Make marketing work for you: boost your profits with proven marketing techniques

Make Marketing Work for You

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Make Marketing Work for You Boost your profits with proven marketing techniques

PHIL STONE

How To Books

Published by How To Books Ltd, 3 Newtec Place, Magdalen Road, Oxford OX4 1RE. United Kingdom. Tel: (01865) 793806. Fax: (01865) 248780. email: [email protected] www.howtobooks.co.uk All rights reserved. No part of this work may be reproduced or stored in an information retrieval system (other than for purposes of review) without the express permission of the publisher in writing. # Copyright 2001 Phil Stone British Library Cataloguing in Publication Data A catalogue record for this book is available from the British Library Cover design by Shireen Nathoo Design Cover image PhotoDisc Cartoons by Mike Flanagan Produced for How To Books by Deer Park Productions Typeset by PDQ Typesetting, Newcastle-under-Lyme Printed and bound by The Cromwell Press, Trowbridge, Wiltshire NOTE: The material contained in this book is set out in good faith for general guidance and no liability can be accepted for loss or expense incurred as a result of relying in particular circumstances on statements made in the book. Laws and regulations are complex and liable to change, and readers should check the current position with the relevant authorities before making personal arrangements.

Contents

Preface

9

1 The Concept of Marketing The Background to Marketing Understanding What Marketing can do for you Relating Business Objectives to Marketing Objectives Incorporating Marketing into your Business Strategy Making a Clear Mission Statement Key Points

11 11 13 15 16 18 19

2 The Importance of Competitive Advantage Looking at the Competition Using a SWOT Analysis Investigate the Environment with a PESTE Analysis Gaining a Unique Selling Point Defining your Critical Success Factors Key Points

21 21 24 25 27 28 30

3 Using Market Research and Analysis Methods Understanding your Potential Customers and Markets Segmenting the Potential Market Using Different Research Methods Management Information Systems Key Points

31 31 34 37 39 41

4 Understanding Marketing Planning Tools The Product Life Cycle Concept The Boston Consulting Group (BCG) Matrix The McKinsey/General Electric Matrix The Ansoff Matrix Establishing Clear Marketing Objectives Key Points

42 42 46 48 50 52 53

5

6 Make Marketing Work for You

5 Introducing the Marketing Mix Understanding the Components Defining your Products Considering Pricing Alternatives Evaluating Promotion Methods Being in the Right Place Key Points

54 54 57 59 61 62 64

6 Marketing the Right Products Targeting the Right Product into the Right Market Understanding Product Management Developing your Product Portfolio Using the Product Life Cycle for Product Development Introducing New Products Key Points

65 65 68 69 72 73 75

7 Setting the Right Price How Important is Price to the Consumer? Selecting the Right Price for your Products Relating Price to Sales and Profits Using Price as an Effective Marketing Tool Key Points

77 77 80 82 84 87

8 Using the Correct Forms of Promotion The Importance of Promotion Introducing the Marketing Communication Mix Evaluating the Options you have for Promotion Using Promotion Methods to Achieve Objectives Key Points

88 88 90 94 96 97

9 Being in the Right Place The Logistics of Place Decisions Establishing the Methods of Distribution Designing the Right Distribution System Managing the Supply Chain Effectively Key Points

98 98 101 103 104 106

10 Pulling it all Together Establishing your Marketing Budget Writing your Marketing Plan

108 108 110

Contents 7

Reviewing your Performance Staying Ahead of the Competition Starting the Process Again Key Points

112 113 115 116

Useful Addresses

117

Further Reading

119

Index

121

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Preface

Marketing is not a new concept. It has been used for hundreds of years by traders throughout the world. Nor is it a mystical subject requiring hours of study. It is merely a logical process which brings together the needs of the customers in the market and you as a business. This book aims to dispel the myths relating to marketing and explain the tools that you can use to successfully market your business. Approach the subject with an open mind and you will quickly see how supposedly complex theories can be easily understood and used to your advantage. By using these tools you can understand exactly where your business stands in the market and subsequently plan to exploit the opportunities available to you. You will also be able to recognise any potential threats and take early action to counter them. The whole key to successful marketing is to gain a competitive advantage by having the right products, in the right place, at the right time. You may have invented the greatest product of all time, but unless you have a customer willing to buy it, you are unlikely to make any money. Phil Stone

9

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1 The Concept of Marketing The whole concept of marketing is about being able to place your business in the most favourable environment. It means listening to the demands of the customers in the market and meeting their needs. You may have little success if you try and operate the process in reverse by producing something that you think they need. Unless you have something that they want you are unlikely to make many sales. From the outset you must concentrate on: . . . .

selling the right products at the right price in the right place at the right time.

The concept of marketing concentrates on these key issues and gives you a logical framework to enable you to research and analyse the market. From this you can formulate a strategy to position your business and gain a competitive advantage.

THE BACKGROUND TO MARKETING Marketing in one form or another has been around for centuries. Some would argue that basic marketing has been on the earth since the first people exchanged goods or services with others. The background to modern marketing was, however, established in the late nineteenth and early twentieth centuries, when the concept of marketing was initially based on the thought that whatever was produced could be sold. Marketing through product orientation This first modern concept of marketing concentrated solely on what could be produced and had no direct relationship to what the consumer might have wanted. There were, in effect, three basic marketing assumptions: 11

12 Make Marketing Work for You

. There was a ready market for anything that could be produced. . Costs of production should be kept as low as possible. . Consumer choice should be limited to basic products. From this you can see that marketing was based on keeping prices low, which would effectively stimulate demand. Production was the key activity, although the fact that consumers may actually not have wanted the products being produced was never considered. Even if they did, choice would be limited to the specifications of the product as defined by the producer. One example of this particular production orientation strategy, which today would fail totally, was the production of cars by Henry Ford. He will perhaps always be remembered for saying that customers could have any colour they wanted as long as it was black. Whilst this philosophy worked at the time, mainly due to demand exceeding supply, the consumer eventually became more discerning. This led to a change in strategy, to one which concentrated on what could actually be sold. Marketing through sales orientation It was the previous concentration on mass production that led to the demise of the production orientation theory of marketing. It meant that supply outstripped demand, which then created competition between manufacturers. To counter this change in market conditions firms now had to concentrate on two new marketing techniques: . Products had to match the demands of the consumer. . Consumers had to be persuaded that the product was better than that produced by competitors. Even at this stage, the relevance of competitive advantage had been recognised, although it subsequently led to some fairly dubious selling techniques. Marketing was then based on the assumption that consumers were there to buy products and it did not matter how exactly they were persuaded to buy one particular product as opposed to another. This led to the employment of a number of selling techniques, many of which were totally dishonest, making false claims about the product itself. Sooner or later the consumer would rebel against these techniques and as a consequence force yet another change in marketing methods. This was also assisted by the introduction of

The Concept of Marketing 13

consumer protection legislation which was designed to stamp out dishonest and unethical marketing. The advent of modern marketing orientation Modern marketing is based on the philosophy that you must satisfy the needs of the consumer if you are to succeed. This is stated very succinctly by the Chartered Institute of Marketing in their definition of marketing: Marketing is the management process responsible for identifying, anticipating and satisfying customer requirements profitably. With increased competition in the market, not only on a domestic basis but also worldwide, it is becoming increasingly important for all businesses, no matter what their size, to have a distinctive marketing strategy. Competitive advantage is now of prime importance if you are to distinguish your business from others.

UNDERSTANDING WHAT MARKETING CAN DO FOR YOU It does not matter whether you operate your business as a sole trader or you are a multi-national company, marketing must form a key part of your overall strategy. Unless you are lucky enough to be in the right place at the right time then some form of planning is essential. By using the techniques of marketing outlined in this book you will be able to conduct your research and analysis and use this information to construct a logical marketing plan. Marketing will help you to answer the three basic questions relating to your business: . Where am I now? . Where do I want to be? . How am I going to get there? Consider the whole process of marketing as a journey. To undertake that journey you need to know where you are starting from, the route you need to take to get to your destination and the resources you need to get there. What you must understand is that marketing on its own will not guarantee the success of your business. It is, however, a vital component of your overall business plan because it concentrates on two key factors – your customers and your markets.

14 Make Marketing Work for You

Knowing where you are now in relation to the market You may consider that you already hold the answer to this question, but do you really? Do you know what your competitors are doing, what developments there are in the market, what alternative products are being introduced? With today’s marketing environment changing so quickly, the questions could be endless. As an example let us return to the case of Henry Ford. Whilst Ford believed that choice was not a necessity for the consumer, he also failed to recognise the changes taking place in the market. General Motors, however, considered that giving more choice could actually persuade consumers to buy their cars even if they were more expensive. They offered a range of colour schemes with additional optional extras – basic things that today we take for granted, such as interior heating – and all at a higher price to the consumer. This had a devastating effect on Ford sales. Firstly, General Motors gained a significant market share from Ford. Second, it left Ford with a reputation for only producing cheap basic cars. Finally, and of extreme importance, it meant that Ford had lost competitive advantage because it had not reacted to the changing market environment. Establishing exactly where you want to be No business can afford to stand still. Even if you have the best product in the market, you must plan to stay ahead. Sooner or later someone will copy what you offer, or provide a better product for the same purpose. This is where the establishment of clear objectives is so important. Whilst we look at this in a little more detail later in this chapter and also in Chapter Four, it is pertinent to clarify exactly what is meant by objectives in relation to marketing. Again, remember that marketing relates to two key factors – customers and markets. Marketing objectives therefore relate to the same two factors: . . . . .

sales to existing customers sales to new customers sales of existing products in existing markets development of new products penetration of new markets.

The development of products and markets is also looked at in some detail in Chapter Four, which looks at some of the tools for marketing planning.

The Concept of Marketing 15

Planning how you will achieve your goal The techniques of marketing are invaluable in assisting you with planning how you will achieve your goals and objectives. The reason for this is that they provide you with a logical sequence, which if followed correctly, will lead to a clear marketing plan and strategy. Think back again to the process involved in making your journey. Once you have established that you need to get from A to B, you then need to plan on the resources you will require. What transport will you use? How much will it cost? How long will your journey take? In the same way, in planning how you will achieve your objectives, you will need to look at resources in terms of products, staff, costs, premises and physical location. By using the marketing mix, introduced later in Chapter Five, you can relate all of these together as part of the planning process.

RELATING BUSINESS OBJECTIVES TO MARKETING OBJECTIVES Marketing objectives should not be confused with business objectives. Business objectives relate to your business as a whole and are your vision of what your business will achieve in the future. These are the primary objectives of your business. Marketing objectives, however, are secondary objectives. On this basis you will understand that you cannot formulate your marketing objectives until the overall objectives and strategies of your business have been defined. It naturally follows from this that your marketing objectives must be consistent with your business objectives. They must also be compatible with the direction of your business as set out in your business plan. Most importantly, your marketing objectives should lead to sales. The marketing objectives should also be SMART. SMART objectives are: . . . . .

Specific Measurable Agreed Realistic Timed.

Once again, remember that the primary marketing objectives relate to the two key areas of products and markets. They should not be confused with objectives relating to price or promotional methods

16 Make Marketing Work for You

that are entirely subservient. There are four alternatives to think about when considering your marketing objectives: . . . .

selling existing products to existing markets extending existing products into new markets developing new products for existing markets developing new products for new markets.

This framework is known as the Ansoff matrix. The use of this, and other tools with which marketing objectives can be established, is covered in more detail in Chapter Four. Examples of marketing objectives could include: . Increasing product awareness in the target market by 10% over twelve months as measured by consumer surveys. . Increasing sales by 10% over twelve months by developing new markets in Europe for the existing products. One important point that you should consider when establishing your marketing objectives is that they must not conflict. If you have multiple objectives, they must be consistent with each other. In addition, you must have an appropriate system in place if success, or otherwise, is to be measured properly.

INCORPORATING MARKETING INTO YOUR BUSINESS STRATEGY Marketing is an essential part of your business strategy. As has been already established, you must focus on the needs of your customers, anticipate what they desire and then fulfil those needs. It is perhaps worth pointing out at this stage that selling is entirely different to marketing. It is absolutely impossible to have an effective sales campaign unless you know: . who your customers are . why they buy. If you try to launch a product without having first understood the market, you are doomed to failure. For example, how would you attempt to sell pre-packed ice cubes to an Eskimo? Unfortunately

The Concept of Marketing 17

there are many businesses that do not understand the difference between selling and marketing, in effect attempting to go back to the days of ‘sales orientation’ outlined earlier in this chapter. This cannot succeed. Marketing is an integral part of the business planning process and as such must become part of your strategy. To demonstrate the relationship between business planning and marketing planning, consider the framework for formulating a strategic plan that is outlined below. Framework for establishing an integrated marketing plan Outline a Clear Mission Statement

| Establish Business Objectives

| Conduct an Audit of the Market

| Analyse the Audit using the Tools for Marketing Planning

| Establish Marketing Objectives

| Determine Marketing Strategies

| Establish a Marketing Budget

| Conduct an Audit of Resources

| Develop Implementation Plans

| Consider Contingency Plans

| Complete the Business Plan

| Establish Systems for Review

This confirms the fact that business objectives have to come first, following which a full audit of the market can be undertaken, which is, in effect, the first stage of marketing planning. The results of this

18 Make Marketing Work for You

audit can then be analysed to highlight the opportunities that may be available as well as warning of any potential threats. This will then lead to the creation of specific marketing objectives and a related strategy, following which a marketing budget can be set. These are, of course, the final stages of marketing planning within the framework. The framework then returns to the overall strategy for the business by looking at the resources already available and those that will be required to implement both the strategy for the business and the marketing strategy. The two must be integrated if your business is to succeed. There are a number of management tools that you can use to analyse the current position of your business and then set future objectives. Two of these, the SWOT analysis and the PESTE analysis, are looked at in detail in the next chapter.

MAKING A CLEAR MISSION STATEMENT As you will have already noted, your mission statement appears at the head of your strategic plan as a focus for your business. Often referred to as a ‘vision statement’, it should outline the whole purpose of your business. In many ways it is the hardest part of your strategy to write because it must, in normally no more than one page, detail succinctly the whole thrust of your business. It is also, unfortunately, the most misunderstood part of the entire planning process. Many people think that the mission statement must be couched in eloquent language and be full of lofty ideals that describe the business. All too often it is seen written in pompous language, in which case its meaning and purpose is probably incomprehensible to those that read it. A good mission statement must mean something, not only to you, but also to your customers and suppliers. There are four key components: . The role or contribution that the business makes – is it a voluntary organisation or a charity? Are you in business to supply goods and services and make a profit? . A definition of the business – this should be given in terms of the benefits you provide or the needs that you satisfy. It should not define what you do or what you make. These should have been outlined as part of the first component.

The Concept of Marketing 19

. An outline of your distinctive competencies – the factors that differentiate your business from the competition. These will be the skills or capabilities you offer that are not, or cannot, be offered by your competitors. . The indications for the future – what the business will do. What it might do in the future and what it will never do. A good mission statement is written in two parts: In the first you outline the industry that you are in and the products that you offer. In simple clear terms, this will relate to exactly what your business does. The second part comprises the business strategies that you follow to achieve success. These can take any number of different forms, although some basic examples could include: . We will provide an excellent service to all customers to achieve total satisfaction. . We will accomplish high productivity levels through sound planning, organisation and teamwork. . We will earn sufficient profits to ensure investment in new technology, together with providing a good return to shareholders. . We will earn high employee loyalty and motivation by showing respect for their capabilities and providing future training and development opportunities. . We will gain recognition in the market for being a highly professional, ethical, quality assured business.

KEY POINTS . Marketing is not difficult and is crucial to your business, although it will not, on its own, guarantee success. . Understand the core concept of satisfying the consumer by selling the right product, at the right time and at the right price. . Look at the process of marketing as undertaking a journey: you

20 Make Marketing Work for You

need to know where you are now, where you want to be and how you will get there. . You must establish clear business objectives before you can consider marketing objectives. . Incorporate marketing into your overall business strategy and concentrate on the key elements of the customer and the market. . Make sure you have a clear mission statement which actually means something.

2 The Importance of Competitive Advantage Competitive advantage is critical to your marketing. You must offer some form of differentiation from other businesses in the same market if you are to persuade consumers to buy from you. Competitive advantage can take two main forms, either of which may, or may not, be readily visible in the market. . Financial – either through efficiency savings which lead to lower costs of production and/or a lower selling price to the consumer. . Differentiation in service – perhaps through longer opening hours, an improved delivery service, a measurable difference in the quality of service or a higher quality product. There is, of course, a further alternative which would combine both of the above forms. However, there is a danger that trying to be competitive on all fronts could result in a mixed message being sent to consumers. As will be demonstrated later in this book, consumers do not always buy on price alone. Sometimes quality is more important. It is therefore not always appropriate to try to combine high quality with low price. Consumer expectation also plays a part in the formula. There are a wide variety of markets where price expectations match that of quality, i.e. a high price for a high-quality product. The ultimate aim of competitive advantage is to enable you to produce a higher return on your capital investment than that enjoyed by your competitors.

LOOKING AT THE COMPETITION Understanding your competitors is crucial if you are to obtain a competitive advantage. It is only in this way that you can exploit the

21

22 Make Marketing Work for You

opportunities available to you and counter the prospective threats. Competition will come in four different ways: . . . .

direct indirect industry linked.

Direct competition This is generated by companies that offer the same products or services as you in the same market – for example, supermarkets, book shops and record shops. Of all the types of competition that you could encounter, this one should be the easiest for you to assess. Indirect competition To establish this you will need to look at companies that although they operate in different markets and with different products, may pose a threat if they can easily diversify into your market. For example, consider the developments in financial services, where banks have moved into the markets of mortgages, insurance and pensions, which traditionally were the products of building societies and insurance companies alone. Industry competition This includes companies that operate in the same product area but sell in different markets. With the opening of trade throughout Europe and, indeed, the ease with which trade is conducted worldwide, this type of competition could be a major unseen threat. Consider, for example, the travel industry. The ease with which travel arrangements can now be made over the Internet, and, often at lower cost, will pose a major threat to the high street travel agents. Linked competition This type of competition is more wide-ranging. You will need to look at those companies that offer the same service but deliver in a different manner. As an example, consider the transport industry. If, for example, you operate within the road haulage business you will have competition from both train operators and short-haul airlines. Identification is not enough It is extremely important for you to have as much information on your competitors as possible. If you do not know what your

The Importance of Competitive Advantage 23

competitors are doing there is little prospect of your being able to compete. It should be relatively easy for you to obtain basic information, for example: . . . .

product range in terms of specification and price availability of discounts delivery arrangements terms of trade, i.e. cash or credit.

Some of this information may already be available to you if you have an existing connection or have been previously employed in the same industry. If, however, you are a potential new entrant to the market, you may find that during your market research into potential customers, some of them may be customers of your competitor and therefore will pass on information about the service they receive. Ideally you will need to assess your competitors under the following broad headings: Exactly who they are . Full details of the business, where they are located, what products or services they offer, who they sell their products to and at what price. What their marketing objectives relate to . Are they trying to expand their market share in the existing market, or are they expanding into new markets? What product portfolio do they have? Is it static or are they introducing new products? What sort of marketing strategies they employ . Are they concentrating on a particular market segment? What promotional strategies do they use? Are they innovative in their approach to the market? Are they possibly seen as market leaders, or are they happy to follow the lead of others? Whether they have any strengths and weaknesses . What is their competitive advantage? Do they have a strong brand image? What weaknesses could you exploit? Once you have gained as much information as possible you can use a SWOT analysis to put it into a logical defined format.

24 Make Marketing Work for You

USING A SWOT ANALYSIS SWOT is the acronym for strengths, weaknesses, opportunities and threats. A SWOT analysis encourages you to think about the positive sides of your business as well as the negative aspects. It can also be used to assess your competition. It should summarise all the information you have gained in the course of your research in a logical format. It is of prime importance that it should be totally honest. It is insufficient merely to extol your strengths and the opportunities available to you. You must recognise the strengths of your competitors in the market if you are to deal effectively with them. You must also recognise that your competitors will be assessing the market in the same way and looking to exploit the opportunities available to them. Conducting a SWOT analysis is the construction of a nonfinancial balance sheet. The analysis is undertaken using a grid to enable you to consider how you will match your strengths to your opportunities and how you will overcome your weaknesses and threats. The strengths and opportunities are listed in the columns on the left and are represented by existing or potential assets. The weaknesses and threats are listed in the columns on the right and these are represented by existing or potential liabilities. Strengths – something that you are doing correctly or are good at. It may be a skill, a competence, or a competitive advantage that you have over your rivals. Questions to ask: What are my advantages? What is it that I do well? Opportunities – a realistic avenue for future growth in the business. Something to be used to develop a competitive advantage. Questions to ask: What are the market trends? How can they be exploited? What chances are there for me?

Weaknesses – something that compared to your rivals you lack or do poorly. A condition that puts you at a disadvantage. Questions to ask: What could be improved? What is it that I do badly? What should be avoided?

Threats – a factor that you may, or may not have control over that could lead to a decline in business. Questions to ask: What is my competition doing? What obstacles do I face? What effect will a new entrant have on my market?

The Importance of Competitive Advantage 25

The key points to remember when using a SWOT analysis are: . . . .

Build on strengths. Resolve weaknesses. Exploit opportunities. Avoid threats.

The SWOT analysis should give you a clear idea of how your business is different from your competitors, both in terms of the market and your products. Segmenting the market will be considered in the next chapter and once you have completed this exercise, if you think it necessary, you should prepare an independent SWOT analysis for each segment. It is important that you understand that your products or services could fall within different segments of the SWOT analysis. Some will be seen as strengths or opportunities for your business. Others will be weaknesses or threats when compared to your competitors.

INVESTIGATE THE ENVIRONMENT WITH A PESTE ANALYSIS There are many factors in the market environment that could impact upon your business, and a PESTE analysis is designed to provide you with a focused framework to assist you in analysing the market. It will also help you later when you come to establish your marketing objectives. It will take the results of your research and put them into a logical format to ensure that you have considered all of the factors that could affect you in the market. P E S T E

– – – – –

Political Economic Social Technological Environmental

Political forces These can have a direct impact on all markets. Examples of these would be health and safety legislation governing conditions in the workplace and consumer protection legislation covering labelling and packaging. This can be a very important area. Changes in legislation covering the way in which businesses trade

26 Make Marketing Work for You

can be very costly and, in some cases, could wipe out your market entirely. A good example is the recent changes in the sale of duty free goods. Whilst for some companies this change was an obvious threat to their business, for others it has provided many opportunities. One of the most important pieces of legislation recently introduced is the Competition Act 2000. This could have a wideranging impact on all businesses. Make sure that you understand whether this will have any impact upon your own business. Economic forces Economic forces include the effects of inflation, interest and exchange rates. With the development of the Single European Market, even if you do not export any goods or services you may face increasing competition from firms within Europe. Consider carefully the economic trends within the UK. For example, if interest rates rise, will this affect the spending habits of your customers? Can increased costs be passed on to your consumers or is your market price-sensitive? Social forces Social forces include the consideration of changing demographic trends in your customer base and the changing social climate in different parts of the country. They will also incorporate other factors, such as changes in consumer lifestyles, housing trends and the general increase in the average age of the population. You will look at some of these in more detail when you segment your market in terms of your existing and potential customers. What this will also help you to achieve will be marketing objectives that enable you to target the right customers. Technological forces Advances in technology have been some of the most important aspects affecting businesses over the last decade. The development of information technology has impacted on the ways in which business is conducted – for example, the use of faxes and e-mail, and, of course, the opportunities now created by the Internet. For many businesses the use of the Internet as a marketing tool is little understood and certainly not appreciated. For all businesses, whatever their market, the Internet can be a very efficient marketing tool, creating worldwide sales opportunities even for small, oneemployee style businesses.

The Importance of Competitive Advantage 27

You must consider the use of the latest available technology regardless of your field of business. As part of your marketing you must consider how you will present your business on the Internet. This is no longer something that can be ignored. The opportunities are limitless and you must take advantage of them. Environmental forces The impact of a business on the environment must be considered as a separate issue. Many businesses are now adopting environmentally friendly products which compete against more traditional products that are not produced in such an environmentally friendly manner. For example, the manufacture of cosmetics without the use of animal testing. There can be no doubt that there is a shifting emphasis towards people purchasing products that are environmentally friendly, and again, this could be either a threat or an opportunity for you. In summary, a PESTE analysis will provide you with a wider perspective on the future marketing objectives for your business. The key word is ‘future’. Unlike the SWOT analysis, which concentrates on the present, the PESTE analysis must be forward looking based on existing knowledge. It is only in this way that you can establish objectives that will either counter the threats that you will face in the market or exploit the opportunities that you will identify.

GAINING A UNIQUE SELLING POINT A unique selling point, or USP, is a crucial element in defining your competitive advantage. You must establish what it is that makes you different from your competitors and having identified these advantages use them in your marketing. Be clear – if you cannot identify any competitive advantage offered by your existing products or services then you need to improve them. When identifying your unique selling points there are five questions that you need to ask yourself: . Will the customers . Is it significantly offering? . Will my customers . Will my customers

in the market perceive this as an advantage? different from what my competitors are actually believe in this USP? receive some benefit from this USP?

28 Make Marketing Work for You

. Will this USP motivate customers sufficiently to make a purchase? From the above you will establish whether or not your perceived competitive advantages are also seen in the same way by your potential customers. An advantage must offer clear benefits, for example, better quality or better value. The key is significant benefit to the customer. Your products or services may have numerous features, but unless they offer real benefits, there is little incentive for your customers to purchase them. Part of the process of establishing your USP will also relate back to what your competitors are doing in the market. You need to keep up to date with developments in the market to ensure that your USP does not become outdated. You can be sure that once you offer a USP, your competitors, if they are on the ball, will try and find a USP of their own to surpass yours. The important point to try and focus on is that your competitive advantages must be sustainable. It is essential therefore, when you are setting your objectives based on competitive advantage, that you also consider cost effectiveness and overall profitability. To establish the relationship between benefits to the customer as opposed to the costs to you, you should consider these four alternative scenarios: . . . .

low cost to you – low benefit to your customers high cost to you – low benefit to your customers low cost to you – high benefit to your customers high cost to you – high benefit to your customers.

From these options it should be obvious that the competitive advantages that are most cost effective to you, whilst at the same time offering high benefits to your customers, should be the ones on which you concentrate your marketing efforts.

DEFINING YOUR CRITICAL SUCCESS FACTORS Within all markets there are a number of factors that will be critical to your success. If you are to succeed you must therefore address these factors when formulating your strategy. Under normal circumstances, the number of critical success factors will not normally exceed five, although you must understand that there could be secondary factors that will contribute to your success.

The Importance of Competitive Advantage 29

All of these critical success factors should have already been established during your research and it is now time to prioritise them. Examples of critical success factors could include delivery times, speed of service, quality of the product, and competitive pricing. In many ways these will also link up with the competitive advantages that you have established. It is important that once you have defined the factors critical to your success you then measure your own performance in these factors relative to your competitors. The way to do this is to weight each factor out of a total score of 100 in terms of how critical it is. You then allocate a score out of ten for your own performance and that of your competitors. It is vitally important that you be totally objective when allocating a score. As an example, you may consider that there are three critical success factors, the first is weighted at 50, the second at 30, and the third at 20. Once you have allocated a weighting to the factor you then multiply that weighting by the score that you have allocated for performance. This will then give you a total score that can be used as a measure of success.

Your Performance

Competitor Performance

CSF

Weighting

Score

Measure

Score

Measure

1

50

8

400

7

350

2

30

5

150

7

210

3

20

6

120

5

100

100

19

670

19

660

As you can see from the above example, on the basis of the pure scores that have been allocated, both you and your competitor are exactly the same. However, taking the weighting of the factors into account, you have a marginal competitive advantage. If you find that you are scoring yourself low on the most important factors and high on the least important factors, then you obviously need to adopt a strategy that will improve your score on the most important factors.

30 Make Marketing Work for You

Using this system will help you concentrate your efforts and therefore your strategy on what your customers consider to be important. Using the same example again you can see that if you improved your score in the second critical success factor to match that of your competitor this would in fact, put you in an overall stronger competitive position. Instead of scoring 150 you would score 210 for this factor, thereby increasing your total score to 730 as opposed to your competitor’s score of 660. Critical success factors will vary from industry to industry and from market to market and there can be no clear formula as to what will be most important for you. You will have to draw on the results of your research and establish your strategy in order to focus on the factors that are critical to your business.

KEY POINTS . Competitive advantage is crucial in your marketing. . You must have a clear understanding of all potential and existing competitors. . Use the SWOT analysis to look at both your business and the competition. . Investigate the marketing environment thoroughly using a PESTE analysis. . Identify your unique selling points on which you will focus your marketing. . Be realistic when assessing your critical success factors – giving yourself an unrealistically high score on any factor will not help you in your marketing.

3 Using Market Research and Analysis Methods Research and analysis of your potential market are crucial to your success. Unless you understand what is happening in the market and the trends and desires of the consumers you cannot fulfil the basic requirement of marketing. You must be able to satisfy and anticipate the demands of the consumer. The SWOT and PESTE analyses that were explained in the previous chapter will help you with your own analysis. In addition, segmentation of the market will focus your attention on those consumers you will try to target in your efforts. The results of your research will enable you to build a marketing strategy for the future. Unless that research is satisfactory, your whole strategy could be focused in the wrong direction. Research and analysis must also be completed on an ongoing basis. You cannot afford to stand still. If you do, someone else will step in and fill your shoes. Having completed your initial research, you therefore need a suitable management information system that will enable you to track the market. This will give you information on current trends that will help you concentrate your efforts on the most profitable sectors. It will also aid future forecasting to enable you to stay ahead of the competition.

UNDERSTANDING YOUR POTENTIAL CUSTOMERS AND MARKETS Without customers you will not survive. Unless you can establish who your customers are, how much they will pay, and where they will buy from, you cannot formulate a successful marketing strategy. There are six questions that you need to answer: . Who are your potential customers? . What do they buy?

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. . . .

Why do they buy the products that they buy? How much influence do others have on the purchase decision? When do your customers buy? Where do they buy?

Who are your potential customers? Customers could come from a narrow or broad segment of the total population. They can be segmented into a wide variety of headings, for example: . . . . . .

age bands occupations standard of education income levels family position, i.e. married, single and with or without children location.

The list is virtually endless. However, it is important that you segment your potential customers correctly and this process is looked at in more detail later in this chapter. What do they buy? You need to understand which products consumers buy. Conversely, you need to establish which products consumers will not purchase. In order to gain this information you will probably need to undertake some form of consumer survey. Why do they buy the products that they buy? Most products in the market are available in different forms. Consider, for example, toiletry products such as soap and toothpaste. You must therefore establish exactly what it is that influences consumer choice. In many cases it could be brand image or customer loyalty. How much influence do others have on the purchase decision? A prime example is the market for children’s clothes and footwear. It sometimes makes no difference whatsoever what the parents think, the children influence the buying decision with their desire to be trendy. They have to have the same as their friends to keep pace with the latest fashions.

Using Market Research and Analysis Methods 33

When do they buy? In some markets there are obvious seasonal trends, for example Christmas cards and wrapping paper. Gardening products are also more likely to be purchased from perhaps March to September. Many purchases follow a similar pattern although others can be more difficult to track. In general, for items that are purchased frequently, for example food, it can be difficult to establish any trend. Some people may shop only once a week and purchase enough for that week. Others may visit the shop daily as part of their routine on the way home from work. Where do they buy? With the availability of many different sources of goods, especially with the introduction of shopping on the Internet, this question will be of extreme importance to you. You may have the best product in the world but unless you are in the right place at the right time your opportunities will be limited. The Pareto principle When considering the consumers within your market, you will undoubtedly encounter a unique phenomenon. You will discover that it is only a small percentage of your customers who account for a large percentage of your sales. This phenomenon is known as the ‘Pareto’ principle or the 80/20 rule. Conversely, it also means that a large percentage of your customers account for a small percentage of your sales. 100 90 80

% Sales

70 60 50 40 30 20 10 0 10

20

30

40 50 60 % Customers

70

80

90

100

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It is extremely important that you do not ignore those customers who make a minimal contribution to sales. If you establish their needs and segment them properly, they could become a potential source of increased business. It could be that your customers purchase from your competitors only because you do not supply certain products within your product range. If you can meet their needs they may well prefer to purchase from you. By the same token, you cannot ignore the small percentage of customers who provide the bulk of your sales. You cannot afford to lose these customers for they will obviously have a significantly greater impact on your sales volume. The most crucial aspect of segmentation is that it will give you the ability to identify the needs and wants of all your customers. You can then use this information later on when considering your objectives and your strategy.

SEGMENTING THE POTENTIAL MARKET There are a number of different ways in which you can segment your customers and the market. From the outset you should be clear, however, that there is no one perfect method of segmentation. It is essential that you categorise your market and your customers into groups that all contain the same broad characteristics. Whilst it can be difficult actually to segment your customers into distinct groups, if you use the following as a guide to segmentation it will offer some assistance: . Segments must be of a suitable size in comparison with the overall market. There is little point in establishing a segment that may represent a small percentage of your overall customers. . The customers within each segment must be similar in nature, but at the same time be entirely distinct from other customers. . Each segment must help you to establish which customers are buying what products and why these customers are buying a particular product. The customers within a particular segment must be accessible. You must establish whether you will be able to reach, communicate with, and, more importantly, sell to the customers within that segment.

Using Market Research and Analysis Methods 35

Geographic segmentation This is one of the simplest forms of segmentation, although it can sometimes have little meaning. It consists of dividing your market on the basis of the geographical location of your customers. If all your sales are made in the domestic market, i.e. within the UK, you could segment your customers by region. On an international basis you may consider that different countries have different consumer trends and can be segmented accordingly. As an example, consider the position if you were the producer of alcoholic and soft drinks. Within Europe you may have a ready market for all products. Trying to market your alcoholic drinks to certain Middle Eastern countries would, however, have little success. Demographic segmentation These forms of segmentation are probably the most popular, largely because they are associated with differences in consumer demand. This type of segmentation involves identifying consumers by socioeconomic factors such as age, sex, family size, income or lifestyle. It is also one of the easiest to undertake with the wealth of information available from both central and local government statistics. Whilst there are any number of ways in which the population can be segmented, two methods are more commonly used to provide the socio-economic groupings. The first classifies occupation and social class groups and the second, ACORN, classifies types of residential neighbourhoods. Occupation and social class segmentation Social Class A B C1 C2 D E

Occupation Higher managerial Intermediate management Supervisory/lower management Skilled manual Semi-skilled/unskilled Lowest level of subsistence

Care, however, does need to be used when making general assumptions about a segment that is based upon one single social class. For example, people with high incomes, perhaps in social class B, may have little disposable income. It is possible that they also have high fixed expenditure, such as a mortgage, which would leave little money left for ‘luxury’ products.

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ACORN segmentation ACORN is the acronym for ‘A Classification Of Residential Neighbourhoods’ and analyses households on the basis of the type of property. The information for this system is derived from the UK population census conducted every ten years, the next being due in 2001. The ACORN system is based on the assumption that consumer behaviour and lifestyles are closely related to neighbourhood types. In actual fact there is strong evidence to support this assumption. One example of where ACORN has proved useful is in the compilation of direct mailing lists. ACORN main classification headings A B C D E F G H I J K

Modern family housing for manual workers Modern family housing for higher incomes Older housing of intermediate status Very poor quality, older terraced housing Rural areas Urban local authority housing Housing with most overcrowding Low income areas with immigrants Students and high status non-family areas Traditional high status suburbia Areas of elderly people

Each of these groups can be identified by post code, which can then be used to provide very precise geographic location for each demographic segment. Product segmentation In essence, product segmentation is used to identify those consumers who purchase a particular product and those who do not. Using the Pareto principle outlined above, those consumers who actually purchase can then be segmented into heavy, medium and light. With this information you can then target those consumers where increased buying potential has been identified, i.e. those that you have classified medium and light. You must also not ignore those consumers who do not purchase a product, because they could be a source of marketing opportunities. There will, of course, be segments of the market that will never have the need for this particular product. By the same token, there will be consumers who may offer potential opportunities in the

Using Market Research and Analysis Methods 37

future. You need to establish why consumers are not purchasing a particular product. Benefit and lifestyle segmentation This takes demographic segmentation one stage further by linking the lifestyle of consumers to their decision to purchase a particular product. Consider again the market for toiletries. All toothpastes offer the same basic benefit – they clean your teeth. How then do manufacturers differentiate their products in the market? The answer relates to the benefits that the product offers. Some toothpastes concentrate their marketing on the flavour of the product, the avoidance of tooth decay or making teeth whiter. All of these differences will appeal to different segments of the consumer market. In order to make this form of segmentation work it is obviously important to research the values and lifestyle of the target market. This will enable analysis of the features and benefits of the product that are of prime importance to the different segments of the consumer market. As an example, within the market for children’s toothpaste it is probable that flavour and prevention of decay are most important.

USING DIFFERENT RESEARCH METHODS There are two sources of marketing information available to you when undertaking your research: . internal information . external information. Internal information Internal information is usually gathered for purposes other than marketing but it can be useful for establishing trends in the market. For example, sales information will be crucial in establishing the demand for individual products. The amount of internal information available will really depend upon the nature and size of your business. The critical part is to make sure that information is obtained that can be used. There is little point in keeping statistics that are of no value. For this reason the system that you operate for organising this information must be readily accessible and understandable. This

38 Make Marketing Work for You

requirement is so important that it is looked at in greater detail later in this chapter. External information External information will come from two sources, primary and secondary. Primary information There are a number of different ways in which you can obtain primary information. Examples include: . . . .

observation personal interviews telephone interviews postal questionnaires.

The costs and benefits of all of these forms of research vary widely and in some cases the response rate, especially for the postal questionnaires, can be extremely low. You will have to gauge for yourself whether the information gained will be of sufficient value to justify the cost. Always remember, however, that if you are to satisfy the demands of the market you need to know what consumers actually want. Secondary information As the name would suggest, secondary information is gained from third parties and there is a wealth of information available to you from a number of different sources. Four of the most useful are: . . . .

libraries government statistics market intelligence reports trade directories.

Libraries Your local library contains vast amounts of information on all manner of topics. Despite this it is probably the most under-used resource. An hour spent doing research in the library will be an hour well spent. The librarians can locate specific information for you in a short space of time that may have taken you days, if not weeks, to find on your own. Remember also that, provided you are a member, the information will in most cases be free.

Using Market Research and Analysis Methods 39

Government statistics The government compiles statistics on a wide range of subjects, all of which are published and freely available. These include surveys on family expenditure, social trends, households and businesses. A complete guide to all of the statistics produced can be obtained from The Stationery Office. One of the problems, however, in using this data is that it is often out of date. It is also, generally speaking, very broad in nature and you need to exercise caution before drawing any firm conclusions. It can, nevertheless, be very useful in monitoring trends in the market over a number of years rather than what is happening now. Market intelligence reports These are available from a number of different sources, although the two most commonly used are Mintel and Key Note. The major drawback to their use is cost. They can be extremely expensive to purchase, some costing in excess of £1,000 each. Having said that, they are comprehensive in the detail that they give and could therefore be worth the investment. Before making a purchase it is probably worth seeing if your local business support organisation can obtain a copy for you. Market intelligence is also available from a number of specialist magazine publications including: . Marketing . Which . The Economist It is also possible that your bank publishes an economic review and this is normally free to customers upon request. Trade directories Many organisations publish trade directories covering their own area of the market. These can obviously be useful in comparing trends and relating your performance to others in the same market. They should also be available in the larger reference libraries throughout the UK.

MANAGEMENT INFORMATION SYSTEMS As you will have realised from the contents of this chapter,

40 Make Marketing Work for You

management information comes in a variety of formats. You therefore need to establish a management information system as an entirely distinct function within the business. You will, of course, also need to allocate sufficient time and resources to ensure that it is effective. With the cost of computers falling as it has done in recent years, there is no excuse for not having a computer and a printer for your business. The availability of suitable database software means this is by far the most efficient way of storing information. This will also give you the added advantage of being able to organise the information in many different ways. Prioritising information You do, however, need to be aware of the ‘paralysis by analysis’ maxim. This means that you are spending so much time evaluating past performance that you are losing track of your overall plan. Prioritising the information is essential in keeping the whole management information system workable. There is little point in keeping track of information within the system when you have no idea of what use you will put that information to in the future. Decide which information is critical to oversee the overall business operation and then only store appropriate information that will meet that objective. The simpler the system, the more likely it will be to succeed. You need to ask yourself three questions when establishing your management information system: . What information do I need? . Why do I need it? . What will I use the information for? Unless you can provide a satisfactory answer for any piece of information, for all three questions, there is probably little value in storing it. At all costs avoid storing information which you ‘think I might need in the future’. If you do need something similar in the future you should be able to obtain more up-to-date information. Involving your staff You also need to be aware that the introduction of a management information system, especially where it affects or measures human performance, can be a very sensitive issue. A possible example could be where you are measuring staff and their sales performance. Take time

Using Market Research and Analysis Methods 41

to explain the purpose of the system to your staff and seek their help in design and implementation. Keeping your staff in the dark will more than likely cause a reduction in morale leading to possible operational problem and probably a downturn in productivity and sales. You must also use your staff to gather information for you. Many pieces of what can be critical marketing intelligence are lost because staff do not see the need to report it. As an example, if you have delivery staff, use them to gain intelligence when they deliver goods. It may be that they can see the efforts of your competitors who are also delivering goods and this information could provide opportunities for you. You may have no need to actually store the information in the management information system. It is, however, to your advantage to have it in the first place and subsequently discard it, rather than not to have it at all in the first place. As demonstrated in the previous chapter, competitive advantage is critical. To maintain that advantage you must obtain ongoing information on what is happening in the market.

KEY POINTS . Thorough research and analysis of the market are crucial to success. . Use the six key questions to understand your customers. . Understand the Pareto principle and use this to your advantage. . Segmentation of the market will enable you to concentrate your marketing on the most profitable sectors. . Make your research as broad as possible – do not ignore the obvious. . Market intelligence is invaluable – make sure you stay up to date. . Be selective with the management information you store – do not fall into the trap of paralysis by analysis. . Information is power – use all of your staff to provide feedback on the market and your customers.

4 Understanding Marketing Planning Tools There are a number of different tools that you can use to assist with your marketing. At first some may seem mysterious and complicated, although they are actually fairly easy to use once they are understood. This chapter will look at four of the most widely used tools and give you guidance on both their strengths and their limitations. As with all planning tools, in isolation they need to be used carefully. If used in conjunction with each other to cross check the assumptions you are making they become much more powerful. These marketing tools will enable you to assess your products against the marketing environment. The key point to remember is that you must be totally honest in your assessments. Overemphasising your status in relation to your products and the market will serve no purpose and merely cloud the true position. The use of these marketing tools is the final stage in your research and audit of the existing or potential market. Only when you have established where you are now can you move on to decide where you want to be and how you will get there.

THE PRODUCT LIFE CYCLE CONCEPT This concept is based on the assumption that products are similar to all life forms and therefore have a finite time in the market. This means that from the initial development and introduction phase, the product will experience a period of growth. It then enters a period of maturity until it starts to decline and eventually die. There are, however, certain markets, particularly those in the basic essentials of life such as foodstuffs, where this does not apply. The four distinct stages of the product life cycle have a number of characteristics which, in turn, will define the marketing strategies you will need to employ. They are:

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Understanding Marketing Planning Tools 43

The product life cycle concept Sales

Introduction Growth

Maturity

Decline

Time

. . . .

introduction growth maturity decline.

In addition, the amount of time a product takes to move through the cycle can be extremely variable. Some products will have a long life and others, perhaps those that can best be described as ‘fads’ or ‘crazes’, may have a very limited life. Introduction This is the most critical phase of the cycle. You may have spent a significant amount of money on product development before the product is introduced to the market. The risk of failure is therefore high and the return on your investment in terms of sales may be low. This will also mean that profitability at this stage will be marginal or even non-existent. This is where the importance of understanding the market and the potential demand for new products cannot be over-emphasised. If you try to introduce a new product to the market for which there is no demand it will be unable to proceed to the next stage of the life cycle. Growth If your product does move into the growth stage you then need to

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consolidate your market share. In a fast-growing market you will attract competition from other businesses who recognise your success. You cannot, therefore, afford to sit back and do nothing to protect your position. Remember the lesson from earlier in this book – you must maintain a competitive advantage. Even if you are the first in the market with a particular product, others will soon copy it, often with variations to make it appear superior to your original. At this stage you should be looking for ways in which you can improve your original product which, in turn, will gain you an increased share of the market. This will give you added advantages when the product reaches the next stage – maturity – because having gained a high market share you should be able to maintain your position. The consumer will have recognised your continued efforts to improve the product and this should generate a large amount of brand loyalty. Maturity Provided you have maintained your competitive advantage throughout the growth stage you should now be in a position to reap the rewards. Those businesses that entered the market with a copy of your product will now be seen as inferior to you. Eventually, any market share they held will be lost, giving you a further opportunity to increase your own share. This will also mean that some businesses will not survive and competition between those that do remain will become more fierce. For this reason, it is also difficult for any new businesses to enter the market. By this stage the consumer will have established their own brand preferences and loyalties. This is why it is so important to take a long-term view of the market at the growth stage. At some stage the market will reach capacity and sales growth will slow down substantially. In simple terms there will be fewer and fewer potential consumers who have not purchased the product. As mentioned previously, there are a number of markets, notably in food, where this will not apply. The basic ingredients of a staple diet will always be required. That does not, however, mean that changes in the market will not take place. As a prime example, consider the ‘health food’ market. This segment of the market is still growing, to the detriment of other sectors within the market. Eventually the market will become eroded to the extent that sales start to decline and the final stage of the life cycle will have been reached.

Understanding Marketing Planning Tools 45

Decline The rate of decline could vary substantially. In recent years there have been a number of innovative products that have taken the market by storm but have just as quickly died. As an example, consider the market for video recorders. This market evidences two distinct ways in which products have developed through the life cycle. Initially there were two major formats for video recorders, VHS and BETA. The VHS format has thrived and grown in the market and as yet is showing no sign of decline. On the other hand, the BETA format has disappeared without trace. However, it is possible that the market position of the VHS format could change substantially in the next few years. With the new developments in the electronic market and the introduction of DVD players, this may well pose a competitive threat to the existing video market. Alternatively, the decline of a product can be very slow and drawn out. In these circumstances it is sometimes difficult actually to differentiate between the maturity stage and eventual decline. This is something that you need to be aware of because you may be spending resources unnecessarily in what is inevitably a shrinking market. You should, of course, be investing your resources in starting the cycle again and developing new products for the changing market conditions. Linking the product life cycle to the market Using a simple framework you can link the product life cycle to the market conditions you are likely to encounter at each individual stage. This will also give you an indication of the potential profitability in addition to the probable effect upon your cashflow. Introduction

Growth

Maturity

Decline

Market growth

Uncertain

High

Slow

Contracting

Competition

Very few

Increasing

Strong

Declining

Sales

Low

Rapid growth

Peak with Contracting if high share low share

Profits

Marginal

Depends on strategy

Peak and declining

Low

Cashflow

Negative

Building

High

Low

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THE BOSTON CONSULTING GROUP (BCG) MATRIX The Boston Consulting Group was established in the 1960s specifically to provide strategic marketing advice. As a result of their research they developed a matrix that analysed the product portfolio of a business in relation to the market. This matrix classifies products according to cash usage and cash generation compared with relative market share and growth rate. The BCG Matrix ‘Star’ products – these have a high market share and high growth rate. They also generate a large cash inflow although this is fully offset by the cash they require for production.

‘Question mark’ products – these have a high growth rate although they only have a low market share. Cash generated is minimal against cash used, and the net cashflow is negative.

‘Cash cow’ products – these have a high market share but a low potential growth rate. They generate a high cash inflow against minimal cash required for production.

‘Dog’ products – these have a low market share and low potential growth rate. They generate minimal cash inflow which is fully matched by the cash they require for production.

. ‘Star’ products have achieved a high market share and in general terms will be entirely self-financing in terms of cashflow. This will probably be a new product in terms of life cycle. . ‘Cash cow’ products are market leaders and whilst there is little potential growth they are normally in a stable market. In life cycle terms they are at maturity or entering saturation. . ‘Question mark’ products have not yet achieved a dominant market position with the associated large cashflow. They could also be products that have slipped back from a previously dominant position. They are a high user of cash because they are in the growth stage of the product life cycle. . ‘Dog’ products have little or no future and in life cycle terms they are in decline.

Understanding Marketing Planning Tools 47

From all of the above you can see that following introduction into the market, the product life cycle is represented in chronological order by ‘Question marks’, ‘Stars’, and then ‘Cash cows’. In cash terms the cash generated by the ‘Cash cows’ is used to invest in the ‘Stars’ and a select few from the ‘Question marks’. This becomes part of the process of product portfolio management and is covered in more detail in Chapter Six. For the moment, it is important that you also understand the potential dangers of misusing the BCG matrix. When conducting your product audit, you may find that, as with your customer audit, a large number of products are in low growth markets, i.e. ‘Dog’ products. It is essential, therefore, that you establish the relationship that this product has within the overall market. It may be that one such product could have been the initial product introduced by you that established your brand name and reputation in the market. It would be very unwise to remove that product from your product range even if it does now only have a low market share. It is likely that if it is a manufactured product it will share the same production and distribution facilities with other new products. As such, despite the low market share, it will still remain a profitable product. There are also limitations in using the BCG matrix as the sole form of analysis. . Only two factors, market share and market growth, are taken into consideration but this can over simplify the position. . Cashflow rather than profitability is used to measure performance. . Classification of individual products can be difficult. . Products can move very quickly from one segment to another. . It does not cater for the introduction of new products. . It does not deal with markets that are experiencing decline. The BCG matrix can be a very powerful tool to aid your planning, especially if you link it together with the life cycle concept. This will give the matrix a new dimension and bring together the key components of products and markets.

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THE MCKINSEY/GENERAL ELECTRIC MATRIX To try and overcome some of the limitations of the BCG matrix, McKinsey & Co., the management consultants, worked in conjunction with General Electric to develop their own matrix. This matrix uses the dimensions of ‘market/product attractiveness’ and ‘business position’, which are then broken down into further factors within each dimension. Factors within the market/product attractiveness dimension . size in terms of volume and/or value . annual growth rate . competitive diversity and structure . profitability . PESTE analysis impact . human considerations. Factors within the business strength dimension . size in terms of financial resources . annual growth rate of the business . market share held . overall profitability . SWOT analysis impact . management leadership and skills. These are not limiting factors within each dimension. They can be adapted and modified for each individual business as appropriate. Unlike the BCG matrix, which uses cashflow as the measure of success, this matrix concentrates on profitability and return on investment. It can also be used to analyse parts of a business, commonly referred to as strategic business units, or individual or groups of products. Constructing the McKinsey/General Electric matrix The matrix is not difficult to construct. As with all such forms of analysis, the important point is that you need to be objective and totally honest with your assessments. There are five simple steps: . Identify the strategic business units or products within your business. . Determine which factors contribute to market/product attractiveness.

Understanding Marketing Planning Tools 49

. Determine which factors contribute to business strength. . Establish ways of measurings market/product attractiveness and business strength. . Rank each strategic business unit or product according to whether it is high, medium or low for both market attractiveness and business strength. For the final two steps you will need to develop some form of numerical scoring method. This can be done in exactly the same manner as you measured your critical success factors in Chapter Two. Just as you did with the BCG matrix, you can present the information on the relevant position of the strategic business units or products in a readily understood format. This will take the form of a three-square matrix, plotting the score of the market product attractiveness against the relative competitive position of the business. Example of the McKinsey/General Electric Matrix Market effectiveness

High

score

High/Strong

High/Average

High/Weak

Medium/Strong

Medium/Average

Medium/Weak

Low/Strong

Low/Average

Low/Weak

Medium

Low

Strong

Average

Weak

Competitive position score

Having plotted the relative position of your business units or products, you will have three clear groups that will assist you with your future marketing planning. . High/Strong, Medium/Strong and High/Average scores indicate that investment should be maintained because of further growth potential.

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. Low/Weak, Low/Average and Medium/Weak scores will not warrant further investment as there is unlikely to be further growth potential. . High/Weak, Medium/Average and Low/Strong scores indicate that there may be growth potential and selective investment may reap a reward. Exercising caution in using the McKinsey/General Electric matrix This matrix does have positive benefits in the way that it categorises your business units or products although you do need to exercise caution with the results. It is very dependant upon the correct identification of the factors that contribute to both market attractiveness and business position. It also relies upon the correct weighting of those factors into high, medium and low scores. All of these can be very subjective and easily open to misjudgement. When used in comparison with the results from your life cycle analysis and the BCG matrix you should be able to identify the same products in the same relative position in the market. This will give you a more balanced analysis for when you come to formulate your future marketing objectives.

THE ANSOFF MATRIX Igor Ansoff is the Russian-born pioneer of strategic management and corporate planning. Ansoff is also the strategist who first identified the fact that competitive advantage in a market was an essential element of the planning process. The Ansoff matrix defines two key factors for marketing: what is sold and who it is sold to. It therefore relates only to products and markets and gives you four alternative courses of action when considering your marketing objectives: . . . .

selling existing products to existing markets extending existing products into new markets developing new products for existing markets developing new products for new markets.

These four options are set out in a four-box matrix that plots your existing and potential products against your existing and potential markets as follows:

Understanding Marketing Planning Tools 51

Present products

New products

Present markets

Market penetration

Product development

New markets

Market extension

Diversification

. Market penetration – increasing the existing share in the existing market to facilitate further growth. . Market extension – taking existing products into new markets, for example, expanding sales from purely the domestic market into the European market. . Product development – offering new products or modifying existing products into the existing markets. . Diversification – either with related products and markets or unrelated products that are totally unconnected with the existing products and markets. You can now start thinking about your marketing objectives by using the Ansoff matrix in conjunction with the analysis of your products that you completed in the life cycle analysis. You can also consider your markets using the Ansoff matrix in conjunction with the BCG matrix and the McKinsey/General Electric matrix. There is also a further option to the four outlined above relating to both your products and your markets – withdrawal. This will generally involve products that you have designated in the BCG matrix as ‘Dog’ products, although, in some cases, it might also include ‘Question marks’. Within the McKinsey/General Electric matrix these will probably include those with scores in the Low/ Weak, Low/Average and Medium/Weak categories. However, withdrawal of either a product from your product range, or withdrawal from a market, should only happen under exceptional circumstances. These could include situations where you have a weak competitive position or where the associated costs and risks leave them unprofitable. Now that you have completed all of your research and considered

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the results from the marketing planning tools, it is time to formulate your marketing objectives.

ESTABLISHING CLEAR MARKETING OBJECTIVES When establishing your marketing objectives it is also useful to consider Ansoff’s definition of the three essential elements of an objective: . the particular attribute that is chosen as a measure of efficiency . the yardstick or scale by which the attribute is measured . the particular value on the scale that the firm seeks to attain. The above reinforces the SMART criteria that were set out in Chapter One that looked at the differences between business objectives and marketing objectives. By using the various tools for analysis that have been described so far you can assess all the available options. By this stage you will have gained a significant amount of knowledge about your own, and indeed your competitors’, products, and the establishment of marketing objectives should be relatively easy. Bearing in mind that marketing objectives can only relate to products and markets, you have four choices as described above by the Ansoff matrix. When formulating your marketing objectives it is essential that you put them in plain terms. You must also provide some means of objective measure to enable you to actually gauge whether they have been a success. There is no point in having vague or broad objectives which do not provide you with a clear sense of direction. As an example, to have an objective that you will ‘break into new markets with existing products’ does not mean very much. Which new markets will you be targeting and with which products? You need to be far more specific. Your marketing objectives must also be consistent with your overall business objectives. They must be compatible with the direction of your business as outlined in your business plan. In all cases your marketing objectives will flow from these business objectives and will need to be translated into key areas. These key areas will be the ones that are vital to the success of your business. What you must avoid is having too many marketing objectives. With too many you may find that, because you are trying to pull

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your business in so many different directions, a coherent marketing strategy becomes impossible. This can also lead to financial resources becoming so stretched that none of your marketing objectives will be achieved.

KEY POINTS . Be cautious when you use marketing planning tools – they do have limitations as well as strengths. . Do not use any one tool in isolation – use a combination of tools to assess the marketing environment. . Be objective and totally honest when making your assessments of the market. . Establish clear and concise marketing objectives using the SMART criteria. . Make sure your marketing objectives are consistent with your overall business objectives.

5 Introducing the Marketing Mix The marketing mix lies at the core of identifying your marketing strategy. It balances the key areas of marketing over which you have control, i.e. product, price, place and promotion. In exactly the same way that a good recipe will make a good cake, a successful marketing strategy will have the ideal mix of these controllable variables. A successful marketing mix will never stand still. As the demands of the market change, so too will your marketing mix. Remember the key element of marketing – satisfying and indeed pre-empting consumer demand. You need to have: . . . .

the right product at the right price in the right place at the right time.

You must also ensure that the consumers in the market know that you are there, i.e. through promotion. Even if you do have the best product in the world, at the right price and in the right place, without promotion your strategy will fail. You must be able to communicate to your potential customers how you can satisfy their demands.

UNDERSTANDING THE COMPONENTS The marketing mix has four primary components, often referred to as the four ‘P’s: . . . .

Product Price Place Promotion.

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In addition there are three secondary components that have particular relevance in a service based business: . People . Physical evidence . Process. All of these primary and secondary components will overlap in some way and they will therefore need to be considered collectively and not in isolation. You cannot exclude any of the components, because they form part of the overall recipe. If you get one individual component wrong it is likely that your whole strategy will fail. For example, some purchase decisions made by consumers may be totally unrelated to price. They expect a high quality product and are prepared to pay a high price for it. Consider your own purchasing philosophy – do you always buy the cheapest product available? Creating the right marketing mix will also build on your competitive advantage because the mix should be unique to you. It will set out quite clearly why you are different from your competitors and how you are better placed to meet the demands of the market. The four primary components of the marketing mix are examined in brief later in this chapter and more fully in the following four chapters. For the time being, however, we will concentrate on the three secondary components. People Whatever the business you are in, it is important to have the right people. People, or human resources, will form a large part of your overall business plan. Within the marketing context, especially in a service industry, the question of having the right people will play a greater role because there is obviously much more personal contact. In this respect character traits such as attitude and appearance can play a large part in influencing consumer behaviour. For example, consider what reaction you would have in a restaurant if you were faced with a waitress or waiter with dirty finger nails. Even if you did stay and order a meal you would be unlikely to return in the future, as their standards of hygiene are obviously fairly low. Sometimes it does not even matter whether you as the consumer can actually see the member of staff with whom you are dealing. Their attitude or perhaps their lack of knowledge about

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their products could affect your decision whether to make a purchase or not. Call centres With the increasing use of call centres within some service industries the importance of employing the right staff to operate them can be a major component of the marketing mix. The first contact that the consumer will have is with the telephone operator. Unless that person portrays the right image through their telephone manner, the consumer will not care that your products are better and cheaper than the competition, they will not make a decision to purchase. For example, if you were seeking a telephone quotation for your car insurance, are you likely to purchase if your enquiry was answered by a surly, abrupt operator? Probably not, especially if this attitude was compounded by a basic lack of understanding regarding the insurance product they were selling. Physical evidence If you are selling an intangible product then very often the consumer will require some physical evidence relating to the quality of the service involved. As examples, consider how you would evaluate the services of solicitors, accountants, consultants and architects. All of these offer some form of service but it can be very difficult to distinguish between those that are good from those that are, shall we say, not so good. If you are in a service industry such as one of these you must offer evidence that differentiates you from your competitors. One of the ways in which this can be done is by the production of promotional material that incorporates testaments from satisfied customers. Taking the example of an architectural practice, it is usual for these to have brochures full of photographs of the buildings they have designed. Such brochures are also updated on a frequent basis to show the latest examples of their work. Another form of physical evidence that could be offered is independent accreditation. Accreditation is usually administered by a recognised body that takes samples of your work, undertakes some form of satisfaction survey from your clients, and then awards an appropriate rating regarding your services. As an example, the British Accreditation Bureau deals with the accreditation of consultants who undertake work with clients on behalf of the government-sponsored Small Business Service.

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Process The component of process is inherent within all businesses and, at first glance, would seem to fall within any one of the primary marketing mix components. In the context of a service business, however, the whole process of the business may be at the core of its marketing. Take for example a franchised business. All of the franchisees operate in exactly the same way to present a standardised front to the consumer. It does not matter that each individual business is separately owned, taken as a whole the franchised operation uses the same key processes throughout. As a further example, consider a restaurant business. It needs to ensure that an adequate process is in place to organise the preparation and cooking of the various courses so that they are received in the right order. This also probably needs to be done as speedily as possible to ensure that greater numbers of customers can be accommodated in the most efficient manner. Summary of the secondary components Whilst consideration of all of these components could fall within the primary components, for a service business they are of such importance that they need to be specifically examined. Taking the above example of the restaurant, the menu range and pricing structure will need to be considered within the product and price strategies. The actual timings and ways that preparation and presentation of the product are processed will need to be considered separately. The preparation of brochures for the architectural practice will also fall within the promotion component of the four ‘P’s. As a separate issue, however, the physical evidence component will add a new dimension to the brochure. In the same way, for example, independent accreditation may not be considered to play any role in marketing. If, however, clients are looking for some form of quality assurance, it may be one of the best promotional aspects to include.

DEFINING YOUR PRODUCTS You may consider that defining your products is unnecessary. If this is the case you need to reconsider. If you think that products are just the things that you sell you are on totally the wrong track. You must consider that the products that you offer provide the consumer with a solution to a problem. The consumer wants or needs something

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and the products that you offer are there to fulfil that desire or necessity. To take this one stage further, your products must fulfil four functions if they are to be satisfactorily defined. Your products must offer: . . . .

a solution to a defined problem to those people who have the problem at the time they require the solution.

It is your products that will have the most importance within the marketing mix. Your products are the core of your business and unless they meet all of the conditions given above they are unlikely to sell in the market. To illustrate further the relationship between your products and the other components of the four ‘P’s marketing mix: . Until you have satisfactorily defined the product in terms of quality and the costs of production, together with anticipated sales volumes, you cannot consider your pricing strategy. . The place in which you sell the product can only be established once you have defined the needs that the product fulfils, for whom and where. . Only once you have defined the features and benefits of the product can you consider your promotion strategy. This brings a new consideration to your product definition. Not only have you to consider what the product is, you also have to consider its features and benefits in relation to the consumer. The features of your product will probably be similar to those of the competition but the benefits need to be unique, or certainly superior to other similar products. Consumers do not purchase a product because of its features. They purchase the benefits that are offered. Product features and benefits are looked at in greater detail in the next chapter. Future strategy The previous chapter looked at some of the tools of marketing and these will help you to define your products. In addition, they will enable you to make informed choices as to your future strategy regarding your existing products and any new products you may be considering. The Ansoff matrix specifically defines the future

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potential direction of your products in relation to the market. Using this matrix will give you seven options in relation to your product portfolio: . The introduction of brand new products which will create entirely new markets. . The improvement of your existing products, for example, to keep pace with changes in technology. . The use of your product for a different purpose to that originally envisaged, for example, Velcro was originally used in the NASA space programme. . The addition of new functions within the product, for example, a telephone with combined fax and answer-phone facility. . The introduction of a lower cost product, for example the innovation in the computer industry which has forced down prices and thereby made the products more widely available. . The re-styling of products, for example the motor car. There have been numerous different versions of the Ford Fiesta or the Rover Metro. . The re-packaging or re-naming of existing products. As an example, consider the ‘Marathon’ chocolate bar, which was renamed ‘Snickers’. All of these choices will carry varying degrees of risk and it is important that you balance any product decisions against the rewards you will gain. A product strategy of introducing new products into new markets will carry a greater risk than increasing market penetration of existing products in the existing market. You will need to find a balance somewhere between the two. At all costs you cannot afford to sit and do nothing. Sooner or later your products may become obsolete and lose their demand in the market. You must have a strategy for the future and this is explored in detail in Chapter Six.

CONSIDERING PRICING ALTERNATIVES From the earlier parts of this chapter you will have gathered that you cannot make the mistake of considering your pricing structure in

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isolation from the other factors within the marketing mix. Another common mistake is to think that only low prices are competitive, when in fact all pricing policies are competitive. Taking all of the marketing mix factors together, if your products are of poor quality, are unavailable when they are wanted or your customer service is lacking, no amount of price cutting will induce consumers to buy your products. All of the above is closely related to the unique selling points of your products that by definition cannot be offered by your competitors. If you are of the opinion that you can only compete on price then you are leaving yourself with a strategy that has very few options. Constructing a pricing strategy Setting the right price for each of your products can be a difficult exercise because there are so many factors to be taken into consideration. This is explored in some depth in Chapter Seven, but in simple terms, there will probably never actually be one right price but more often a range of pricing options. At the lower end will be the marginal cost of the product beneath which you cannot afford to sell. At the higher end will be the price above which your customers will refuse to purchase from you. You will need to balance your price somewhere between these two points. You will also need to consider profit when constructing your pricing strategy and to a large extent this will be affected by your projected sales turnover. Within these calculations you will need to take account of both fixed and variable costs: . fixed costs – those costs that are incurred in running your business and which are unrelated to production, for example, the cost of renting your premises . variable costs – those costs directly related to the cost of production, for example, the raw materials that you use. Using this information you can then construct a chart to give you the break-even point of your business using a range of pricing options. The key point to remember is that your marketing strategy must include the provision of profits at some stage. That does not mean, however, that you must always decide on a price that makes a profit. You may consider initially that market share is more important to you and therefore adopt a price that will effectively buy you that

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share. Having gained market share you can then increase price accordingly, which will mean increasing overall profitability. As an alternative, if your product is a new invention, you may charge a high price initially, thereby creating a small market niche, and once it is established, reduce the price to gain a larger market share. As an example of this strategy of charging a high price initially, consider the prices of those products that used micro-processors when they were first introduced. They were extremely expensive. Now that there are many more companies operating in this market, prices have had to come down. Consider this phenomenon in the light of the unique selling point. The initial technology is now no longer unique, as a result of which companies are having to compete on different terms.

EVALUATING PROMOTION METHODS In many ways this is the most critical part of your marketing strategy. Communication with your potential customers is vital. You could have the greatest product in the world that everyone needs but unless they know you have it for sale, they cannot purchase it. There are no prescriptive promotional techniques that will be suitable for all businesses. The promotion options are virtually limitless and in many ways your strategy will be relative to the budget that you can afford. This is considered in Chapter Eight, but for the time being you need to consider the advertising mediums that are most appropriate for your business. If they are to succeed, the promotion techniques that you adopt as part of your marketing strategy must be capable of giving the right information to the right people. When considering your strategy you therefore need to think about: . who your potential customers are . what will motivate them to make a purchase . how your product matches that which they either want or need. From this you will see that your promotion techniques form only a small part of your communication strategy to your customers. Everything about your business, from the products you have, the packaging you use, the sales and after sales service available, the price, the delivery arrangements, and even your complaint handling procedures, all send a message to your customers.

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At this stage you will recognise that the promotion of your business must bring together the other elements of the marketing mix in order to convert potential customers into purchasers. It is therefore important that you get your message right first time. In this respect you can use the mnemonic AIDAS: . Attract – attract your customers’ attention to generate . Interest – you must gain your customers’ interest to generate a . Desire – you must have something that they want which will make them take . Action – your customers must make a purchase and be . Satisfied – the ultimate aim, customer satisfaction to make them come back. This final component, customer satisfaction, is the most important. Nothing will harm your marketing strategy more than a dissatisfied customer. It is a well established fact that negative publicity travels faster than positive publicity through word of mouth. Just think how many times you have encountered this yourself when a friend has told you of a complaint they have had about a particular business. For this reason it is essential that you establish a strategy for twoway communication with your customers as part of your promotion techniques. If you have a complaints department that deals effectively with customer complaints, this then gives you information you can use to improve your customers’ satisfaction. The key to a successful promotion strategy is to tell the right people about your products. In order to do that you need to know which people want your products. The correct use of the marketing mix is essential.

BEING IN THE RIGHT PLACE The question of being in the right place does not just relate solely to location but includes how and when your products will be offered. This means that you will need to consider how you will distribute your products to solve the three core issues: . being in the right place . at the right time . with the right quantity of products.

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The decisions that you take in formulating your strategy will depend on your type of business. They will also be affected by all of the other components of the marketing mix. To give you examples, consider the following scenarios: . If you retail perishable food goods then you will need a wholesaler who is relatively close to you. You will also need to gauge the market accurately for the demand for each product to avoid wastage. . If you manufacture your own products and deal direct with the public this will affect your pricing decision. In this case you can probably charge a higher price than if your products were sold through intermediaries who will expect a lower price to enable them to make a profit. . Promotional budgets and strategies will also depend upon whether you are selling direct or through intermediaries. Advertising to the general public would be pointless if you only sell on a trade basis. Different considerations will obviously apply depending on whether you are a service business, a retailer or a manufacturer. Invariably you will need to focus on the characteristics of the market in which you operate and, if necessary, the number of potential customers within your catchment area. The choice of distribution methods can therefore be extremely difficult, although the final decision must relate to your overall objectives and strategy. The right decision can lead to, for example, increased market penetration or the development of new markets. In many ways your strategy will also need to consider the distribution methods used by your competitors. Do not forget the importance of competitive advantage when deciding your distribution strategy. As an example, consider the opening hours of many small retailers. With the market growth of the large supermarkets, earlier and later opening hours were the only way that the smaller retailers could compete. This offered a clear benefit to customers and was therefore vital to the survival of many of these small retailers. As with all elements of the marketing mix, do not just use the obvious distribution methods. With the introduction of the Internet, many new opportunities have opened up for small businesses to compete with large multi-national companies on a global scale.

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Place decisions and distribution strategies are examined in more detail in Chapter Nine.

KEY POINTS . The marketing mix is your recipe for success – use the key ingredients, the four ‘P’s, to formulate your strategy. . Understand the secondary factors, the additional three ‘P’s, and consider these separately if you operate in a service industry. . Consider all the elements of the marketing mix collectively and recognise the relationship that they have with each other. . Use the marketing mix to build on your competitive advantage. . Unless you strike the right balance between the components, your whole marketing strategy could fail.

6 Marketing the Right Products The previous chapter highlighted that your products are the most important element of the marketing mix. Without products you have nothing to sell and therefore have no market or customers. As a consequence, all of the other elements of the marketing mix can only be considered once you have made a choice regarding your products. Even if you only have one product, in order to succeed you must still target that product into the right market. As established earlier, you must continue to develop and enhance that product in order to meet the changing demands of the market. As part of that development you will need to take decisions on quality, features and benefits, together with branding and packaging. Some of these decisions will, of course, also overlap into your decisions on promotion techniques considered in Chapter Eight.

TARGETING THE RIGHT PRODUCT INTO THE RIGHT MARKET By now you will understand that you only have four choices to make concerning products and markets: . . . .

existing products into existing markets existing products into new markets new products into existing markets new products into new markets.

What you also need to consider is the element of risk in each proposed strategy. For example, introducing new products into new markets would carry a significantly higher risk than expanding existing products into existing markets. The degree of risk involved will also be affected by two other factors: . how new the product is . how new the market is. 65

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All of the options available to you will need to be assessed in conjunction with the analysis that you have already completed. You will need to bring together the research outlined in Chapter Three with the planning tools described in Chapter Four. Existing products into existing markets The overall aim of this strategy is to increase the market penetration of your products. In a naturally growing market this could be relatively easy, but where the market is effectively saturated or static this could be much more difficult. In a static market you will need to improve your competitive position by, for example, improving the quality of the product. This strategy can also be beneficial in increasing profits in the short term. Looking at the BCG matrix that you compiled in Chapter Four, the products most likely to succeed will be the ‘Cash cows’ and the ‘Stars’. This strategy also carries the lowest level of risk. Existing products into new markets Often referred to as market development, this strategy carries the next level of risk. Whilst retaining the relative security of the existing market for your products, it is an attempt to expand the business by entering new markets. The most obvious example is exporting for the first time. As an alternative, during the course of segmenting the market outlined in Chapter Three, you may have identified different market segments for your products. It is also possible that if you have previously concentrated on a small local geographic area that expansion can be achieved on a national basis. New products into existing markets Next on the scale of risk comes product development. This takes the form of either brand new products or the modification of existing products to meet the changing demands of the market. A prime example is the development in personal computers over the last ten years. The specifications for computer hardware in terms of processing speed and hard drive capacity have been increasing almost monthly. Virtually as soon as one product in this market is introduced it is made obsolete by the introduction of another higher specification model. With these sorts of fluctuating markets, where the life of a product may not be very long, ongoing product development will be essential. This could also mean that a key activity of the business will

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be ongoing research and development to retain competitive advantage. New products into new markets Diversification with new products into new markets is the riskiest of the four strategies. In many ways this can be likened to starting a business all over again. The research into and analysis of your target market will be critical because you are entering uncharted waters. Bearing all of these factors in mind, diversification must be considered as a long term strategy. It may be difficult to reap any rewards in the short term. There are two main forms that diversification can take: . related diversification . unrelated diversification. Related diversification Related diversification represents the development of new products that are complementary to the existing product range. This type of strategy builds upon the business’s existing expertise in terms of development and production. Whilst the business is looking at developing its products and markets it still remains in a segment of the market with which it is familiar. For example, a manufacturer of motor vehicles who decides to also produce motorcycles. Unrelated diversification As the name would suggest, unrelated diversification takes the business outside the industry in which it normally operates. Usually this sort of diversification can only be considered where the business already has a strong brand image for its existing products. For example, it may have a reputation for high quality that can be used to give confidence to the consumer. Synergy is also considered to be a reason for unrelated diversification. The view of Igor Ansoff, which is widely accepted, is that in some cases where unrelated businesses merge, the sum of the combined business is greater than the constituent parts. For example, a manufacturer may integrate with one of its suppliers, often referred to as ‘backward integration’. ‘Forward integration’ on the other hand, could involve a merger with the distribution outlets used by the business.

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UNDERSTANDING PRODUCT MANAGEMENT Product management is a critical function for all businesses. It relates to the overall brand image of your product. Whether or not you get this right could make or break your business. Brand image can take many forms. It could simply be the name of the business, for example ‘Dell Computers’. Alternatively it could be the name of the product, for example ‘Branston Pickle’. A further option could be that it is the overall name for a range of products, for example, the ‘George’ clothing range sold through Asda stores. You will see from this that brand image is closely linked to competitive advantage. It is of prime importance that your brand is easily identified and your choice of name needs therefore to be very carefully considered. In addition, you must take all available steps to protect the reputation of your brand. It will not matter whether your brand relates to your entire business or a single product, once tarnished it may affect your competitive advantage. The importance of brand name can be demonstrated by the number of business or product names that have entered into common usage as part of our language. Take for example the ‘Branston’ referred to above. It is a well known product name now commonly used to describe pickle. Consider also the use of the business name ‘Hoover’ to describe the process of vacuuming a carpet. Many businesses, especially new businesses, do not consider the importance of brand image from the outset. This is a fundamental mistake. All businesses, no matter how large they are now, probably started from very small beginnings. Brand image can only be built up over time, it does not happen overnight. As an example, consider the use of own-label brands by the large supermarkets. Using own-label brands With the increasing competition amongst the large supermarkets, one of the ways in which they compete is through own-label brands. They are only able to do this because they have become well established brands in their own right. Whilst the supermarket offers a huge variety of products, they would rather that you bought their own label rather than an alternative producer’s brand. Again, consider Branston pickle. They will certainly stock it on their shelves, but probably right alongside their own branded pickle. The differences between the two may be marginal. They will probably taste similar but the supermarket own brand will more

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than likely be cheaper. This does not mean that the profit margin is necessarily lower. The opposite is more likely because the purchase cost to the supermarket of the own brand is likely to be less than that of the original Branston pickle. Taking own-label brands one stage further Staying with the example of Branston pickle, consider this brand image a little further, linked with what you might assume is the name of the producer, ‘Crosse & Blackwell’. The Crosse & Blackwell brand image is also strong, linked to the market for other sauces. It is not, however, the name of the manufacturer. It might surprise you to learn that Branston pickle is actually made by Nestle, whose brand you may well instead link to chocolate. This example demonstrates the importance of a clear brand image. The ultimate manufacturer in this case does not matter. It is the Branston brand that is strong. If, however, a new brand of pickle were to be introduced by Nestle they could still rely on the brand image of Crosse & Blackwell. This further protects the competitive position of Nestle, despite the fact that their own brand image is probably linked by the consumer to entirely different products. Protecting your brand name Now that you understand the importance of a brand name you must also understand the need to protect that name. You will at all costs wish to stop others from using the same, or a similar name, that could be confused with your own. This is a highly specialised area. You must seek the advice of a suitably qualified lawyer on the action you will need to take to register your brand name.

DEVELOPING YOUR PRODUCT PORTFOLIO When considering your product portfolio you must remember that your ultimate marketing aim is to meet the demands of the consumer. In general terms consumers will be looking for the benefits that your products offer. This, however, is not your only consideration if you are to achieve competitive advantage. You must also be looking at the features that your products offer. Product features Every product should have a number of features or characteristics that make the product what it is. For example, all motor cars fulfil a

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basic function, moving the driver from one place to another. The features that differentiate one car from another could include: . . . .

leather seats state of the art entertainment equipment electric sunroof and windows alloy wheels.

All of these features will be linked to the additional benefits demanded by the consumer to choose your product as opposed to another. At one time all of the above features were probably only available as optional extras. In some cases they are now, however, seen as standard equipment. This demonstrates the need to keep abreast of the changing consumer market. Product benefits These are the most important to the consumer. Your product must be seen as offering a greater benefit than other products in the market. This is, of course, closely linked to your unique selling point that was covered in Chapter Two. Take, for example, the way in which toothpaste is differentiated, which was considered in Chapter Three. Different types of toothpaste are marketed to consumers with different benefits. They all, however, perform the same basic function. Using portfolio analysis tools In Chapter Four we looked at some of the marketing planning tools that you can use to assess where your products stand in the market. This will have given you the starting point for your product portfolio. Your product portfolio cannot, however, stand still. It will require constant updating to take into account the changes in the market. It is necessary for you to maintain a balance in your product portfolio with the right mix of products. Using the BCG matrix you should have categorised your products into four distinct areas within your overall product portfolio. You now need to evaluate the mix of products for your future marketing strategy. Star products As the name suggests, these are ideal products. They have achieved a high market share and are in a high growth market. They will, however, also be in a highly competitive market. It is likely that they

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will require substantial cash resources to maintain their position in the market. Bearing in mind the large market share, this expense should be offset by the income they produce. Even if this is not the case, they are worthy of investment in view of the market growth potential. If managed correctly these products should become the ‘Cash cows’ of the future. Effectively this means that you must maintain market share until no further growth in the market can be achieved. Cash cow products These products are the backbone of your business. They are likely to be market leaders in a market with little or no further growth potential. In terms of sales volume, taking into account the Pareto principle outlined in Chapter Three, they may well account for 80% of your total sales. Cash cows should not require any further capital investment because they are at the mature stage of their lifecycle. Accordingly, the funds that these products generate can be used to invest in other products, ideally ‘Stars’ but also potentially some of the ‘Question marks’. Question mark products These products could be the ‘Star’ and ‘Cash cow’ products of the future. By their very nature they may provide tremendous opportunity for growth. They have a low share in a market with a high growth rate. To achieve market growth, however, they will require substantial investment, which may reap a low reward in terms of cash generation. By the same token, with room for growth in the market, there may also be a number of new competitors who enter the market. If they have researched the market correctly they could enter with a product better than your own. This will mean that you could actually find your market share declining despite the investment that you have made. For this reason question mark products could be in a very volatile market, so very careful research needs to be undertaken if cash resources are not to be wasted. The potential is there but the risk needs to be balanced by the reward. Dog products Great care needs to be exercised when assessing the future for ‘Dog’ products. The most logical option would seem to be to remove the

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product from the portfolio entirely. They have a low share of a probably declining market and, therefore, they have little or no future. Before deciding on a strategy for ‘Dog’ products you need to establish their overall relationship with the market. It may be that this product established your initial brand name and reputation in the market. Therefore it could be very unwise to remove that product from the market. If it is a manufactured product it will probably share production and distribution facilities and the costs of production could be marginal. This would mean that despite a low market share it is still a profitable product.

USING THE PRODUCT LIFE CYCLE FOR PRODUCT DEVELOPMENT The product life cycle concept was introduced in Chapter Four. By combining this with the BCG matrix or the McKinsey/General Electric matrix you can formulate a strategy for product development. Ideally you will want to have a range of products within your portfolio, all of which are at different stages in the life cycle process. A product’s position within the life cycle is determined by a number of factors including: . . . . .

market growth rate potential for further market growth the number of competitors the spread of market share between competitors any barriers for entry into the market.

Only by considering all of the market factors can the position of the product be established within the life cycle. You must also remember that not all products will have the same life cycle profile. In addition, not all products will enter a decline phase. They may become ‘necessities’ and as such will always be required in one form or another. They may, however, require refinement in some way in order to stay ahead of other similar competitors. The main point to remember is that you must have a range of products with the mature profitable products producing cash for further product development. This means that you must be able to identify those products that in life cycle terms are at the mature stage, and in BCG matrix terms are ‘Cash cows’. Using the tools for

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marketing planning together will provide a stronger analysis on which to base your product development strategy. In terms of product development you have two basic choices: . proactive product development . reactive product development. Proactive product development This is a very risky option. You will be introducing brand new products and there is therefore a high risk of failure. Balancing that risk, however, is the high reward that could be achieved. If you are the first company to develop a new product and the market is receptive to you, you could quickly gain a high share of the new market. This would make it difficult for any other competitors to enter the market unless they had a better product. This, of course, could take them some time to produce. Reactive product development For obvious reasons this strategy carries a substantially reduced risk. You are letting others lead the way and subsequently take all the risk. Only when you can see that the new product is in demand will you attempt to effectively copy the competition. Having said that, you obviously need to ensure that you do not impinge on any patent or other legal protection that may have been registered. If you are fast enough, and can offer some extra innovation to the original product, you stand a good chance of being just as well placed in the market as the original introducer.

INTRODUCING NEW PRODUCTS New products can come from a variety of sources. They do not all need to be brand new to the market. In general terms, there are five ways in which you can introduce new products: . . . . .

new innovation updating replacement imitation re-launch.

With all of these options, the importance of adequate market

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research and analysis cannot be over-emphasised. You will need to satisfy yourself on a number of key questions during the whole process of introducing new products to the market: . Will the product fit in with long-term business and marketing objectives? . How will we test the concept? . Will consumers purchase it? . Can we afford the research and development? . Will we be able to sell at a profit? . How long will it take to recoup the initial investment? This is not meant to be an exhaustive list. It is, however, meant to give you some idea of the thought processes necessary for introducing new products. It does not really matter whether you are a manufacturer or a retailer. It may be more difficult for a manufacturer but, even as a retailer, you will want to be sure that you can actually sell a new product before you buy it yourself. That is, of course, unless you are lucky enough to be able to negotiate sale or return terms. The five options for introducing products New innovation These products are high risk, as outlined in the previous section. It is estimated that between 50% and 90% of new products introduced to the market will fail. With this in mind a new product will require a substantial research and development budget with the appropriate testing and screening. Having said that, it is not always large businesses that are responsible for introducing new innovative products. Take the computer software market as an example. Many small, one-person businesses have become very large businesses on the basis of one piece of new software that they have written. The Sage Group plc is a prime example. From a very modest start they are now probably the leading provider of accounting software in the UK. Updating This usually involves updating the style of an existing product. It may, or may not, also update the features and benefits of the product. In all cases, however, the product retains the existing brand name. A prime example is the motor vehicle market. The Ford

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Escort has been updated and re-styled on numerous occasions since it was originally launched. In the same way the Volkswagen Beetle has substantially changed since the first one rolled off the assembly line. Replacement Replacement products are perhaps similar to updated products although they do not retain the same brand name as the product they replace. The relevance of this is that with a new name the product carries a slightly greater risk when introduced to the market. Again, using the motor vehicle market as an example, consider those product names that have come and gone. The likes of Allegro, Maestro, Maxi, Marina all spring to mind. Imitation These are the reactive products referred to previously – the ‘me too’ syndrome. The ‘Wash and Go’ hair product originally developed by Vidal Sassoon which contained conditioner as well as shampoo is an example. It was an enormously successful new product from the outset. Needless to say other shampoo manufacturers soon followed suit with their own similar products. Re-launch Whilst not perhaps a new product, it is a product option especially where the original product has entirely, or very nearly, disappeared from the market. It may also be combined with updating where, perhaps, a change of image could have a beneficial effect on the product. An example is perhaps the Johnson’s baby product range. Johnson’s now effectively market products such as their baby shampoo as being suitable for ‘babies’ of all ages. As an example of an entirely new re-launch we can look to the children’s toy market. Who, for instance, would have predicted the re-emergence of the yo-yo after so many years?

KEY POINTS . Make sure you understand the market before attempting to target your products. . Brand image is important. Establish a clear brand for your products from the outset – seek specialist advice to register your brand names.

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. Use the BCG matrix to define your product portfolio – a mix of products is desirable to ensure ongoing success. . Keep your products under review using the life cycle analysis – ongoing product development is essential to keep pace with market changes. . Understand that new products can be achieved in a number of different ways quite apart from new innovation – even relaunching old products can achieve success.

7 Setting the Right Price The overriding factor to consider when setting a price is that your objective must be to make a profit. However, that does not necessarily mean that you must make a profit from the outset. Some pricing strategies could involve a low initial price purely to quickly gain market share. On the other hand, with a totally new and innovative product your initial strategy may be to charge as high a price as the market will stand. With this in mind you will appreciate that the price will vary to meet the changing demands of the market. It will also be affected by the supply and demand for the product within the market. The major factors affecting pricing decisions are: . . . .

customers costs competitors business objectives.

The first of these – customers – is of significant importance. Whilst you have to achieve a price that will gain an eventual profit, you also need a price that will entice consumers to make a purchase.

HOW IMPORTANT IS PRICE TO THE CONSUMER? To answer this question it is necessary to consider the factors that influence the consumer’s decision to make a purchase. These factors, known as ‘buyer behaviour’ are looked at later in this section. For the moment, you need to consider the fact that the actual purchaser is not always the same person who originally made the buying decision, nor are they necessarily the person who will actually use the product. There are four main groupings that can be used to outline the individuals involved in the purchasing process. They could be

77

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represented by up to four different people, or indeed be one and the same person. . Users – the person who will actually use the product. For example, the product may be a gift of some description purchased by someone else. . Deciders – the person who actually takes the decision to make a purchase but who does not necessarily buy the product themselves. . Buyers – the person who actually buys the product. They may not, however, have taken the decision to purchase or be the end user. . Influencers – people who may have some influence over the decision to purchase. Children are a prime example. This process can be illustrated by the following flowchart: Recognition of the actual need for the product

! Determination of the outline specification of the product

! Commencement of the search for the product

! Evaluation, when found, against the specification for the product

! Selection following confirmation of the specification of the product

! Purchase of the product

As an example of this process, consider the following scenario. A light bulb blows and you therefore need a replacement. You determine that the correct replacement will need to be rated at 60 watts. This entails a trip to your local hardware store and you search the store for light bulbs. Upon reaching the right section you look for the 60 watt bulbs and make an appropriate selection. There may

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be a number of different bulbs that would be suitable, and probably all at different prices. You take the bulb of your choice to the checkout and pay for it. All of the sections of the purchasing process have been completed. Buyer behaviour factors When considering pricing you need to be aware that consumers can often have some very strange ideas about what constitutes ‘the right price’. In some cases, all rational and logical thoughts appear to be totally ignored. In addition, the purchasing choice is influenced by perceived risk. In this context a higher price seems to reduce the risk factor because of greater perceived quality in the product. This does not, of course, mean that the most expensive product actually has greater quality in real terms. As examples of the deliberations used by consumers in the thought process relating to pricing consider the following: . A reduced price can mean that there is something wrong with the product and it is consequently faulty in some way. . If quality is established, a reduced price could mean a bargain. . A cut in price could be followed by further reductions and so the purchasing decision is delayed. . Numerous changes in price cause confusion. . The true price, especially for products purchased by way of necessity, may not be known by the consumer. . Small price reductions, from say £10.00 to £9.99 are perceived as offering better value. . Large discounts usually make the consumer think that the product could be obsolete in the market. As you can see, it is sometimes difficult to understand what goes on in the mind of the consumer. You could, for instance, enter the market with a cheaper comparative product than your competition but still fail to gain sales because, rightly or wrongly, your product is considered to be of inferior quality. This is where your market research is critical. You must understand what the consumer is prepared to pay and what they see as being of higher priority, reduced price or higher quality. In reality there will never be a right price for all consumers. But

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the influence that consumers have over price cannot be emphasised enough. You ignore the views of the consumer at your peril.

SELECTING THE RIGHT PRICE FOR YOUR PRODUCTS You will have already gathered that there are a number of important factors to be considered when setting the right price for your products. In reality, the price of your product will fall within a defined range. At one end will be the marginal cost of the product, the price below which you cannot afford to sell and still make a profit. At the other end the price will be the maximum that the market will stand. The major factors affecting price decisions were established in the introduction to this chapter. The first of these – consumers – has already been looked at and you now need to consider the remaining three: . costs . competitors . business objectives. Costs You obviously need to cover all costs and have a margin above that in order to make a profit. This will be closely related to the volume of products that you sell and the overhead costs of your business. In a high-volume market your margin can probably afford to be lower. In a low-volume market your margin will obviously need to be higher. Competitors Within your market research you will have established who your competitors are and the marketing strategies that they adopt in terms of pricing. When selecting your own pricing strategies you will need to consider how your competitors will react. This, in itself, could be defined by the overall market conditions and how strong your competitors are in that market. Business objectives The price of your products must reflect your overall business objectives. For example, if you wish to be seen to have a high quality product you will not attempt to undercut your competition with a

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lower price. It would be more appropriate to set a high price which, in the perception of the consumer, would indicate a high quality product. You also need to consider the implications of the Competition Act, which can impose strict penalties for overcharging or price fixing. Techniques for fixing a price There are a variety of techniques that can be used to fix the price of a product. They can be applied in most business situations whether you are a retailer, a manufacturer, or a service provider. Cost plus pricing As the term would suggest, a fixed percentage or amount is added to the basic cost of the product. This is a common technique in the retail trade where products are purchased from wholesalers. The percentage or sum added to the cost will depend on the market, the type of product and the industry in which the business operates. One of the problems of using this technique is that if it is applied too rigidly without taking into account other market considerations, it can make the business uncompetitive. Break-even pricing Often used in manufacturing businesses, the break-even point of a product is established. This will take into account all the factors of production including fixed and variable costs using different levels of production and sales. In a similar way to cost plus pricing, an element of profit is then added to the cost to produce a sale price. This technique also suffers from the same drawback as cost plus pricing. If the costs of production are abnormally high compared to other manufacturers in the market, the sale price could be uncompetitive. On the other hand, if production costs are more efficient it can lead to a competitive pricing advantage. Value perception pricing This technique is often used when a new innovative product is introduced to the market. Market research is used to obtain information from the potential consumer as to how much they would be prepared to pay for the product. The resultant data is then analysed to obtain a general range within which the product could be priced. The cost of production is then assessed in line with potential demand for the product to see whether it can be produced within the price range and with a viable profit element.

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Pricing at the going rate With some businesses where competition is intense there may be a price above which the consumer will go elsewhere. It is therefore common for prices to be set at a similar rate as that charged by other local competition. As examples, consider the cost of a pint of milk delivered to your doorstep or the charge for a photocopy of a document from your local shop. There will be little difference in the price of each of these even if you were to use competitors. Tender pricing There was a time when this form of pricing was really only seen in the construction industry. With the increasing emphasis being placed on out-sourcing it is being used more frequently. In simple terms, an invitation to tender for a contract is issued and it is then up to the business to decide a competitive price. Obviously it has many pitfalls and drawbacks. For example, you may not even know your potential competitors. It is of vital importance that if you tender for a contract you must know the market. You must also critically analyse your costs correctly to ensure that your tender will meet your profit objectives.

RELATING PRICE TO SALES AND PROFITS It was established at the start of this chapter that you must price to make a profit. It is therefore critical that you have completed sufficient research to accurately estimate demand and sales. As a recent example, consider the sales and visitor numbers for the Millennium Dome. The actual number of visitors was significantly lower than anticipated. As a result, large amounts of grant monies had to be made available to stave off receivership. It is all very well using the pricing techniques outlined above, but if your potential sales volume has been over-estimated you could quickly find yourself in trouble. To explore further the concept of pricing relating to sales and profits there are three basic methods that can be used. The economist method Economists would link the supply and demand for a product to achieve a price at which the supply curve and the demand curve meet. In graphical terms this would look something like this:

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Price Supply

Demand

X

A

B

Demand

Demand is represented by the line from the top left to the bottom right. This indicates that at a high price demand will be low and at a low price demand will be high. Supply is represented by the line from lower left to top right. Conversely this shows that at a low price supply is low and at a high price supply is also high. The price at which demand and supply are both satisfied is represented by the place at which the ideal price, point A, meets the ideal demand, point B, which is at point X. Depending on the profile of the supply and demand curves, this process can be used to establish what effect a change in price would have on the market. If, for example, the demand curve is relatively flat this would indicate that price changes have little effect on demand. On the other hand, steep demand curves can mean that price is a major factor and resistance to price rises can be expected. The economist method of pricing is very much a theoretical one, but it is important that you understand the principle. In simple terms, if you increase or over price your products, you can expect a decrease in sales volume. This may, however, have a marginal effect on your profits depending on whether the increased price and the increased profit on each sale match the fall in product sales volume. In theory the converse would obviously apply if you reduced the price. Sales will increase but profits may stay the same because of the increased sales volumes. At this stage you can see that, theoretically, price can be used as an effective marketing tool. This is explored in more detail in the final section of this chapter. The accountant method The accountant method concentrates on the cost plus pricing and

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break-even pricing techniques explored earlier in this chapter. This method is far more interested in obtaining the recovery of all costs and this can sometimes conflict with marketing strategies which use a balance of the marketing mix. For this reason a compromise solution for pricing needs to be established. Whilst there is the over-riding objective of making a profit, it is not necessarily in the business’s best interests to try and recover, for example, research and development cost within a short time-scale. If the product is likely to have a very long life it may be possible to recoup those costs over a long period. There is no doubt that the accountant method needs to be considered in depth. It should, however, be the over-riding position of the market that will have greater input into the price. For this reason financial targets in respect of price and profit can be agreed, but these must be capable of change to reflect the change in demand or competition that occurs in the market. The marketing method By now you should have realised that the marketing method of pricing uses a combination of all the factors in the marketing mix. In other words, the price will be set by the market conditions. The question of price is not viewed in isolation. The price that you set will depend on the objectives that you have. For example, if your objective is to gain market penetration quickly, you may initially price your products lower than the competition. In this way short-term profits will be sacrificed for long-term market share. To market your business successfully you must not make the mistake of simply trying to compete on price. Some businesses simply concentrate on what their competitors are doing rather than trying to match what the consumer actually wants. They forget that the consumer will also want to see value for money. If the existing products do not provide that perceived value then entering the market with merely a lower priced product is a recipe for disaster.

USING PRICE AS AN EFFECTIVE MARKETING TOOL Within the marketing mix, price can be used in a number of different ways to reflect your overall business objectives and in support of your promotion strategies.

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Linking price with promotion Promotional pricing techniques can be used to achieve short-term gain but with the overall intention of achieving long-term objectives. The advantages of introductory low pricing to achieve market share quickly have already been outlined. There are, however, other ways in which price can be used to tempt consumers. Consider the following examples: . Loss leaders – products that are priced in such a way that they entice the consumer into the shop, after which they may well buy other products at the same time. Supermarkets are a prime example, with a range of products being reduced on ‘special offer’ at any one time. . Discounts or sales – these are often used to dispose of excess stock. Just because the price is reduced does not mean that a profit is not still being made. In addition, the higher level of sales could generate more cash than would normally be the case. If working capital is being funded by borrowing, the lower level of debt could reduce interest charges. . Short-term interest free credit – this is often used to tempt the consumer to ‘buy now and pay later’. Provided the business can fund working capital for the interest free period this can be a major inducement, especially for larger ‘one off’ purchases, for example, a new home heating system. It is also possible that the price can be maintained at a high level, the consumer treating the ‘interest free’ offer as a discount. . Maintenance or other service guarantees – these can either be sold alongside the product or offered on a ‘free’ basis. Examples are household appliances such as washing machines where, apart from the manufacturers usual guarantee of perhaps 12 months, an extended warranty is offered. Motor vehicles are a further example. Servicing for the first year is usually included in the price, but this could be extended as a further inducement. Other ‘extras’, for example, free insurance, may be offered. Target market pricing Different prices can often be charged depending on the different market segments or consumer groups that are being targeted. . Market segment – if you have segmented your potential market on, for example, a nationwide basis, it is possible to charge

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different prices according to location. Consider the purchase price of a can of soft drink. The price is substantially different when purchased at a supermarket to the purchase price at, for example, an open air festival. . Consumer group – differential pricing, depending on the consumer, is a very common pricing structure. The provision of lower prices for students and pensioners is a standard system on the railways where discount cards are available. As a further example, most museums, cinemas and theatres offer a discount, which can sometimes be substantial, to both of these groups. Opportunist pricing Sometimes a product can be priced with no relationship to its true value. This could perhaps also be considered as exploitation of the circumstances. As an example, some years ago I was at an open air concert where against all the weather forecasts it started to rain quite heavily. One enterprising individual appeared selling black bin liners at £1 each to use as an impromptu ‘coat’. Needless to say he did quite well. Exploitation, yes, but was I happy to pay? Also yes, it saved me from a soaking. Added value pricing This involves a different price for products that increasingly offer further features and benefits. The retail clothes market is a prime example. A manufacturer may provide essentially the same garment within a range but with increasing quality. For example, an unlined pair of trousers, then a lined pair, then a pair with more pockets. As quality increases so will the price. This could persuade the consumer to spend slightly more than they may have originally intended. This will be in even greater evidence if the pricing differential between the garments is relatively small in relation to the perceived extra quality. Linked product pricing Where one product requires another product as a matter of course, the pricing of both constituent parts can be manipulated. In some cases one product, likely to be the product required in the long-term, could be priced at a substantial discount. The profit to be made will come from the sales of the product with the shortest life. Consider a ‘wet shave’ razor. It is not the handle that is the most expensive part. The manufacturer makes money on the sale of the razor blades which are, of course, the only ones to fit their own handle.

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Dual charging The most common example of this pricing strategy is in the rental industry. When hiring a car, for example, a basic charge per day is often made with a further charge depending on the mileage driven. The telecommunications industry is also another good example. A standard monthly or quarterly fee is charged for line rental. In addition, a further charge is made for each telephone call. This charge can also depend on the distance between the two telephones, which may be referred to as ‘local’, ‘national’ or ‘international’ rates.

KEY POINTS . Make sure you understand how the consumer perceives your product in the market before you consider pricing strategies. . Take into account the factors that are likely to influence buyer behaviour relative to your product when establishing a price. . Understand that a lower price is not necessarily an influence on the consumer – quality may be more important. . Always consider price in relation to the supply and demand within the market. . Price must relate to profit as part of your long-term business objectives. . Do not view price in isolation – use it as an effective tool within your overall marketing mix.

8 Using the Correct Forms of Promotion Many businesses make the mistake of only considering their advertising material as promotion. Promotion is more than this. It brings together the other components of the marketing mix to ensure that potential customers are converted into actual sales. Promotion is all about the way in which you communicate with your customers. In plain terms it is saying the right thing to the right people. This means that everything that you do, from your stationery and business cards through to the format and presentation of your advertisements, must convey the right message. The mix of communication strategies that you can use for promotion is virtually endless. The important part is selecting those that will provide you with the most return. Always remember that the most expensive option is not always the best option. Reputation and image also play a large part and these cannot be bought, they have to be earned.

THE IMPORTANCE OF PROMOTION Unless potential customers know about you and your products it will be difficult for you to make any sales. You may have the finest, most innovative product in the world, but unless you communicate how and where it can be bought, and at what price, nobody will even be aware of its existence. Promotion strategies, or perhaps to give them more direct meaning, communication strategies, are therefore vital to your business. In order to communicate successfully with your potential customers you need to understand: . . . . .

who they are what they are looking to purchase what makes them decide to buy a particular product how much they are prepared to pay where they expect to buy from. 88

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From this you can see the importance of getting your market research right. You must ensure that you actually understand what the consumers want to hear. This means that you must already have clear strategies for the first two elements of the marketing mix, product and price, before you can formulate your promotion strategies. Promotion objectives You must also have clear promotion objectives before you can begin to consider strategy. It is not sufficient to concentrate your promotion methods purely on sales objectives. The question of linking your objectives to your promotion strategy is important and is looked at later in this chapter. For the moment, you should understand the five essential components of promotion strategy: . . . .

Potential customers must be made aware of your existence. They need to know what products you are offering. They must be advised how your products will satisfy their needs. They must perceive your product as being the best to suit their needs. . They must then be persuaded actually to make a purchase. These components can be succinctly outlined by using Colley’s DAGMAR model, which stands for Defining Advertising Goals for Measured Advertising Results. The DAGMAR model is represented by the following flowchart highlighting the desired effect of promotion on the consumer. Unawareness

!

Awareness

!

Comprehension

!

Preference

!

Conviction

!

Action

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As with all forms of communication there are at least two interested parties, the sender of the message and the recipient. In order to make the communication meaningful you must consider four essential components: . . . .

who it is to be sent to what it will say how it will be sent the desired effect.

The first of these should have been covered in your market research where you identified your target market. The last one is, of course, the desire that potential customers will make a purchase. The middle two, however, require extensive thought. If you send the wrong message you could alienate your target audience. The message should also be sent by the most appropriate medium. There is little point, for example, in advertising your golf products in a gardening magazine. To understand the whole process of promotion you can use the AIDAS model: Attention

–

Interest

–

Desire

–

Action

–

Satisfaction –

you need initially to gain the attention of the potential customer. they must be sufficiently interested to seek further information. you must create the desire for them to want to purchase your product. the customer must know what to do to actually make a purchase. the ultimate aim to make customers come back.

One of the most important aspects of your promotion strategy will be the unique selling points that were looked at in Chapter Three. These will form part of your competitive advantage and, as such, should be clearly communicated in all of your promotional activities.

INTRODUCING THE MARKETING COMMUNICATION MIX From the outset you should understand that there is no perfect mix of promotion techniques that will be suitable for all businesses. The list of promotion techniques that could be used is virtually endless.

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What you do need to do is to use a number of different techniques and keep data to enable you to evaluate which are working and which are not. A good business will always keep pace with changes in communication techniques, trying out new or different techniques, and monitoring the effect on sales. Unless you know how you are gaining business, it is difficult to concentrate your efforts on those that are profitable and avoid those that are not. The marketing communication mix is comprised essentially of four different types of promotion techniques: . . . .

advertising public relations and publicity sales promotions personal selling.

In addition to the above, with the increasing use of the Internet for promotion and sales purposes, this adds a new dimension. If you are looking to keep pace with technological advancements it must be separately incorporated into your promotion techniques. Advertising Advertising in one form or another is probably the most common form of promotion for all businesses. It can be done in a number of different ways using a wide variety of mediums. These could include: . television or radio . posters . press. The final category, press advertisements, can be carried out in any number of publications, for example: . . . . . .

national newspapers local newspapers magazines trade publications trade and professional directories telephone directories.

Quite apart from all these forms of advertising, you must remember that everything about your business must be used to communicate

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with potential customers. As part of your communication mix relating to advertising you can also use: . standard styles and logos on all your business stationery . leaflets and brochures that conform to the standard style . appropriate sign-writing on all your vehicles. Whatever form your advertising takes you need to take great care with how you select the right medium. Advertising is not necessarily of significant use for all businesses. You will need to consider the potential market and the location of potential customers when looking at advertising. This is examined in greater detail a little later in this chapter. Public relations and publicity Many businesses totally ignore this important component of the communication mix. You have only to read the business pages of any newspaper to see the results of a successful public relations exercise. Always remember, the business editor starts out with a blank page. If you can provide newsworthy items to help them fill the page they will be very grateful. Do not underestimate the power of such free editorial coverage. In real terms it can do more for your business than a paid advertisement. It tells potential customers what you are doing and, more importantly, brings you to their attention. This does, of course, assume that the news is good and not bad! If you have any news that could be used to promote your business in the eyes of your potential consumers then always prepare a press release. Even if you only send it to a few select local newspapers, the only cost to you is your time in preparing the content. Some examples of items of news often welcomed by business editors include: . Creation of new jobs – it does not matter if it is only one, it is still providing an opportunity for someone to gain employment. . Staff retirements – if a key member is retiring after many years service it would be a good idea to let your customers know who has been appointed in their place. . Any award or recognition – for example, you may have gained an award for quality or been officially recognised by a trade body as meeting an ‘approved’ standard.

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. Capital investments – these will show your customers that you are keeping pace with change and investing in new equipment. This could also be linked with new job opportunities. . Receipt of grants – these could be linked with capital investment. It is also possible that you have received grants to train your staff. Again, you are indicating to the customer that you are investing for the future. . New contracts – the award of major new contracts by customers for the supply of goods, possibly protecting or creating new jobs. Make sure, however, that you have the permission of the customer to release the information to the press. Sales promotions Sales promotions come in a wide variety of forms, not all of which are directed at the consumer. In broad terms, sales promotion techniques can be categorised into three headings: . trade . consumer . internal. Trade If you are a manufacturer, you can offer incentives to wholesalers or retailers to sell your products. These could take the form of either financial or non-financial incentives. Financial incentives could include discounts or extended credit terms. Non-financial incentives may be the provision of free display materials. Consumer These are incentives directed at the consumer either at the point of sale or through advertisements. They could include ‘money off’ vouchers. Free samples of the product or demonstrations may also be made available. Internal Incentives of one form or another may be offered to your sales staff. These might include bonuses or other financial awards for meeting, or exceeding, sales targets. Great care is required with this form of inducement to ensure that it complies with current Inland Revenue guidelines. You will need to seek specialist advice on this aspect.

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Personal selling As the name would suggest, this is sales promotion direct to the consumer using personal contact. This can be either face to face or over the telephone. It can also be achieved utilising trade fairs or exhibitions, for example, the Ideal Homes Exhibition. Using the Internet Sales over the Internet are predicted to rise substantially over the coming years. This brings a new dimension to the concept of home shopping. Quite apart from this aspect there is no reason why your business cannot use computers to aid you in other areas of business planning. It is not necessary for you to spend vast sums of money on a website. Indeed, some of the most successful sites are very basic. If you design your website pages full of graphics that take a long time to download you are, in fact, more likely to put potential customers off. You cannot afford to ignore the opportunities that the Internet will bring for all businesses. It is a vital, and indeed separate, part of your marketing communication mix. For more information on developing a presence on the Internet please see the further reading section at the end of this book.

EVALUATING THE OPTIONS YOU HAVE FOR PROMOTION Evaluating promotion options is not an easy task. All of the many options have their own advantages and disadvantages. Some options will suit some businesses more than others. For example, a television advertising campaign is unlikely to even be considered by a small business. Of the four promotion techniques, advertising is by far the hardest to evaluate. For this reason we will concentrate on this one aspect of promotion. The evaluation techniques that you use are, however, just as valid for all the other tools for promotion. The principle factor that you need to consider when evaluating how and where to advertise is your potential customer: . Who are they? . Where are they? . How can they best be reached? At this stage you should have the answers to the first two questions. It is the last question that needs to be considered in some depth. In order to do that you are going to have to answer some pertinent questions.

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What exactly are you selling? Whether you advertise at all will depend on your product. Some products, especially those in large markets, will require extensive advertising campaigns if volume sales are to be achieved. Other products, which perhaps are sold in a highly specialised field, for example hospital equipment, are unlikely to be sold through advertising. It is more likely that other forms of promotion, such as participation in trade exhibitions, would be used. What are the market conditions? Market conditions will play a large part in your decision on whether to advertise or not. If all of your competitors advertise then it is likely that you will decide to do so as well. That does not necessarily mean that you will advertise in the same way or use the same publications. In some markets, advertising is unnecessary or even prohibited. The medical profession is a prime example of the latter. What are your marketing objectives? You need to be clear on whether advertising fits in with your objectives. You must be clear on what it is you hope to achieve. It all comes back to the message you want to send to your potential customer. Even if you are not advertising any particular product at this time, you may need to advertise just to maintain your brand image. Examples of this form of advertising include sponsorship deals. Motor racing is a prime example. Businesses with no connection to the sport pay substantial amounts of money for just a small advert on the racing car to keep their name in front of the consumer. Is the advertising going to be cost effective? This is the most important question. Advertising should only be undertaken when it is cost effective. As you will appreciate, it is also extremely difficult, at least initially, to make an assessment of how cost effective it will be. It is therefore crucial that you maintain appropriate statistics on those advertisements that have prompted customers to make a purchase. Examples of how this is done are given in the press every day. More often than not, if you respond to an advertisement you are asked to quote a reference. That reference will tell the business where you saw the advertisement. They can then identify where business is coming from, and more importantly, can also tell which of their advertisements are not generating sales.

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USING PROMOTION METHODS TO ACHIEVE OBJECTIVES So far in this chapter we have looked at the promotion options available to you and how to evaluate them. The time has now come to consider your promotion strategies. In order to do that you must have clear promotion objectives. These will, of course, follow on from the overall marketing objectives that were considered in Chapter Four. The number of promotion objectives that you have can be many and varied. Remember, however, the SMART criteria that we looked at earlier. The more precise your promotion objectives are the easier they will be to measure. This aspect is extremely important if you are to avoid wasting money on promotion techniques that do not achieve sales. You will also need to link your promotional activity to your product portfolio and life cycle analysis that was considered in Chapter Six. In addition, you may need to consider the pricing strategies that were looked at in Chapter Seven. All of these aspects can impact on your promotion objectives and will, in turn, affect the promotion techniques that you decide to employ. Examples of some promotion objectives you might decide on are: . . . . . . .

to introduce a new product to potential customers to introduce a new product to existing customers to highlight new features and benefits of an existing product to bring attention to discounts or special offers to increase awareness in the market of increased product quality to retain and build upon brand image to stimulate repeat business.

Promotion strategies Once you have clearly defined your promotion objectives you can start to put together your promotion strategies. If, for example, you were seeking to increase market share with new customers, you would not target existing customers as part of your strategy. On the other hand, if you have developed a new product that would probably be purchased by existing customers as well, your target audience will be both existing and new customers. The whole point is focus. The promotion strategies that you use must focus on the market and on the customer to whom you are trying to sell. You can see

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from this the importance of using the marketing mix to define your strategies. If you attempt to sell a product to the wrong customer, or in the wrong market, it will not matter how good your promotion techniques are, they will fall on deaf ears. It is also important that whatever promotion strategies you decide to use you also give them time to work. A classic case involves newspaper classified business advertisements. There is general agreement that these usually follow the same trend in the eyes of the consumer. This runs something like this: . . . .

first appearance– not even noticed third appearance – read for the first time seventh appearance – seen again but dismissed twelfth appearance – recognised as being seen before and could be worth investigating further . sixteenth appearance – customer thinks it could be worth buying . twentieth appearance – actually goes out and makes a purchase. Think about this carefully. It could be applied to all forms of promotion. If you promote your products sporadically this will not give the consumer faith in your product or brand image. Sometimes, as you will have already gathered, it is necessary to keep your brand image in the eyes of the public even when you have nothing new to tell them. Convey the right message to them often enough, however, and they will certainly remember you.

KEY POINTS . Promotion techniques are essential to communicate with potential consumers. . Make sure you know what you want to say, to whom, and how your message will be communicated. . Consider your communication mix carefully and match the methods you use to the consumers you want to reach. . Evaluate the success of your promotion methods by maintaining appropriate data on exactly what prompted consumers to make a purchase. . Set clear promotion objectives before you try to define your promotion strategies.

9 Being in the Right Place Place considerations do not relate solely to physical location. They also relate to how and when your products will be offered. In short, they are the distribution management techniques that you will use to solve three key issues: . being in the right place . at the right time . with the right amount of products. The distribution techniques that you use will depend on your type of business. Different considerations will apply depending on whether you are a service business, a retailer, a wholesaler, or a manufacturer. In all cases you will need to concentrate on the demands of the consumer and the characteristics of the market. As with all aspects of marketing you must not forget the importance of competitive advantage. New and innovative distribution techniques may enable you to reach markets and consumers that were previously unavailable. The increasing use of the Internet, for example, has opened up new opportunities for small businesses to enable them to compete with large multinational companies on a global basis.

THE LOGISTICS OF PLACE DECISIONS The importance to your business of physical location will depend on the type of business that you operate. For a retailer, for example, it may be extremely important to be in a location with a high volume of passing trade. On the other hand, a mobile car mechanic need have no physical location, apart from their vehicle. In this case, the question of location will only be relevant in terms of the geographical area in which they operate. To explore the importance of place decisions further let us consider the implications for the four main types of business. 98

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Retailers Having the right shop location is undoubtedly an important factor in this sector of business. That is, of course, providing you intend to operate on a face-to-face basis with your customers. As extreme examples take the following cases and decide which would achieve the most sales: . a book retailer in a popular shopping mall . a book retailer in an industrial unit on a trading estate. You have probably chosen the shop in the shopping mall. But are you right? Have you considered how they are distributing their books? The first shop is obviously dealing direct with the public on a face-to-face basis. That does not mean, however, that they are making more sales. What if the book shop on the trading estate only deals with the public through mail order? You can see from this example that the logistics of place decisions do not relate to just one aspect. There are a combination of factors which will depend on how you aim to deal with your customers. The Internet is, of course, substantially changing the way in which retailing can operate. In some cases it is no longer necessary actually to have a physical location for the customer to visit. This will be of greatest impact on the retailer. Even if you operate one small shop, you should have a presence on the Internet through which you can sell. More and more shopping will be undertaken from the home and you need to consider the Internet as part of your place decision. Wholesalers To a wholesaler the consideration of place will not be of prime importance. Provided they are within a reasonable distance from the retailing outlets, who will provide most of their business, and there is adequate car parking, physical location will not be a major factor. What will be important, however, will be the ease with which deliveries can be accepted from manufacturers. It would be blatantly unwise to establish a wholesaling business without adequate roads being in place to take the large delivery wagons. It will also be necessary to ensure that appropriate equipment, such as fork lift trucks, can operate effectively within the wholesale premises. All of these factors may not necessarily immediately come to mind but they will, in no small way, play a part in the success or otherwise of your business. You will also need to consider the

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physical layout of the interior. Your customers need to have easy access to all of your goods and, perhaps more importantly to them, easy means by which to transport them from your premises to their own vehicles. Manufacturers Physical location may or may not play a role in your consideration of place. It will to some extent depend on what you are manufacturing. It will also partly depend on the supply of components, if any, that you need to manufacture your finished product. As examples, consider the aircraft and railway industries. The aircraft manufacturer will require an extensive physical location complete with airport runway facilities. The railway carriage manufacturer will probably, at the very least, require easy access to railway lines to deliver the completed product. A manufacturer of a high technology product, for example computer chips, may be more concerned about the interior of their premises than their geographical location. It will be more important for them to have a ‘sterile’ interior so as to avoid product contamination. If you manufacture a product that relies on components from other manufacturers it may be fairly important that you have a close location to those suppliers. As an example the motor manufacturer Nissan decided to locate in north-east of England due to the proximity of good quality component manufacturers that were already established in the same area. This was, of course, quite apart from the local and central government incentives that were made available to them. Service businesses The question of physical location will be relatively unimportant to businesses in the service sector. Having said that, there are examples of service businesses where location can play a role. Consider Harley Street in London as an example. This is, of course, an internationally recognised location for the medical profession. In the same way the legal profession also seems to be always grouped together in the same location within a town. Whether this helps or hinders their individual practice is open to question. It is, of course, difficult to be seen as offering a competitive advantage in such circumstances. For most service businesses, the most important aspect of location will be the geographical area in which they operate.

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Returning to the example above of the mobile car mechanic who may decide only to operate within a strictly defined area. This could be for a number of reasons. It could be that there are no other local competitors. It could also be that the additional costs in terms of time and fuel would make longer journeys relatively unprofitable.

ESTABLISHING THE METHODS OF DISTRIBUTION Once again, the methods of distribution will depend upon the sector of business in which you operate. There may, in effect, be a number of tiers through which your products progress on their way to the consumer. As an example, consider the following flow diagram: Manufacturer £ Wholesaler £ Retailer £ Consumer The number of people who handle your products will depend on where you are sited within the chain. As an alternative, the chain for a service business will be direct, i.e. Service £ Consumer You also have to remember that the longer the chain, the more the price is going to increase. Each member of the link will require a profit and this will be reflected in the ongoing price. For this reason more and more manufacturers are also dealing direct with the public. Cutting out the ‘middle man’ is a good way of cutting the price to the consumer, but also retaining more of the profit. In the same way some wholesalers also trade directly with the public. In an increasingly competitive market every link in the distribution chain should be looking at new avenues in which to sell their products. There is, of course, a myriad of methods through which you can distribute your products. It is not my intention to explore in detail the advantages and disadvantages of each method. You need to establish for yourself whether they would be of value to your business. Some of those that you could consider include: . direct sales . mail order

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. telesales . door to door . Internet based. What you must do is consider all of your options. Do not necessarily discard methods that have not been used before either by yourself or your competitors. Innovative and new distribution strategies could increase your competitive advantage. When considering your distribution strategies you have three basic choices: . selective distribution . exclusive distribution . intensive distribution. Selective distribution With this method you would be highly selective about how you distributed your products. The way in which you sell your product could be defined by the perception of the consumer. For example, a consumer would not expect to purchase a computer system from a garage forecourt. Having said that, you need to be aware that perception barriers are slowly being eroded. It is, of course, now possible for computer systems to be purchased from places that would never have been considered even a few years ago – for example, stationery suppliers and even the large food supermarkets. Exclusive distribution Normally associated with products perceived to be of high or unique quality, exclusive distribution would limit availability of your products. This might seem a restrictive strategy but it is used to enhance the perception of exclusivity to the consumer. As an example, consider the perfume market. Up until recently the perceived top quality brands refused to allow their products to be sold through anything other than designated outlets. Once again, this strategy is being reconsidered to take account of the demands of the consumer. In addition, the Competition Act 1998 may have severe implications for this strategy. If you intend to adopt this method of distribution you need to take appropriate legal advice first. Intensive distribution As the name would suggest, this strategy has the aim of making your

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products as widely available as possible. The number of outlets used will be substantial but this will only work where there is also intensive demand. Remember the rules of supply and demand that were looked at earlier. Examples of such products are light refreshments including chocolate, potato crisps and soft drinks. These can be purchased from any number of outlets on a nationwide basis.

DESIGNING THE RIGHT DISTRIBUTION SYSTEM There are a number of factors that you need to consider when designing your distribution system. For the time being we will concentrate on the distribution of your products to the consumer. The other side of the coin, the supply of products or raw materials to you, will be considered in the next section. The key to a successful distribution system is co-ordination. We have already looked at the links in the distribution process and these all need to be successfully managed. It does not matter where you are in the process, you still need to ensure that your products are available in the right place to enable them to be purchased. Relating to distribution, your customers will want to be sure of a number of factors, most of which can be covered under three headings: . reliability . suitability . functionality. Reliability Your customers will want to be sure that you can be relied on to deliver the right products at the right time. Advertising products that are out of stock or delivered late will not help your marketing image. If you give a set delivery date then you must be able to actually deliver on that date or you run the risk of alienating your customer. A product that is out of stock is a missed opportunity. Not only for that one product but potentially for the future. If a customer finds that you cannot supply them they will go to someone else that can. This could mean, if the customer is suitably impressed with the competitor, that they will use the competitor in preference to you in the future.

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Suitability Having delivered or sold your product to the customer they will need to be sure that it is suitable for its intended purpose. It is therefore vitally important that your products are packaged in such a way that they will not be damaged in the distribution process. Whilst this may mainly apply to a manufacturer, it is also an important consideration for wholesalers and retailers. Regardless of what business you are in, you also need to make sure that adequate quality control checks are in place. If, for example, you manufacture television sets, the consumer will expect the set to work as soon as it is plugged in at home. If it does not work the consumer will complain initially to the supplier but the fault may not be theirs. It could merely be that your protective packaging is at fault. In an extreme case this could cause the supplier to use another manufacturer. Functionality In many ways this heading will link in with the previous heading, suitability. This does, however, take the concerns of the consumer one stage further. Having bought the product and found that it is suitable, the consumer will also be concerned about what happens if it fails to function in the future. If the product breaks down through no fault of the consumer, quite apart from their statutory rights, they will expect the product to be replaced or repaired. This may or may not be covered by any service guarantees that you offer. You therefore need to have a defined process that the consumer can follow to return goods to you. Even if such a process is rarely used, it will show the consumer that you do still care about them even after they have bought your products. It will offer them reassurance which could enhance your competitive advantage.

MANAGING THE SUPPLY CHAIN EFFECTIVELY Your customers expect your products to be in the right place at the right time and in sufficient quantity. As a customer now yourself you also have the same expectation from your suppliers. It is not the reputation of your supplier that will be tarnished if you are unable to provide your customer with a product. It will be your reputation that suffers. This aspect is often overlooked in the subject of marketing. It is,

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however, vitally important. For some goods there is an acceptance by the consumer that they may have to wait for final delivery. Mail order methods of distribution are a prime example. Another example would be goods that are specially ordered, such as a tailor-made suit. In both cases co-ordination will again play an important part. Many mail order businesses carry little or no stocks of the products they offer. They rely on specialist distribution suppliers or warehouses. Quite simply, it is often the case that they cannot afford to carry sufficient stocks with the inevitable costs that are involved. For this reason you will often see the following, or something similar, on their order forms: ‘Please allow 28 days for delivery’. Under these circumstances it is obviously important that your supplier is able actually to supply the product either to you, or direct to the consumer. If the consumer has ordered goods from you they have accepted the defined delay in delivery. If, however, this accepted delay is exceeded, once again your reputation could be tarnished as being unreliable. This is despite the fact that it is your supplier who has caused the problem. Taking this one stage further it can have a more severe impact for a manufacturing business. If you require components from other manufacturers or suppliers, any delay in receipt could interrupt your own manufacturing process. This, in turn, could lead to delays in production and, of course, delivery to your customers. More importantly, in terms of costs, it could mean that your machines lie quiet and your employees are idle. You may be struggling to consider how this affects your marketing. It would, after all, be solved by holding greater stocks of the relevant components to cover any delivery delays. Think, however, of the commercial impact that holding greater stock would mean. At the very least, the increased stock would tie up working capital that could be used more effectively elsewhere. In the extreme, it could mean larger premises to accommodate the increased stock holding. All of these factors will have an impact on at least one of the other elements of the marketing mix, price. Effectively this means that through the tardiness of your supplier you have incurred increased costs that you then need to reflect in your prices. This could also mean that you are now rendered uncompetitive, all through something over which you have no control. As part of your distribution strategy you therefore need to consider the question of appropriate suppliers for your business.

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Unless you only have one source of supply you need to have details of alternative suppliers that could be used at short notice. Better still would be to use a number of suppliers at any one time. This may impact on the volume discounts that may be made available to you but, if the quality is the same, this could be a small price to pay for reliability. Increasingly use is being made of a distribution technique that was pioneered in Japan, the ‘just in time’ or JIT technique. Just in time distribution technique As the name would suggest, products are supplied ‘just in time’ to be used and the need for stock is minimised. Originally used primarily in the manufacturing sector it is also relevant to all other types of business. The one thing that is essential in this technique is that you have confidence in your supplier. If you are a manufacturer, supplies of components would be available at short notice or ‘just in time’ to be used in the manufacturing process. The same would apply if you are a wholesaler or retailer, products would be supplied just before they are needed for sale. In theoretical terms, as a retailer for example, this would mean that you need only carry sufficient stocks to fill your shelves. As sales were made these would be totalled up and orders placed for further supplies at the end of each day. The replacement products could then be delivered early the next day to be stocked on the shelves ready for sale. In reality, however, you would still need to plan for contingencies, such as the breakdown of the delivery van. But it would still mean that your volume of stocks could be reduced. Rather than holding a supply of products that represent sales for one week, you may be able to reduce that down to two or three days’ worth of stock.

KEY POINTS . Being in the right place does not just revolve around where you are – it also relates to the distribution management techniques that you will use. . Consider the number of tiers that your products will pass through on the way to the consumer – remember the price increases with the number of people in the chain.

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. Do not ignore the possibility of direct sales, whatever business you operate – cut out the ‘middle man’ and you could increase profitability. . The Internet will play an increasing role in distribution techniques – make sure you use the latest technology to exploit your opportunities. . When designing your distribution system remember the key factors – reliability, suitability and functionality. . Ensure you keep control of your supply chain – do not allow your suppliers to be inefficient.

10 Pulling it all Together You are now approaching the final stages of the marketing process, but there are still a few important tasks to undertake. Primarily, having done all your research and decided on appropriate marketing strategies, you need to set a suitable marketing budget. You then need to put all of this information into a coherent marketing plan. This will enable you to compare your actual performance against target. In the light of this information you can then adjust your strategies to either correct your performance or take advantage of any new opportunities. Remember, marketing does not stand still. You need to be constantly ahead of your competitors if you are to retain your competitive advantage.

ESTABLISHING YOUR MARKETING BUDGET Very often, too little emphasis is placed on having an appropriate budget for marketing. This could be a fatal mistake for you to make. You have spent a great deal of time researching and analysing the market. Why waste that time now by providing insufficient funding to undertake that marketing? Marketing is a key factor for the success of your business and it is important that you recognise this fact. Sometimes the importance of marketing is underestimated because it is difficult to undertake a cost-benefit analysis of the marketing strategies that have been used. For example, how can large businesses cost out the benefits of sponsorship deals? The simple answer is that they can’t. The whole commercial aspect of sponsorship deals is to constantly keep the brand or business name in front of potential consumers. Some businesses also make the mistake of only providing a budget for one element of the marketing mix, i.e. promotion. You must remember that the whole concept of marketing relates to

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everything that you do in business. This means the entire way in which your products are presented, for example, the design of the exterior packaging aiming to catch the eye of the consumer. It is extremely difficult to set out guidelines for the amount of funding that should be allocated to marketing. It will in all cases depend on the size and nature of your business. There are three factors that you should consider when setting the budget. Is it sufficient? The amount must be sufficient to meet the promotion strategies that you have chosen. If, for example, you have chosen to mount a specific advertising campaign over a defined period you must allocate sufficient funds for that purpose. Is it reasonable? The amount allocated must be reasonable in terms of the overall business costs. For example, setting a marketing budget that amounts to 50% of your overall costs is probably unreasonable. On the other hand, a budget that amounts to 10% of total costs could be considered reasonable. Only you can decide whether the amount allocated is appropriate. Is it flexible? Setting a defined amount without some form of flexibility could place a number of constraints on your business. The whole process of marketing needs to be flexible to take account of changes in the market. On this basis, your budget also needs to be relatively flexible. You must have the ability to exploit new opportunities as they become available. Achieving value for money Once you have allocated your marketing budget it is important that you monitor the success or otherwise of the promotion techniques that you are using. You must achieve value for money. If, for example, you place a number of advertisements in different publications, you must obtain feedback from your customers as to where they saw the advertisement. This will enable you to measure the response rate from each advertisement and target your marketing at those publications that are providing the better rate of response. Over a period of time you will then be able to build up an analysis of the varying rate of response for all of your promotion techniques.

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Whilst some, for example sponsorship, are difficult to evaluate, others, such as discount coupons, are relatively simple. You simply monitor the coupons returned and make an analysis of where they were originally made available. All of this information will form part of your ongoing marketing audit, which is looked at a little later in this chapter. The essential point is to ensure that you are making the best use of your financial and other resources in your marketing.

WRITING YOUR MARKETING PLAN Your actual written marketing plan will bring together all of your research and the marketing audit, and will provide clear marketing objectives and establish the marketing strategies that you will use. In simple terms it will give the answers to three key questions: . Where are we now? . Where do we want to be? . How are we going to get there? In many ways your marketing plan will be similar in style to your overall business plan, although the information within the marketing plan will be more in-depth. Unlike your business plan, which is probably written for external use, for example to raise finance, your marketing plan will only be used as an internal tool within your business. Your marketing plan will contain a great deal of sensitive information on your evaluation of your own business. It will also contain the distinctive competitive advantages and the strategies that you are going to use to compete in the market. For this reason, you will not wish this information to be widely available, particularly to your competitors. The contents of a good marketing plan A good marketing plan will take all the elements of your audit, rationalise your marketing and business objectives, and then provide a clear outline of the marketing strategies that you propose to use. In addition, if you have a number of different products it may be necessary to segment them and write a marketing plan for each segment. In the same way, if you operate in a number of different market sectors, you may need to write a marketing plan for each

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segment if your products and markets are wide and diverse. The actual content of your marketing plan will vary depending on your individual circumstances. It must, however, be extremely comprehensive, but at the same time easy to understand. Writing the marketing plan is best delegated to one individual who can collate all of the information. This may be you as the entrepreneur or it may be your marketing specialist. That is not to say that a variety of people cannot be involved in the process. The view of others, especially when completing the marketing audit, will widen your research. You must have as broad an understanding of the market as possible. If your business is to succeed you must have a real understanding of the market. Only then can you attempt to establish your marketing objectives and formulate your strategy. The key word here is ‘you’. It is your business and even if you have delegated responsibility for writing the marketing plan, you must understand the marketing environment. In many ways, having complete responsibility personally for writing the marketing plan will make it easier to review. You can take the ongoing feedback from your sales team and customers and adapt your strategies to cope with changes in the market. It will also place you in a better position to take advantage of new opportunities in the market. This faster rate of response could enhance your competitive advantage. Structuring the content The structure of your marketing plan must concentrate throughout on the key components of marketing – customers primarily, and then the marketing mix: products, price, promotion and place. The plan can be organised under the following suggested headings: . An outline of your business objectives and your mission statement, which set out the goals and targets for your business as a whole. . The marketing audit giving details of the structure of the market, the trends within the market and details of market segmentation for all of the key components of the marketing mix. . Marketing objectives covering the components of the marketing mix together with details of your unique selling points and competitive advantage.

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. Marketing strategies that will define your critical success factors and give details of your strategy for the components of the marketing mix. . Resources that will be required to implement the marketing plan both in terms of cash funding and staff. Communicating the contents When you have written the marketing plan, the contents, especially the strategies, need to be communicated to your staff. You may not want them to see the more sensitive information but they certainly need to know what you expect from them. You also need to gain their support. If they are committed to your marketing plan you stand a greater chance of success. Make sure that they are aware that you would welcome feedback. Consumer feedback is also vital. Only by having feedback can you adapt as the market changes.

REVIEWING YOUR PERFORMANCE Once you have completed your written marketing plan, that is not the end of the marketing process. You must treat marketing as a process along the lines of an ever spinning wheel, you can never reach the end. The very moment that you finish researching and writing your marketing plan, it will be out of date. Any unique selling point and competitive advantage that you have could well be lost as a result of a change in the market. You cannot afford to allow this to happen to you. You can only stay ahead of the competition by constantly reviewing the demands of the consumer and the market. This is covered in more detail later in this chapter. Constant review of business performance is essential. Constant review of your marketing plan is critical. If you lose your customers through changes in the market you may well lose your business. Undertaking the review You must put in place a comprehensive process to review all of the elements of your marketing plan. This must cover all of the essential elements of the marketing audit which of necessity will also cover all of your marketing objectives. The SWOT and PESTE analyses must be updated on a regular basis to take account of changes in the market, thus providing you with new opportunities. Remember too that there may well be new threats that you will need to address.

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Redefining your critical success factors A review of your critical success factors will be vital. As the market changes, so will these and you need to use them to help formulate any changes in strategy. Something that was critical to your success yesterday may not be as relevant today. You should also consider whether the original weightings that you gave to your critical success factors are still appropriate. Do not forget to review the scores of your competitors. They will also change as they attempt to undermine your competitive advantage. Product life-cycle and the marketing mix You should also concentrate on the essential components of the marketing mix, not only on an individual basis, but to also ensure that the balance within the mix remains the optimum for your business. In Chapter Four we looked at the product life cycle process and how it is important that you identify changes in consumer demand for your products. Unless you keep abreast with what your customers are demanding from the market you will lose the essential component of marketing. That is the provision of a product that customers either want or need, or both. The occurrence of changes in demand should not come as a surprise to you, as you should be looking for signs well in advance of them actually occurring. Reviewing promotion techniques As highlighted previously, in order to achieve optimum value for money you should also maintain data on which form of promotion technique is bringing you customers. You should also be reviewing your overall promotion strategy. Do not forget that all forms of communication are important. Remember, this combines all of the ways in which you communicate with your customers. You cannot afford to rely on your previous methods of promotion. You need to be monitoring the whole process of communicating with your customers. You must ensure that the right message is being conveyed by all available communication methods at the most opportune time. Remember, tell them what they want to hear and when they want to hear it.

STAYING AHEAD OF THE COMPETITION Maintaining your unique selling point and competitive advantage

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through ongoing market intelligence and competitor information is vital. Up-to-date information about your market will keep you aware of changes or developments that could affect your business. This information may also indicate trends in consumer demand that you can exploit. It could also potentially help you to identify economic trends in the market that could affect the buying habits of your customers. Using market intelligence Market intelligence will enable you to update your sales forecasts on a regular basis and this will also assist you when reviewing your overall strategy. It is also critical that you keep track of your competitors. On an on-going basis you need to find out what they are doing, what they are charging and any new products they have launched which could compete with yours. Even if you consider that your product is the best in the market there will always be a competitor who will try to compete with you on a different factor of the marketing mix. If you employ sales staff, ensure that they obtain feedback from your customers. It is highly likely that your customers will also be looking at the activities of your competitors and it may be that they can provide you with ‘inside’ information. For example, it is not unknown for a competitor to approach a customer of a rival firm and offer some form of inducement such as a discount or better credit terms in order to gain their business. Unless you have information on this sort of activity at an early stage you could well find your customer base declining. Retaining competitive advantage Competitive advantage is everything in business. You must retain a unique selling point that will consistently bring you new customers as well as repeat business. The only way you can do this is to continually research the market in order to establish exactly what is happening. Information is power and unless you have that power you may miss out on new opportunities available to you in the market. Even worse, you could succumb to new threats in the market that could destroy your business. You must take all necessary action to ensure that you stay ahead of the competition.

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STARTING THE PROCESS AGAIN To finish off this chapter, and indeed this book, let me give you a final piece of advice. Do not just put this book on the shelf after you have read it. Read it again and again and more importantly use it to restart the marketing process. It cannot be stressed strongly enough that marketing is something that you must do in every aspect of your business. There are many tools that you can use in the process but nothing is fixed. There are no golden rules for success. Every business is different and something that works for one may fail miserably for another. Moreover, something that works once may not work a second time. For this very reason you need to constantly revisit every single aspect of your business. If you run a successful and prosperous business you will expand. As you expand, different factors of marketing will come into play. If, for example, you start as a sole trader you may find that you need someone to look after the office and answer the telephone. If you employ someone with an abrupt telephone manner your entire marketing effort can be destroyed at a stroke. The customer is no longer dealing with you direct. There is a new barrier between them and you. If they do not like dealing with that barrier they will more than likely stop dealing with you. Avoid complacency at all cost There will never be a time when you can afford to do nothing with your marketing. There will always be something that you can do better or more efficiently. If you do not do it, someone else will step in and fill the gap. It does not matter what size of business you run. You only need compare the stock exchange listings from ten years ago with those of today to find a lot of missing names, some of them even household names at the time. Failure in business can happen to anyone and whilst many would blame lack of resources there can only be one true reason. They were not providing what the customer wanted, at the right price and at the right time. In essence, their marketing failed. Keeping pace with change The pace of change in recent years has been fuelled by a technological revolution. For example, it is now quite simple to produce your own leaflets using a personal computer. It is no longer necessary always to use the services of a professional printer. Despite this, many businesses do not see the advantage of

116 Make Marketing Work for You

investing in technology. This is a fundamental mistake. In many cases, free training is available and this can only assist you in running your business. As an example of how this could help your marketing efforts, you could place all of your customers in a database. With very little effort a computerised mail shot can be produced in minutes. How long would this take you using a manual system? Remember the whole key to successful marketing You should always be looking for improvements in the way you do business. Fundamentally that means your marketing. Remember the key ingredients outlined at the start of this book: . . . .

selling the right products at the right price in the right place at the right time.

Satisfy these conditions and your marketing will succeed. Good luck.

KEY POINTS . Establish a clear and distinct marketing budget – make sure that it is sufficient, reasonable and flexible. . Ensure that you make the best use of your resources – always try to achieve value for money. . When writing your marketing plan remember it must answer three key questions – where are we now, where do we want to be, how are we going to get there? . Marketing is a never-ending process – you must review your performance if you are to retain your competitive advantage. . Keep track of what your competitors are doing – don’t allow them to creep up on you and steal your market. . Always remember the fundamentals of marketing – concentrate on fulfilling the desires of the consumer in the market.

Useful Addresses Advertising Association, Abford House, 15 Wilton Road, London SW1V 1NJ. Tel: (020) 7828 2771. Fax: (020) 7931 0376. Website: http://www.adassoc.org.uk Advertising Standards Authority, 2 Torrington Place, London WC1E 7HW. Tel: (020) 7580 5555. Fax: (020) 7631 3051. Website: http://www.asa.org.uk British Chambers of Commerce, Manning House, 22 Carlisle Place, London SW1P 1JA. Tel: (020) 7565 2000. Fax: (020) 7565 2049. British Library Business Information Research Service, 25 Southampton Buildings, London WC2A 1AW. Tel: (020) 7412 7457. Fax: (020) 7412 7453. Business Link Signpost line: (0345) 567 765. The Chartered Insitute of Marketing, Moor Hall, Cookham, Maidenhead, Berkshire SL6 9QH. Tel: (01628) 427 500. Fax: (01628) 427 349. Email: [email protected] Website: http://www.cim.co.uk Direct Marketing Association, (Fax Preference Services – FPS), (Telephone Preference Services – TPS), Haymarket House, 1 Oxendon Street, London SW1Y 4EE. Tel: (020) 7321 2525. Fax: (020) 7321 0191. Email: [email protected] Website: http://www.dma.org.uk Export Market Information Centre, Kingsgate House, 66–74 Victoria Street, London SW1E 6SW. Tel: (020) 7215 5444. Fax: (020) 7215 4231. Website: www.dti.gov.uk/ots/emic Email: [email protected] Government Information Service. Website: http://www.open.gov.uk Jordans Market Surveys, 21 St. Thomas Street, Bristol, Avon BS1 6JS. Tel: (0117) 923 0600. Fax: (0117) 923 0063. Key Note Reports, ICC Publications Ltd, Field House, 72 Oldfield Road, Hampton, Middlesex TW12 2HQ. Tel: (020) 8481 8750. Fax: (020) 8783 0049. Website: www.keynote.co.uk London Business School Information Service, Sussex Place, Regents Park, London NW1 4SA. Tel: (020) 7723 3404. Fax: (020) 7706 1897. 117

118 Make Marketing Work for You

Mailing Preference Service, 5 Reef House, Plantation Wharf, London SW13 3UF. Tel: (020) 7738 1625. Market Assessment Publications Ltd, 5th Floor, 110 Strand, London WC2R 0AA. Tel: (020) 7836 5111. Fax: (020) 7836 5222. Market Research Society, 15 Northburgh Street, London EC1V 0AH. Tel: (020) 7490 4911. Fax: (020) 7490 0608. Email: [email protected] Website: http://www.marketresearch.org.uk Mintel International Group Ltd, 18–19 Long Lane, London EC1A 9HE. Tel: (020) 7606 6000. Fax: (020) 7606 5932. Email: [email protected] Website: http://www.mintel.co.uk Office for National Statistics, Government Buildings, Cardiff Road, Newport, Gwent NP9 1XG. Tel: (01633) 812 973. Fax: (01633) 812 599. Email: [email protected] (Economic and Business statistics). Office for National Statistics, 1 Drummond Gate, London SW1V 2QQ. Tel: (020) 7533 6260. Fax: (020) 7533 6261. Email: [email protected] (Population, Health and Social Statistics). Online Source of UK Official Statistics and Data. Website: http:www.statsbase.gov.uk Phil Stone, Author and Management Consultant, Parkstone Management Consultancy, 9 Parkstone Close, Hastings Hill, Sunderland, Tyne and Wear SR4 9PA. Email: [email protected] Website: http://www.pkstone.demon.co.uk

Further Reading Competitive Advantage – creating and sustaining superior performance, M. E. Porter (Free Press). Competitive Strategy – techniques for analysing industries and competitors, M. E. Porter (Free Press). Develop a Winning Marketing Plan, P. Stone (How To Books Essentials series). Getting More Business, S. Sheridan (How To Books). Marketing Plans – how to prepare them, how to use them, M.H.B. McDonald (Butterworth-Heinemann).

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Index

achieving value for money, 109 ACORN segmentation, 36 advertising, 91 cost effective, 95 AIDAS, 62, 90 Ansoff matrix, 50 benefit and lifestyle segmentation, 37 Boston Consulting Group matrix, 46 brand name, protecting, 69 business objectives, 80 business strategy, 16 buyer behaviour factors, 79 cash cow products, 46, 71 communication mix, 90 communication components, 89 strategies, 88 competition, 21, 80 competitive advantage, 21, 114 consumer incentives, 93 critical success factors, 28, 113 customer segmentation, 34 DAGMAR, 89 deciders, 78 demographic segmentation, 35 discounts, 85 distribution

exclusive, 102 functionality, 104 intensive, 102 management, 98 methods, 101 reliability, 103 selective, 102 suitability, 104 system, 103 diversification, 51, 67 dog products, 46, 71 dual charging, 87 economic forces, 26 environmental forces, 27 exclusive distribution, 102 external information, 38 features and benefits, 58, 69 fixed costs, 60 General Electric matrix, 48 geographical segmentation, 35 government statistics, 39 imitation products, 75 incentives, 85, 93 influencers, 78 intensive distribution, 102 internal information, 37 Internet, 94

121

122 Make Marketing Work for You

just in time technique, 106 loss leaders, 85 management information system, 39 manufacturers, 100 market extension, 51 intelligence, 114 intelligence reports, 39 penetration, 51 position, 14 segmentation, 34 marketing budget, 108 communication mix, 90 definition, 13 mix, 54 objectives, 15, 52 planning tools, 42 marketing plan contents, 110 framework, 17 McKinsey matrix, 48 mission statement, 18 occupation segmentation, 35 opportunities, 24 own-label brands, 68 Pareto principle, 33 people, 55 personal selling, 94 PESTE analysis, 25 place logistics, 98 political forces, 25 portfolio analysis, 70 price, 77 accountant method of pricing, 83

alternatives, 59 and products, 80 as a marketing tool, 84 added value pricing, 86 break-even pricing, 81 cost plus pricing, 81 economist method of pricing, 82 fixing, 81 going rate pricing, 82 linked product pricing, 86 loss lead pricing, 85 marketing method pricing, 84 opportunist pricing, 86 relating to sales and profits, 82 target market pricing, 85 tender pricing, 82 value perception pricing, 81 primary information, 38 process, 57 product orientation marketing, 11 products, 65 benefits, 70 cash cow, 46, 71 defining, 57 development, 51 dog, 46, 71 features and benefits, 58, 69 imitation, 75 innovation, 74 life cycle, 42, 72 management, 68 marketing mix, 113 new, 73 portfolio, 69 proactive development, 73 question mark, 46, 71 reactive development, 73 re-launching, 75

Index 123

replacement, 75 segmentation, 36 star, 46, 70 updating, 74 promotion, 88 evaluating methods, 61, 94 linking with price, 85 objectives, 89, 96 options, 94 reviewing, 113 sales, 93 strategies, 96 protecting your brand name, 69 public relations and publicity, 92

demographic, 35 geographic, 35 market, 34 occupation and social class, 35 product, 36 selective distribution, 102 service businesses, 100 SMART, 15 social class segmentation, 35 social forces, 26 star products, 46, 70 strengths, 24 supply chain managing, 104 SWOT analysis, 24

question mark products, 46, 71 research and analysis, 37 retailers, 99 reviewing performance, 112 sales orientation marketing, 12 sales promotions, 93 secondary information, 38 segmentation ACORN, 36 benefit and lifestyle, 37 customers, 32

technological forces, 26 threats, 24 trade directories, 39 trade incentives, 93 unique selling point, 27 users, 78 variable costs, 60 weaknesses, 24 wholesalers, 99

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