID MEDIA PROMOTION AND INCLUDES... l commercials l advertisements (media, billboards, mailings) l `word-of-mouth' Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved SMALL BUSINESS PROMOTION ADVERTISING IS AN IMPORTANT FORM OF PROMOTION THAT IS NOT WELL USED BY SMALL BUSINESSES BECAUSE OF... `word-of-mouth' > advertising > commercials l a lack of experience and expertise l more pressing day-to-day issues l financial limitations Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved ADVERTISING SCHEDULES l FRONT LOADING l CONTINUITY l PULSING l HEAVY UP Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved "I know I waste half of my advertising budget, the problem is I don't know which half"LORD LEVER 4 New Venture and Small Business Management PUBLICITY IS IMPERSONAL, FREE MEDIA PROMOTION AND INCLUDES... l news releases / stories l concept articles l opinion pieces l public service announcements Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved WITH PUBLICITY, THE ENTREPRENEUR LOSES CONTROL OVER THE MESSAGE ! Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved SALES PROMOTION IS IMPERSONAL, NON-MEDIA PROMOTION AND INCLUDES... PERSONAL SELLING INVOLVES ONE-TO-ONE CONTACT WITH PROSPECTS WHO... l incentives (eg. price cuts, couponing) l have a need l have the means and willingness to buy l make purchasing decisions Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved l events (eg. "give-aways") l samples Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved PERSONAL SELLING SITUATIONS BUSINESS BUSINESS 3 METHODS l PERSON-TO-PERSON COST CONTROL SALES EFFORT l TELEPHONE l MAIL Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved 5 New Venture and Small Business Management PERSONAL SELLING IS THE MOST POPULAR FORM OF PROMOTION IN SMALL FIRMS AND INVOLVES... l identifying and assessing opportunities l setting objectives l gathering information l establishing long-term potential l managing and harvesting the opportunity Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved THE SALES PRESENTATION METHODS FOR IDENTIFYING AND EVALUATING PROSPECTS REVISION & REFINEMENT PRESENTATION OBJECTIVES STEPS IN THE SALES PRESENTATION Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved Opening Need Resolve Offer Assess Decision P R E S E T A T I O N S E Q U E N C E KEYS TO SUCCESSFUL PRESENTATIONS l PRODUCT KNOWLEDGE l GOODWILL Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved CARRY OUT THE PROMOTIONAL CAMPAIGN PRODUCT KNOWLEDGE AND GOODWILL = and I(hiringsalesmanaging the force) ASSESS THE RESULTS GAP ? OBJECTIVES RESULTS Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved 6 New Venture and Small Business Management PROMOTIONAL EVENTS SERVE MANY PURPOSES... l introduce a new product l create a positive image l differentiate a product l highlight product improvements l maintain awareness and interest Copyright 1999 Jon Kerr and Captus Press Inc. All right reserved 7 ...
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This note was uploaded on 06/02/2011 for the course AK 3920 taught by Professor Jonkerr during the Winter '10 term at York University.

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